Harley Shares Sink on Surprise Loss, Starker Outlook

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Feb 02 2021, 5:21 PMFeb 02 2021, 11:27 PMFebruary 02 2021, 5:21 PMFebruary 02 2021, 11:27 PM

(Bloomberg) -- Harley-Davidson Inc. is providing a stark recovery outlook -- and investors aren’t sure they like what they see.

The motorcycle manufacturer’s shares plunged after it posted a surprise loss in the fourth quarter and unveiled a turnaround plan that failed to impress Wall Street.

In the overhaul plan, the manufacturer said it’s aiming for low double-digit growth in earnings per share and “mid single-digit” growth in motorcycle revenue through 2025. Harley plans to achieve that by investing more in its core heavyweight-bike segment -- a category that has been shrinking across the industry -- and by setting up a standalone electric-motorcycle division.

“In the past years we’ve over-committed and under delivered; we are now committed to setting realistic expectations,” Chief Executive Officer Jochen Zeitz said on a call with investors. “We know that execution is everything.”

The Milwaukee, Wisconsin-based company on Tuesday reported an adjusted loss per share of 44 cents, missing analysts’ consensus estimate for a 23-cent profit and below the 20 cents it posted a year ago. Motorcycle shipments fell 48% in the quarter.

Harley shares pared a multi-decade swoon as low as 22% in early trading, falling 19% to $32.61 as of 12:09 p.m., the sharpest decline since March, when the stock plummeted at the onset of the coronavirus pandemic.

The five-year strategic plan was light on details, and the revenue and profit targets were more modest than investors expected, said Gerrick Johnson, an analyst with BMO Capital Markets in New York.

“A lot of this is ‘What we’re going to do’ but not ‘How we’re going to do it,’” Johnson said. “Because they didn’t do that, there’s not a lot of confidence from investors.”

Six-Year Streak

Revenue from motorcycles and related products fell 39% in the fourth quarter to $531 million as Harley reduced inventory and shifted its release of new models from fall to the first quarter of this year.

Harley is hoping its plan will end a six-year streak of falling sales in the U.S., which accounted for 58% of total deliveries in 2020. It sold 103,650 bikes in its home market last year, a 22% drop and the lowest level in at least a decade.

Zeitz, a branding whiz who successfully revived sneaker company Puma SE in the late 1990s, also said he would pour new effort into increasing sales of parts and accessories and Harley-Davidson apparel. He’s hired a veteran marketer from his Puma days to aid in that project.

‘Hardwire’ Electrification

Zeitz’s long-awaited “Hardwire” strategic plan straddles both its past of roaring gas-powered bikes and an electric future. It calls for investing $190 million to $250 million annually, in part to develop Harley’s electrification technology, which lags behind Asian and European rivals.

The company announced an equity grant to 4,500 Harley workers in an effort to promote internal buy-in of the plan.

Zeitz replaced Matt Levatich, a company veteran who stepped down last February amid slumping sales and pressure from activist investor Impala Asset Management.

The first non-American chief executive in the company’s 118-year history, Zeitz has scaled back his predecessor’s overseas ambitions, culled the new model pipeline and starved dealers of inventory to raise prices. Now he has to find growth beyond an aging U.S. customer base, a problem that has bedeviled past Harley CEOs.