Back to basics may boost Harley’s earnings although Street is wary of volume gains

July 20 (Reuters) – The big question hanging over Harley Davidson Inc’s (HOG.N) second quarter results on Wednesday will be familiar: Has the 118-year-old brand sold enough bikes?

After struggling to expand its appeal beyond middle-aged and affluent bikers for several years, the company has returned to what it knows best – selling big bikes – and the decision is making headway. under the leadership of CEO Jochen Zeitz.

Analysts are still skeptical about whether the plan will be enough to boost volumes, which have fallen for six years amid a struggle to target other runners.

Zeitz’s plan includes selling used bikes, scraping entry-level models, and increasing investment in the touring bike, large cruisers and tricycles segments – its main drivers of profit.

The company has also cut production and reduced inventory to increase the average selling price of new bikes.

“Cutting back on production doesn’t necessarily boost demand for a product when sales have been down for six years,” UBS analyst Robin Farley wrote in a note.

TARGETED PLAN

The declining interest in motorcycling as a recreational activity along with the price of Harley motorcycles, which can cost as much as a car, have hampered the company’s efforts to appeal to young riders.

Zeitz is aiming for weak double-digit profit growth through 2025. Since his plan was unveiled, Harley’s stock is around 26% higher, a sign of confidence in Zeitz’s ability to turn Harley’s fortunes around. , according to analysts.

The company also reported a 31% year-over-year increase in its US retail sales in the first quarter, its first quarterly sales increase in its largest market in six years.

Earlier this month, Harley launched its first electric bike under its LiveWire brand for $ 22,000, with the goal of reaching out to younger and more environmentally conscious riders who could potentially increase Harley volumes to as its baby boomer audience ages.

“From a turnaround perspective, I think Jochen Zeitz (CEO) has done a very good job, at least so far,” said Joseph Altobello, analyst at Raymond James.

“(Harley’s) former management team lacked focus and sort of got lost.”

For an interactive graphic, click here: (https://tmsnrt.rs/3hQlDSw)

THE FUNDAMENTALS

* In April, Harley raised its 2021 motorcycle segment revenue growth outlook to a range of 30% to 35%, from an earlier range of 20% to 25%.

* The average analyst estimate for Harley’s second-quarter revenue is $ 1.41 billion, up 111% from a year earlier. Quarterly profit is expected to be around $ 180.5 million, down from a loss of $ 92.2 million a year earlier.

WALL STREET FEELING

* Of 17 brokerages, eight are rating Harley’s stock “buy” or more, seven “hold” and two “sell”.

* Wall Street’s median price target for Harley is $ 52, about 24% above its last closing price of $ 41.92.

For an interactive graphic, click here: (https://tmsnrt.rs/3zfWRBc)

Reporting by Ankit Ajmera in Bengaluru and Rajesh Kumar Singh in Chicago; additional reporting by Sweta Singh in Bengaluru; Editing by Anil D’Silva and Bernard Orr

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