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Harley-Davidson (HOG) Q3 Earnings Beat, Revenues Miss


Harley-Davidson, Inc. HOG reported earnings of 64 cents per share in the third quarter of 2016 that marginally surpassed the Zacks Consensus Estimate of 63 cents. However, earnings were lower than 69 cents recorded in the year-ago quarter.

Net income decreased to $114.1 million from $140.3 million recorded a year ago.

Consolidated revenues fell to $1.27 billion from $1.32 billion in the third quarter of 2015. Operating income declined to $178.4 million from $215.8 million in the year-ago period.

Motorcycles and Related Products

Revenues from Motorcycles and Related Products dropped to $1.09 billion in third-quarter 2016 from $1.14 billion in the year-ago quarter. The figure missed the Zacks Consensus Estimate of $1.11 billion. The decline was due to lower motorcycle shipments.

Operating income from Motorcycles and Related Products decreased significantly to $108.9 million from $143.1 million a year ago.

Revenues from Harley-Davidson motorcycles fell 2.9% to $788.9 million. The company shipped 48,611 motorcycles to dealers and distributors worldwide during the third quarter of 2016, compared with 53,472 shipments in third-quarter 2015.

Harley-Davidson’s worldwide dealer retail sales of new motorcycles dropped 4.5% to 68,955 units from 72,178 motorcycles sold in the year-ago quarter. The decline was due to weak U.S. industry sales. Harley-Davidson’s sales in the U.S. fell 7.1% to 45,469 motorcycles. International sales went up 1% to 23,486 motorcycles from 23,260 motorcycles sold in the prior-year quarter. An improvement of 1.7% in sales in the Asia-Pacific region, 1.9% in the Europe, Middle East, and Africa (“EMEA”) region, and 4.3% in Canada was partially offset by a 7.6% decline in the Latin America region.

Revenues from Parts and Accessories declined 8.3% to $231.3 million, while revenues from General Merchandise – which includes MotorClothes apparel and accessories – fell 5.4% to $65.3 million.

Harley-Davidson Financial Services (HDFS)

Revenues in the Financial Services segment rose 3.4% to $183.2 million in third-quarter 2016. Operating income declined 4.6% to $69.4 million from $72.8 million in the year-ago quarter.

Financial Position

Harley-Davidson had cash and cash equivalents of $790.3 million as of Sep 25, 2016, compared with $1.37 billion as of Sep 27, 2015. Total debt rose to $6.93 billion from $6.92 billion as of Sep 27, 2015.

In the first nine months of 2016, Harley-Davidson’s operating cash flow declined to $927.8 million from $1.02 billion in the first nine months of 2015. Capital expenditures increased to $162.7 million from $139.1 million in the first nine months of 2015.

Share Repurchases

Harley-Davidson spent $104.6 million to repurchase 2.1 million shares in the reported quarter. As of Sep 25, 2016, it had remaining authorization to buy back nearly 20.9 million shares.

Looking Forward

In the fourth quarter of 2016, Harley-Davidson expects to ship 44,200−49,200 motorcycles, compared with 48,149 motorcycles shipped in the year-ago period. The company plans to incur expenses of $20–$25 million in the quarter, primarily for employee separation and reorganization costs.

Harley-Davidson reaffirmed its guidance for motorcycle shipments in 2016 at 264,000–269,000 units. This implies that the year-over-year change in shipments will vary between a decline of 1% and a rise of 1%.

The company also reaffirmed its guidance for operating margin from the Motorcycle segment at 15%–16%. It expects capital expenditures of $255–$275 million this year.

HARLEY-DAVIDSON Price and EPS Surprise


Zacks Rank

Currently, Harley-Davidson carries a Zacks Rank #4 (Sell).

Some better-ranked auto stocks include The Goodyear Tire & Rubber Company GT, Tata Motors Limited TTM and SORL Auto Parts, Inc. SORL, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Goodyear posted positive earnings surprises in the last four quarters, with an average beat of 10.28%.

Tata Motors has a long-term expected growth rate of 3.6%.

SORL Motor Parts has posted an average positive earnings surprise of 7.46% over the last four quarters.

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