Harley-Davidson, Inc. :HOG-US: Earnings Analysis: Q2, 2017 By the Numbers : August 7, 2017

Harley-Davidson, Inc. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Harley-Davidson, Inc. – Polaris Industries Inc., Bayerische Motoren Werke Aktiengesellschaft Sponsored ADR and Honda Motor Co., Ltd. Sponsored ADR (PII-US, BMWYY-US and HMC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,765.17 million, Net Earnings of USD 258.87 million.
  • Gross margins widened from 37.81% to 37.97% compared to the same period last year, operating (EBITDA) margins now 25.52% from 24.70%.
  • Year-on-year change in operating cash flow of 12.52% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 21.81% to 22.35%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 1765.17 1501.93 1110.6 1274.81 1861.08
Revenue Growth (%YOY) -5.15 -14.17 -5.93 -3.23 2.01
Earnings (mil) 258.87 186.37 47.18 114.07 280.43
Earnings Growth (%YOY) -7.69 -25.6 11.81 -18.73 -6.46
Net Margin (%) 14.67 12.41 4.25 8.95 15.07
EPS 1.48 1.05 0.27 0.64 1.55
Return on Equity (%) 12.82 9.52 2.41 5.68 14.33
Return on Assets (%) 9.97 7.39 1.88 4.44 10.78

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Market Share Versus Profits

Revenues History
Earnings History

HOG-US‘s change in revenue this period compared to the same period last year of -5.15% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that HOG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 17.53% and earnings by 38.90% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 37.81% to 37.97%, while operating margins improved from 24.70% to 25.52% over this period. For comparison, gross margins were 37.72% and EBITDA margins 22.89% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

HOG-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 66.27 days from 91.68 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

HOG-US‘s change in operating cash flow of 12.52% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 21.97% to 22.54% and pretax margins widened from 21.81% to 22.35%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Harley-Davidson, Inc. manufactures and sells heavyweight motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. It also provides wholesale and retail financing and insurance programs primarily to Harley-Davidson dealers and customers. The company operates through the following segments: Motorcycles & Related Products and Financial Services. The Motorcycles & Related Products segment designs, manufactures and sells Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services. The Financial Services segment consists of Harley-Davidson Financial Services, which provides wholesale and retail financing and also offers insurance and insurance-related programs primarily to Harley-Davidson dealers and their retail customers. Harley-Davidson was founded by William Sylvester Harley, Arthur Davidson, Walter C. Davidson, Sr. and William A. Davidson in 1903 and is headquartered in Milwaukee, WI.

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