by Wolf Richter, Wolf Street: Trying to manage a structural decline in a terrible industry.
Shares of Harley-Davidson (HOG) dropped 10% in the morning after the company reported second-quarter earnings and were down nearly 6% at the end of the day. Almost everything was bad.
Retail sales by its dealers in the US fell 9.3% in Q2, compared to a year ago, to 49,668 motorcycles. They were “down more than we anticipated,” the company said. And with “soft sales across most markets,” sales by its dealers globally fell 6.7%.
“Industry new motorcycle sales deterioration continued,” the company said in its presentation, lamenting “weak industry sales on soft used bike prices.”
In addition to the industry woes, its market share in Q2 in the US dropped 1 percentage point to 48.5%. Shipments in the quarter fell 7.2% to 81,807 and are down 10.8% year to date.
The 30-day delinquency rate on its $7.5 billion in motorcycle loans outstanding rose to 3.25%, from 3.16% a year ago, and from 2.7% in Q2 2015. The annualized loss experience on those loans reached 1.71%, the highest for any second quarter since 2010.
Total revenues fell 5.6% to $1.58 billion. Net income fell 7.7% to $258.9 million. And despite blowing $163.2 million on share buybacks in the quarter to lower the share count and thus prop up earnings per share, earnings per share fell 4.5% to $1.48.
Its dealer inventory is bloated, so it offered incentives on its 2016 bikes to clear them out, and that didn’t help its 2017 models, but it said bravely that it is “targeting significantly lower year-end US dealer inventory.”
H-D has at least three fundamental problems. One is relatively new, and two have been with it for a few years and it cannot seem to escape them:
1. More of its customers are getting financially distressed, hence rising delinquencies and losses on its loan book. This issue has also raised its ugly head once again for automakers and other consumer lenders.
2. A Hog is the iconic motorcycle for baby boomers, but they don’t make baby boomers anymore. The younger generations have other things to spend their money on. H-D has come out with lighter and less expensive models to appeal to the younger crowd, with some success, but not with enough success to make up for the baby boomers who’re approaching the end of their riding years in ever larger numbers.
3. H-D is selling motorcycles. Motorcycle sales in the US have been a nightmare since the peak in 2005 when the industry sold nearly 1.1 million bikes of all sizes. By 2006, sales were falling. In 2008, sales plunged, bottoming out in 2010, down 60% from the peak. But unlike auto sales, motorcycles never recovered from the Great Recession.