HOG sees impact from higher interest rates as revenues decline 14% YoY
Harley-Davidson Inc. (HOG) reported its Q4 2023 earnings, beating analysts' estimates by a significant margin. The company is seeing benefits from its cost cutting initiatives, a common theme for companies this earnings season. However, revenues continued to decline as the tighter lending conditions and higher interest rates take its toll.
Shares of HOG rallied higher initially, touching the $36.50 level in early trade. However, it is giving up those gains as we head further into today"s session. The stock has significant support at the $33-34 area as this houses the 20-, 50-, and 200-day moving average convergence.
The company's earnings per share (EPS) came in at $0.18, surpassing the consensus of $0.03 by $0.15. Revenues for the quarter fell 13.8% year-over-year to $791.65 million, falling short of the $875.29 million Street expectations. This decline in revenues was primarily attributed to a 14% drop in sales at HDMC, the company's motorcycle division.
The company's financial services division, HDFS, reported a 15% increase in revenues, partially offsetting the decline in HDMC sales. Despite the revenue decline, the company's LiveWire electric motorcycle segment sold 514 electric motorcycles, indicating growing interest in the company's electric offerings.
The company issued upside guidance for FY24, with projected revenues ranging from -9% to flat year-over-year or $5.311 billion to $5.836 billion, compared to the consensus of $4.9 billion. The company's operating income decreased by 10% in the fourth quarter of 2023, down to $14 million from $16 million in the same period in the previous year. This decline was primarily due to a $44 million operating loss at HDMC, a 10% decline in operating income at HDFS, and a $35 million operating loss in the LiveWire segment.
The company's global motorcycle shipments decreased by 13% in the fourth quarter of 2023, primarily due to prudent dealer inventory management and market conditions.
Revenue from HDMC fell by 14% due to lower volumes, partially offset by improved mix and lower raw material costs.
The company's parts & accessories and apparel revenue declined by 14% and 21%, respectively, due to high dealer inventory levels resulting in lower replenishment.
The company's gross margin decreased by 3.6 points in the fourth quarter of 2023, primarily due to lower volume, higher sales incentives, and other manufacturing costs, which more than offset the benefits of shipment mix and lower raw material costs. The operating margin decreased by 2.1 points due to the same factors, with operating expenses lower in the quarter due in part to LiveWire transaction costs in the prior year's period.
Harley-Davidson's global retail sales of motorcycles declined by 11% in the fourth quarter of 2023 compared to the prior year. The decline in North America was primarily due to the high-interest rate environment and the discontinuation of legacy Sportster in the region. EMEA sales declined by 22%, driven by weakness in the France and German markets. APAC sales declined by 10%, driven by weakness in the Australian and New Zealand markets. However, Latin America sales increased by 10%, driven by growth in both Brazil and Mexico.
In conclusion, Harley-Davidson's Q4 2023 earnings report showed a mixed performance, with the company beating analysts' estimates but reporting a decline in revenues and operating income. The company's electric motorcycle segment showed promising growth, and the company issued upside guidance for FY24. However, the company's motorcycle division faced challenges due to prudent dealer inventory management and market conditions, leading to a decline in global motorcycle shipments and revenues. The company will need to address these challenges to maintain its growth momentum in the future.