Harley-Davidson: An American Icon Rolls On

Harley-Davidson (NYSE: HOG) is one of the most iconic American companies. The Milwaukee-based motorcycle maker was founded more than 100 years ago, but is going stronger than ever. The stock has been in a steady upward trend since 2010, and we see no reason to think it will end.

The manufacturer just announced its third-quarter earnings. Analysts had been expecting good numbers, but Harley managed to beat expectations anyway.

The company’s profits rose 21 percent, due mostly to a popular lineup of new motorcycles that was introduced in August. US sales were up 20 percent from July through September, while international sales rose 6.5 percent.

Harley-Davidson made $162.7 million, or $0.73 in earnings per share (EPS), during the third quarter, up from $134 million, or $0.59 in EPS, a year ago. Revenue from motorcycles and related products rose 8 percent to $1.18 billion.

Harley introduced a new line of motorcycles this summer called Project Rushmore. Consumer response has been very positive so far. The company sold almost 71,000 motorcycles worldwide during the quarter, nearly 16 percent more than a year ago. Sales rose 10 percent in the Asia-Pacific region, and gained nearly 16 percent in Latin America.

CEO Keith Wandell said, “Initial retail sales of the new Project Rushmore motorcycles sparked the largest year-over-year new model sales increase in two decades.” Motorcycle dealers have been selling out the bikes faster than the company can ship out new ones.

“Harley-Davidson again drove strong financial performance in the second quarter, reflecting the many improvements in operations we have made throughout the company over the past few years as well as our brand strength globally,” Wandell added.

Operating income from the company’s financial services segment was $76.1 million for the quarter, up 5.1 percent from a year ago, reflecting higher interest income.

Even before the new bikes were introduced, Harley’s products had been performing well across the board. This was the second straight quarter in which the company beat the market’s expectations. In the second quarter of 2013, net income was $271.7 million on revenue of $1.79 billion, compared to net income of $247.3 million on revenue of $1.73 billion in the year-earlier period.

In addition to producing heavyweight custom, cruiser and touring motorcycles, the company offers a complete line of motorcycle parts, accessories, riding gear and apparel, and general merchandise. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the US and international markets.

In the 1980s, some analysts thought the company was vulnerable to foreign competition, particularly from Japanese firms like Honda (NYSE: HMC). But Harley wisely chose to double down on its status as the quintessential American motorcycle maker, with marketing suggesting that those other machines from overseas were not real motorcycles.

This approach proved quite popular with the typical motorcycle enthusiast, with the result that Harley-Davidson’s market share has held up a lot better than most longtime American vehicle manufacturers.

New Product Line


As my colleague Chad Fraser wrote in his August 13 Investing Daily article, Harley-Davidson is laying the groundwork for the long haul.

The Project Rushmore line of motorcycles is the largest scale new model launch in the company’s 110-year history. It encompasses eight new motorcycles that feature improved power and braking performance, enhanced rider ergonomics, and dramatic styling updates that aim to redefine and transform the touring motorcyclist’s experience.

The company bills the new products as the “result of an entirely new way to produce motorcycles. In a process that invokes the voice of the customer throughout an accelerated development program, the ideas of thousands of motorcyclists are allowed to percolate with those of Harley-Davidson employees.”

Harley-Davidson is still building on the technological foundation that established the company’s dominant leadership in the touring motorcycle segment. Eight new 2014 Harley-Davidson models, including Road King, Street Glide, Street Glide Special, Electra Glide Ultra Classic, Ultra Limited, Tri Glide Ultra, CVO Ultra Limited and CVO Road King feature innovative enhancements.

Efforts were made to upgrade the motorcycle experience in four specific ways:

•    Control: The new bikes pass faster, stop quicker and see farther at night, thus inspiring rider confidence. Each model features the new Twin-Cooled High Output Twin Cam 103 or the High Output Twin Cam 103 powertrains, Reflex Linked Brakes with anti-lock brakes and LED and dual halogen lighting.

•    Entertainment: New color-screen entertainment systems feature the first original-equipment voice recognition and touchscreen for music, GPS navigation and phone in motorcycling, with quality audio, Bluetooth connectivity, text-to-speech technology, plus support for intercom and CB communications in a single module.

•    Feel: Aerodynamics and ergonomics have been utilized to improve comfort, from a new design that reduces head buffeting by 20 percent, to a better ride for passengers with wider and deeper seats and new back and arm rests.

•    Style: The form and the function of many components are improved, such as a reshaped Tour-Pak and saddlebags with convenient One-Touch latches, sleeker fenders, lighter cast aluminum wheels and intuitive hand control switches.

Additionally, the company recently surpassed a milestone for international dealership growth. With the opening of a dealership in Salvador, Brazil on June 29, Harley has added 104 dealerships outside the US since late 2009, achieving its goal of adding 100 to 150 international dealerships by the end of 2014.

“All summer long we have been celebrating our 110th anniversary with Harley-Davidson enthusiasts from around the world,” Wandell noted.

With two very strong earnings reports in a row and the best-known brand name in its industry, Harley-Davidson is ready to give investors a smooth ride.

Thomas Scarlett is an investment analyst at Personal Finance and its parent web site Investing Daily.