Harley-Davidson (NYSE:HOG) Surprises With Q3 Sales
American motorcycle manufacturing company Harley-Davidson (NYSE:HOG) announced better-than-expected revenue in Q3 CY2024, but sales fell 25.7% year on year to $1.15 billion. Its GAAP profit of $0.91 per share was also 12.3% above analysts’ consensus estimates.
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Harley-Davidson (HOG) Q3 CY2024 Highlights:
- Revenue: $1.15 billion vs analyst estimates of $976.4 million (17.9% beat)
- EPS: $0.91 vs analyst estimates of $0.81 (12.3% beat)
- Management lowered its full-year HDMC (core motorcycles) segment revenue guidance, expects down 14 to 16% compared to 2023 (down 5 to 9% previously)
- Management lowered its full-year HDMC (core motorcycles) segment margin guidance as well
- Gross Margin (GAAP): 22.9%, down from 31.7% in the same quarter last year
- Operating Margin: 9.2%, down from 13.5% in the same quarter last year
- Free Cash Flow Margin: 26.1%, up from 15.7% in the same quarter last year
- Motorcycles Sold: 27,500, down 17,769 year on year
- Market Capitalization: $4.49 billion
Company Overview
Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.
Leisure Products
Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Harley-Davidson struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Just like its five-year trend, Harley-Davidson’s revenue over the last two years was flat, suggesting it is in a slump.
We can better understand the company’s revenue dynamics by analyzing its number of motorcycles sold, which reached 27,500 in the latest quarter. Over the last two years, Harley-Davidson’s motorcycles sold averaged 5.4% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen. 
This quarter, Harley-Davidson’s revenue fell 25.7% year on year to $1.15 billion but beat Wall Street’s estimates by 17.9%.
Looking ahead, sell-side analysts expect revenue to decline 19.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and shows the market believes its products and services will see some demand headwinds.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Harley-Davidson has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.8% over the last two years, slightly better than the broader consumer discretionary sector.
Harley-Davidson’s free cash flow clocked in at $300.4 million in Q3, equivalent to a 26.1% margin. This result was good as its margin was 10.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
Key Takeaways from Harley-Davidson’s Q3 Results
We were impressed by how significantly Harley-Davidson blew past analysts’ revenue expectations this quarter. We were also excited its EPS outperformed Wall Street’s estimates. On the other hand, its number of motorcycles sold unfortunately missed. Adding to the bad news, the company lowered its full year outlook for HDMC (more motorcycles) revenue and margins. Overall, this was a mixed quarter with the lowered guidance weighing on shares. Shares traded down 2% to $33.49 immediately following the results.
Is Harley-Davidson an attractive investment opportunity right now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
