Harley-Davidson Q1 2020 Sales Plunge 15.5%
Harley-Davidson said US sales were up 6.6% in the quarter before the pandemic ground the economy to a halt in mid-March. But sales wound up plunging 15.5% in America compared to a year ago and 20.7% internationally. Overall revenue slipped 8% from last year’s first quarter.
For the quarter, Harley-Davidson posted earnings of $69.7 million compared with $127.9 million in the same period a year ago.
Harley-Davidson’s share in the U.S. heavyweight motorcycle market share was down 2.2 percentage points, to 48.9% and the company’s share of the heavyweight motorcycle market in Europe was 7.6% in the first quarter.
In response to the COVID-19 crisis, Harley has reduced planned capital spending, frozen hiring, temporarily reduced salaries, eliminated merit increases for employees in 2020 and changed the timing of new product launches in order to preserve $250 million in 2020.
The company has also suspended share repurchases and the board of directors voted to slash Harley’s dividend to two cents per share for Q2 2020. That’s down from the first quarter dividend of 38 cents a share.
Investors seemed to like what they saw in the Harley earnings report: The company’s shares finished the day up 15%.
The new program “…will focus more on the markets and products that can drive performance in terms of profitability and growth” according to Jochen Zeitz, acting president and CEO of Harley-Davidson.
Some key elements of the plan include:
Enhance core strengths and better balance expansion
- Return focus to the strength of brand and company, starting with dealers, customers, stronghold products and committed employees globally.
- Re-evaluate strategies to reach new riders and build ridership.
Prioritize the markets that matter
- Narrow focus and invest in the markets, products and customer segments that offer the most profit and potential. This includes building on Harley-Davidson’s strong position in the U.S.
- Establish a simplified market coverage model and take cost out of the process.
Reset product launches and product line up
- Continue to be guided by the voice of customers and dealers to optimize value and profit delivery.
- Simplify and retime launches to reflect the new reality, align with the start of riding season and better suit the capacity of the company and dealers.
- Expand profitable iconic motorcycles to excite existing customers. Remain committed to Adventure Touring, Streetfighter and advancing electric motorcycles.
Build the Parts & Accessories and General Merchandise businesses
- Develop a comprehensive strategy across P&A and GM businesses that focuses on assortment and distribution opportunities, maximizes channels, improves ecommerce capabilities and grows revenue and margins for both the company and dealers.
- Align P&A and GM strategies with motorcycle strategy for a holistic presentation to the market.
Adjust and align the organizational structure, cost structure and operating model
- Create a framework including an organization that is more focused, profitable and nimble; a cost structure that is adjusted to the new realities of the market post crisis; and an operating model designed to increase empowerment and accountability.
- Establish commercially led central and new regional structures to gain a deeper understanding of customers and to return focus to dealers and selling.
- Elevate the role of Motorcycle Management and sharpen marketing strategy and execution to enable a bigger impact with an improved go-to-market process.
Harley-Davidson Analysis: Approximately 70% of Harley’s total revenue comes from North America, which has been hurt the most by the outbreak. Lower consumer spending and consumption would lead to lower demand for motorbikes, affecting Harley’s revenues.
Expect the second and third quarter results to continue this trend of lower consumer spending. If there isn’t clear evidence of the containment of the virus or a vaccination in 2021, expect a continued decrease in earning for Harley-Davidson.
Harley continues to struggle in the marketplace as demand for its expensive motorcycles has seen declines year over year. Along with being too expensive, Harley has to deal with the greying of the company’s core customer base, a decline in interest from younger consumers, and increased competition from other domestic and international motorcycles.
Polaris Q1 2020 Sales Drop 6%
Polaris reported that off-road vehicle retail sales in Q1 2020 were up +15% in April. This was a surprise given the state of the economy, but given current economic concerns, do not expect this surge in sales to be sustainable especially with the full impact of the pandemic still uncertain with consumer discretionary companies, like Polaris.
However, overall sales were down 6%: Q1 2020 saw $1,405.2 million in sales this year, compared to $1,495.7 million in 2019.
Polaris reported higher motorcycle sales, but off-road vehicles, snowmobiles, utility vehicles, boats, and aftermarket parts all declined in the first quarter.
Polaris’s biggest segment is the combined off-road vehicles and snowmobile business, which accounts for almost 60% of total revenue and 69% of gross profit. It witnessed a 5% drop in sales and a 16% decline in gross profits. Off-road vehicles sales were down 7% year over year, while snowmobiles tumbled 54%.
The results were not surprising, considering big-ticket purchases would be a secondary consideration during a pandemic. It also gave Polaris the opportunity to exit from some segments of the boating market. Polaris said it was discontinuing production of cruisers and fishing boats, which virtually eliminates all of the business of Larson Boats. Polaris said it would focus solely on the pontoon and deck boat business that it acquired when it bought Boat Holdings two years ago.
A breakdown of results by Polaris segments:
- Off-Road Vehicles/Snowmobiles: $823.7M (-5%)
- Motorcycles: $126.6M (+7%)
- Both Indian Motorcycles and the three-wheeled Slingshot saw gains
- Global adjacent markets: $98.3M (-6%)
- Aftermarket: $202.1M (-8%)
- Boats: $154.5M (-16%)
Polaris saw a $0.78 per share profit a year ago turn into a $0.09 per share loss this time out. Management is preparing for an extended downturn for the balance of 2020, and maybe even into next year. Polaris’s investors will need patience until the market for consumer discretionary purchases are popular again.
Polaris Analysis: Polaris revenue is almost certainly going to get worse before getting better, especially given the dynamic nature of the COVID-19 pandemic and the resulting unprecedented economic uncertainty.
As consumers stretch to cover basic day-to-day expenses like food, housing and health care, those consumers are extremely unlikely to splurge on a luxury purchase from Polaris or any other manufacturer. As a leader in the industry consumers are more than likely to return to Polaris before they return to other off-road manufacturers. It could be a long time until those customers are back in the showroom with a checkbook in hand. PSR
Michael Aistrup Is a Senior Analyst at Power Systems Research
