Harley-Davidson (HOG, Financial), the American motorcycle manufacturer has survived through the toughest of times. The company has strong customer loyalty and leverages its brand value to churn out profits. However, the stock has struggled for the past year, losing close to 21% of its value despite the company reporting strong quarterly numbers.
In Q1 FY15, the company reported earnings per share of $1.27, beating up the analyst estimate of $1.25 by $0.02. Revenue for the quarter came in at $1.67 billion compared to the consensus estimate of $1.59 billion.
The company’s net income in the first quarter was $269.9 million. Operating income from the Motorcycle division was 345.5 million, slightly fewer than last year’s first quarter. Segment revenue was down 3.9% behind significantly unfavorable currency exchange and lower year-over-year shipments.
Despite the lower revenue, the Motorcycle business operating margin was up 0.8 percentage points, driven by a higher gross margin percent and flat year-over-year SG&A spending.
Worldwide retail sales of new Harley-Davidson motorcycles was down 1.3% compared to last year’s increase of 5.8%.
Harley-Davidson's Most Powerful Engine
Harley-Davidson Financial Facilities, HDFS, offers credit to dealerships and clienteles for motorcycle and associated merchandise purchases, inscribes motorcycle insurance policies, and even issues credit cards with a labelling association with MasterCard (MA). HDFS directly accounts for nearly 20% of earnings but ultimately, it's the lifeblood of the business.
Increasing competition
Investors have become concerned over rivalry in the motorcycle industry and shortage of volume growth within the United States. Anxieties regarding rivalry are nothing new to Harley-Davidson, and the long-lasting growth of the company is a great sign of its ability to meet these challenges. The brand loyalty to Harley-Davidson remains robust.
To overcome the barrier of low volume growth anxiety, Harley-Davidson has begun development plans to international markets such as Europe and China. This plan has been very effective. Harley-Davidson is seeing progress in both Europe and China that beats its progress in America. The company now presumes motorcycle shipments to grow around 2 percent to 4 percent in 2015, compared to its preceding estimate of around 4 percent to 6 percent shipment growth.
Plans in Canada
As part of its global growth strategy, Harley-Davidson has mainly migrated to a globally reliable model of direct supply to independently owned dealers and, in current years, has established direct supply and operations in a number of its major markets including Brazil, Australia, Italy and the Scandinavian countries. Under direct distribution, the company manages sales to traders, marketing, dealer recruitment and marketing capabilities, customer events and other aspects of its in-market happenings, often through wholly-owned subsidiaries. Canada remains among the only marketplaces working through a third-party supplier arrangement.
In Canada and worldwide, Harley-Davidson motorcycles and associated products are retailed through a network of more than 1,460 independently owned franchises.
Conclusion
For a well-renowned brand, Harley’s value certainly looks attractive. The company plans to expand its worldwide footprints and is clearly underpriced. Given Harley’s success in various markets, the company’s growth plans are likely to reap benefits, making it a convincing buy at the present valuations.
