Harley-Davidson (NYSE:HOG) earnings release for the 1st quarter of their 2020 fiscal year
Category: Stock Market and Harley-Davidson
Date: 22 June 2020 Stock Price of Harley-Davidson : $24.82 We take a look at the 1st quarter earnings release of their 2020 fiscal year of Harley-Davidson, the world famous bike builder, who has been struggling in recent years, and their stock price performance shows it. and to compound their problems the Covid-19 pandemic has disrupted their manufacturing and sales activities.
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- COVID-19 has dramatically changed our business environment and it is critical we respond with agility to this new reality. The crisis has provided an opportunity to reevaluate every aspect of our business and strategic plan"
About Harley-Davidson
Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since 1903, Harley-Davidson has fulfilled dreams of personal freedom by leading the innovation of two-wheeled mobility. The company offers an expanding range of leading-edge, distinctive and customizable motorcycles and brings the brand to life through Harley-Davidson riding experiences and exceptional motorcycle parts, accessories, riding gear and apparel. Harley-Davidson Financial Services provides financing, insurance and other programs to help get Harley-Davidson riders on the road
Harley-Davidson manufactures and sell custom, cruiser and touring motorcycles that feature leading-edge styling, innovative design, distinctive sound, and superior quality with the ability to personalize. We also provide:
Harley-Davidson Financial Services offers a complete line of financing options and insurance products and services to help get and keep customers on the road. HDFS offers to dealers and customers:
Harley-Davidson manufactures and sell custom, cruiser and touring motorcycles that feature leading-edge styling, innovative design, distinctive sound, and superior quality with the ability to personalize. We also provide:
- Riding experiences and events
- Accessories to customize our motorcycles
- Riding apparel and gear for riders and passengers
- Casual apparel and accessories for riders, passengers and enthusiasts
- Motorcycle service parts
Harley-Davidson Financial Services offers a complete line of financing options and insurance products and services to help get and keep customers on the road. HDFS offers to dealers and customers:
- Wholesale and retail financing
- Insurance
- Extended service and other protection plans
- Credit card programs
Overview of Harley-Davidsons' 1st quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
In the latest quarter motorcycles made up 76.23% of Harley-Davidson's revenue, parts and accessories made up 14.78% and general merchandise 6.5%.
- Motorcycles and Related Products revenue: $1.099 billion (down from $1.195 million from the same quarter of the previous year)
- Motorcycles and Related Products revenue decreased by -8% over the last 12 months
- Selling,admin and engineering expenses: $234.353 million (up from $225.428 million for the same quarter of the previous year)
- Selling,admin and engineering expenses increased by 3.9% over the last 12 months
- Net income: $69.695 million (down from $127.945 million for the same quarter of the previous year)
- Diluted earnings per share: $0.45 (down from $0.80 for the same quarter of the previous year)
- PE ratio of Harley-Davidson: 13.8
- Diluted weighted-average shares outstanding: 153.744 million (down from 160.026 million for the same quarter of the previous year)
- Dividend declared for the quarter: $0.38 (up from $0.375 for the same quarter of the previous year)
- Dividend yield of Harley-Davidson: 6.1%
- Cash and cash equivalents: $1.465 billion
- Cash and cash equivalents per share: $9.52
- Cash and cash equivalents makes up 38.4% of Harley-Davidson's market capital
- Cash and cash equivalents makes up 13.2% of Harley-Davidson's total assets
- Accounts receivable: $299.149 million
- Accounts receivable makes up 2.7% of the Harley-Davidson's total assets.
- Finances receivable: $2.358 billion (down from $2.443 billion for the same quarter of the previous year)
- Finances receivable makes up 21.7% of Harley-Davidson's total assets
- Stockholders equity: $1.691 billion
- Stockholders equity per share: $10.99
- Harley-Davidson is trading at 2.25 times its stockholders equity per share which is within the expected range of between 2 and 4 times that most firms tend to trade at.
- For some perspective the average price to book value of firms in the S&P 500 is 3.7
- Cash generated used in operations ): -$8.582 million
- So Harley-Davidson has burnt through some cash during the quarter and did not generate positive cash flows during the quarter
In the latest quarter motorcycles made up 76.23% of Harley-Davidson's revenue, parts and accessories made up 14.78% and general merchandise 6.5%.
Harley-Davidson's management commentary on their 1st quarter 2020 earnings
MILWAUKEE, April 28, 2020 /PRNewswire/ -- Harley-Davidson, Inc. (NYSE:HOG) today reported first quarter 2020 results and provided an update on the actions it has taken to address the impact of COVID-19 as it restarts production and begins moving toward recovery. The company also outlined near-term actions that will lead to a new strategic plan.
"Throughout this global crisis, we prioritize the well-being of our employees and the Harley-Davidson community in every decision we make. Our brand is rooted in community, and we care deeply for all of those who have been personally affected. We also honor the heroes working tirelessly to bring care, relief and an end to this terrible pandemic. Finally, in the face of significant uncertainty, we have taken swift action to protect the company by bolstering our already strong balance sheet and liquidity position," said Jochen Zeitz, acting president and CEO of Harley-Davidson.
"COVID-19 has dramatically changed our business environment and it is critical we respond with agility to this new reality. The crisis has provided an opportunity to reevaluate every aspect of our business and strategic plan. We have determined that we need to make significant changes to the company; to our priorities, to our operating model and to our strategy to drive more consistent performance as we emerge from this crisis. We will reduce complexity, sharpen focus and increase the speed of decision-making. These efforts will pave the way for a new strategic plan that incorporates some key products and initiatives from the current plan but focuses on improved profitability and long-term growth. As a result, we will emerge as a stronger and more efficient company and reignite the Harley-Davidson soul," said Zeitz.
"Throughout this global crisis, we prioritize the well-being of our employees and the Harley-Davidson community in every decision we make. Our brand is rooted in community, and we care deeply for all of those who have been personally affected. We also honor the heroes working tirelessly to bring care, relief and an end to this terrible pandemic. Finally, in the face of significant uncertainty, we have taken swift action to protect the company by bolstering our already strong balance sheet and liquidity position," said Jochen Zeitz, acting president and CEO of Harley-Davidson.
"COVID-19 has dramatically changed our business environment and it is critical we respond with agility to this new reality. The crisis has provided an opportunity to reevaluate every aspect of our business and strategic plan. We have determined that we need to make significant changes to the company; to our priorities, to our operating model and to our strategy to drive more consistent performance as we emerge from this crisis. We will reduce complexity, sharpen focus and increase the speed of decision-making. These efforts will pave the way for a new strategic plan that incorporates some key products and initiatives from the current plan but focuses on improved profitability and long-term growth. As a result, we will emerge as a stronger and more efficient company and reignite the Harley-Davidson soul," said Zeitz.
COVID-19 Response and Recovery Actions
The company is executing its plan to address the impact of COVID-19 and begin its recovery through a multitude of recent actions across the following areas:
Cash Preservation – Reduced planned capital spending and also reduced planned spending across every part of the organization including freezing hiring, temporarily reducing salaries and eliminating merit increases for employees in 2020. The company also implemented other aggressive cost management efforts such as retiming the launch of new products. In total, the company expects these efforts to preserve approximately $250 million of cash in 2020. Additionally, the company suspended discretionary share repurchases. Today the Board of Directors approved a cash dividend of $0.02 per share for the second quarter of 2020, down from the first quarter 2020 dividend of $0.38. The second quarter dividend is payable June 12, 2020 to the shareholders of record of the company's common stock as of May 22, 2020.
Liquidity – Maintained $2.47 billion in liquidity including $1.47 billion cash as of the end of the quarter and remains compliant with all covenants. Recently, the company amended its $1.42 billion credit facilities, extended its 364-day loan facility and is in discussions with major U.S. banks to secure an additional $1.30 billion in liquidity. Additionally, the company expects to access the capital markets in the near future.
Supporting Dealers and Riders - Eased the burden on Harley-Davidson dealers by providing support based on the unique needs of each region, including financial support for motorcycle inventory, extending credit payment due dates on Parts & Accessories (P&A) and General Merchandise (GM) and adjusting dealer requirements for warranty and training. The company also offered dealer discounts on certain GM products and is engaging with dealership staff via live chat sessions to share unique ways to stay connected during the crisis. For customers, many dealers remain open for service support and the company continues online sales of P&A and GM, and along with dealers, is offering home delivery of new motorcycles in states and countries where it is permitted. For riders who have been impacted by COVID-19, Harley-Davidson Financial Services (HDFS) is helping keep riders on the road.
Community Strength – Acted quickly and in alignment with government efforts to protect the safety and health of employees and the Harley-Davidson community. The company implemented travel restrictions, enhanced sanitation practices, cancelled events and closed facilities including temporarily suspending global manufacturing starting in March. In support of relief efforts, the Harley-Davidson Foundation donated $150,000 to the United Way's COVID-19 relief fund. Through its "United We Will Ride" efforts, the company is connecting riders who want to help provide relief through food drives, blood donations and other ways to make a difference in their communities.
As the company focuses on recovery efforts for the business, it has prepared and started implementing rigorous protocols and procedures for worker safety and is working with its supply chain to be ready to resume operations. The company has restarted some manufacturing and will gradually ease work-at-home restrictions at the appropriate time, which will vary by region.
Dividend & Share Repurchase - The company paid a cash dividend of $0.38 per share for the first quarter. The company did not repurchase shares on a discretionary basis during the first quarter. During the quarter, there were 153.7 million weighted-average diluted common shares outstanding and 18.2 million shares remained on board-approved share repurchase authorizations.
2020 Outlook
As a result of the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, Harley-Davidson withdrew all guidance on March 26, 2020
The company is executing its plan to address the impact of COVID-19 and begin its recovery through a multitude of recent actions across the following areas:
Cash Preservation – Reduced planned capital spending and also reduced planned spending across every part of the organization including freezing hiring, temporarily reducing salaries and eliminating merit increases for employees in 2020. The company also implemented other aggressive cost management efforts such as retiming the launch of new products. In total, the company expects these efforts to preserve approximately $250 million of cash in 2020. Additionally, the company suspended discretionary share repurchases. Today the Board of Directors approved a cash dividend of $0.02 per share for the second quarter of 2020, down from the first quarter 2020 dividend of $0.38. The second quarter dividend is payable June 12, 2020 to the shareholders of record of the company's common stock as of May 22, 2020.
Liquidity – Maintained $2.47 billion in liquidity including $1.47 billion cash as of the end of the quarter and remains compliant with all covenants. Recently, the company amended its $1.42 billion credit facilities, extended its 364-day loan facility and is in discussions with major U.S. banks to secure an additional $1.30 billion in liquidity. Additionally, the company expects to access the capital markets in the near future.
Supporting Dealers and Riders - Eased the burden on Harley-Davidson dealers by providing support based on the unique needs of each region, including financial support for motorcycle inventory, extending credit payment due dates on Parts & Accessories (P&A) and General Merchandise (GM) and adjusting dealer requirements for warranty and training. The company also offered dealer discounts on certain GM products and is engaging with dealership staff via live chat sessions to share unique ways to stay connected during the crisis. For customers, many dealers remain open for service support and the company continues online sales of P&A and GM, and along with dealers, is offering home delivery of new motorcycles in states and countries where it is permitted. For riders who have been impacted by COVID-19, Harley-Davidson Financial Services (HDFS) is helping keep riders on the road.
Community Strength – Acted quickly and in alignment with government efforts to protect the safety and health of employees and the Harley-Davidson community. The company implemented travel restrictions, enhanced sanitation practices, cancelled events and closed facilities including temporarily suspending global manufacturing starting in March. In support of relief efforts, the Harley-Davidson Foundation donated $150,000 to the United Way's COVID-19 relief fund. Through its "United We Will Ride" efforts, the company is connecting riders who want to help provide relief through food drives, blood donations and other ways to make a difference in their communities.
As the company focuses on recovery efforts for the business, it has prepared and started implementing rigorous protocols and procedures for worker safety and is working with its supply chain to be ready to resume operations. The company has restarted some manufacturing and will gradually ease work-at-home restrictions at the appropriate time, which will vary by region.
Dividend & Share Repurchase - The company paid a cash dividend of $0.38 per share for the first quarter. The company did not repurchase shares on a discretionary basis during the first quarter. During the quarter, there were 153.7 million weighted-average diluted common shares outstanding and 18.2 million shares remained on board-approved share repurchase authorizations.
2020 Outlook
As a result of the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, Harley-Davidson withdrew all guidance on March 26, 2020
Harley-Davidson (NYSE: HOG) stock price history
The image below shows the stock price history of Harley-Davidson. It's been a pretty depressing time for Harley-Davidson stockholders and fans of the bike building group. 5 years ago the stock was trading at around $56.90 and its currently trading at $24.82. That's a -56.4% loss for Harley-Davidson stockholders over the last 5 years.
The stock of Harley-Davidson (HOG) is trading at a lot closer to its 52 week low of $14.31 than it its to its 52 week high of $40.89 which is a clear indication that the short term sentiment and momentum towards Harley-Davidson stock is largely negative.
The stock of Harley-Davidson (HOG) is trading at a lot closer to its 52 week low of $14.31 than it its to its 52 week high of $40.89 which is a clear indication that the short term sentiment and momentum towards Harley-Davidson stock is largely negative.
Recent coverage of Harley-Davidson
The extract below touches on the latest regarding Harley-Davidson, as obtained from RideApart.com
As of June 22, 2020, Harley-Davidson will no longer be featured on the S&P 500 index, a new milestone in the manufacturer’s difficult year. The S&P 500 is a stock market index that tracks the stock performance of the 500 biggest U.S. companies listed on the market. The index features the names of the country’s biggest players including Microsoft, Coca Cola, Amazon, and Facebook.
Until recently, Harley-Davidson also appeared on the list. For a company to appear on the list, it must have a market cap of at least $8.2B. The market cap, or capitalization, represents the number of shares a company has to offer, multiplied by their value on the market. If a company has 10 shares at $10 each, its market cap is $100.
Read the full article here.
As of June 22, 2020, Harley-Davidson will no longer be featured on the S&P 500 index, a new milestone in the manufacturer’s difficult year. The S&P 500 is a stock market index that tracks the stock performance of the 500 biggest U.S. companies listed on the market. The index features the names of the country’s biggest players including Microsoft, Coca Cola, Amazon, and Facebook.
Until recently, Harley-Davidson also appeared on the list. For a company to appear on the list, it must have a market cap of at least $8.2B. The market cap, or capitalization, represents the number of shares a company has to offer, multiplied by their value on the market. If a company has 10 shares at $10 each, its market cap is $100.
Read the full article here.
Harley-Davidson (NYSE: HOG) latest stock valuation
So based on Harley-Davidson's latest earnings report and their outlook provided what do we value Harley-Davidson stock at? Considering their latest earnings report and the outlook provided our valuation model provides a target price (full value price) of $49.60 a Harley-Davidson stock (down considerably from our 4th quarter earnings report valuation of Harley-Davidson)
Even so we believe the stock of Harley-Davidson is undervalued at its current price of $24.82 and it offers long term fundamental and value investors a great opportunity to buy into one of the most famous brands in the world. We usually recommend that fundamental or long term value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $49.60. We therefore believe a good entry point into the stock of Harley-Davidson would be at $44.60 or below.
Since the stock of Harley-Davidson is trading at well below our recommended entry point we rate their stock as a buy, but investors will have to be patient with this one as tariff-trade war is still hurting their numbers.
Even so we believe the stock of Harley-Davidson is undervalued at its current price of $24.82 and it offers long term fundamental and value investors a great opportunity to buy into one of the most famous brands in the world. We usually recommend that fundamental or long term value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $49.60. We therefore believe a good entry point into the stock of Harley-Davidson would be at $44.60 or below.
Since the stock of Harley-Davidson is trading at well below our recommended entry point we rate their stock as a buy, but investors will have to be patient with this one as tariff-trade war is still hurting their numbers.
Next earnings release of Harley-Davidson (HOG)
It is expected that Harley-Davidson will release their 2nd quarter 2020 earnings report in late July 2020