Categories Analysis, Consumer

Harley-Davidson rebounds amid investment plan strategy

Harley-Davidson Inc. (NYSE: HOG) stock rebounded after Tuesday’s lower close due to its investment plan. The stock has fallen over 23% in the past year while it has risen over 10% in the past month. The company has taken up the investment plan as the motorcycle maker was struggling to increase sales in the US. Investors expect that there is so much uncertainty around the company’s future.

At its investor meeting, the company sharpened its 2017-2017 US and international objectives based on enhanced insight into rider behavioral trends. The company intends to spend $225 million to $245 million of capital in 2019 with similar annual investments going forward.

In the Motorcycles segment, the company established its growth objectives for 2022. Revenue is expected to be in the range of $1 billion to $1.5 billion, with a 5-year compound average growth rate of 3.8% to 5.5%. Operating income is predicted to be $200 million to $250 million and the operating margin is projected to grow by 0.75 to 1.25 percentage points.

Over the past several years, Harley-Davidson faced various headwinds including shifting rider preferences, historically high new or used price gaps, three consecutive years of decline in the US motorcycles industry, and tariff impacts. Tariffs and lack of appeal to youth have weighed heavily on the company’s stock.

The company’s future remained uncertain due to weak sales pressure. This has compelled market analysts to be moderately bearish on the stock. The weakness in the sales began way back in 2016 and continues to persist for an unknown period. For addressing the softness in the near term, the company continues to aggressively manage supply in line with demand and increased marketing investments to encourage trial and increase conversion to sale.

The company has been striving to control expenses and improve margins until the second quarter. But the investment plan raised concerns among the investors about the performance of the company in the future. This, along with the lower shipments, weak top line, and higher expenses could turn the company’s future into fragile.

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Harley-Davidson is pursuing electric motorcycles at a faster pace. The company plans to launch its new model-year 2020 motorcycles in the third quarter of 2019, including its first electric motorcycle, LiveWire.

As of June 30, 2019, the company had cash and cash equivalents of $924.64 million while total debt stood at $7.45 billion. Net cash provided by operating activities was $496.23 million and Harley Davidson will take about 7 years to repay its debt with repayment of 10% each year.

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