Harley-Davidson, Inc. (HOG) Bundle
Understanding Harley-Davidson, Inc. (HOG) Revenue Streams
Understanding Harley-Davidson, Inc.’s Revenue Streams
As of the third quarter of 2024, Harley-Davidson, Inc. reported consolidated revenue of $1,151 million, a decrease of 26% compared to $1,549 million in the same quarter of 2023. The decline was primarily driven by a 32% drop in revenue from the Harley-Davidson Motor Company (HDMC), partially offset by a 10% increase in revenue from Harley-Davidson Financial Services (HDFS).
Breakdown of Primary Revenue Sources
Revenue from HDMC and HDFS can be categorized as follows:
| Segment | Q3 2024 Revenue ($ millions) | Q3 2023 Revenue ($ millions) | Change (%) |
|---|---|---|---|
| Motorcycles | 616 | 1,023 | -40% |
| Parts & Accessories | 174 | 185 | -6% |
| Apparel | 56 | 49 | 13% |
| Licensing | 4 | 10 | -59% |
| Other | 27 | 30 | -11% |
| HDFS | 269 | 244 | 10% |
The significant drop in motorcycle revenue was attributed to a 39% decrease in global motorcycle shipments, which totaled 27,520 units in Q3 2024 compared to 45,269 units in Q3 2023. The revenue contributions from the various segments indicate a challenging retail environment, particularly in the motorcycle segment.
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, the total revenue from HDMC was $3,701 million, down from $4,052 million in the same period of 2023, marking a decline of 8.6%. The year-over-year growth rates are as follows:
| Segment | YTD 2024 Revenue ($ millions) | YTD 2023 Revenue ($ millions) | Change (%) |
|---|---|---|---|
| Motorcycles | 2,905 | 3,216 | -9.7% |
| Parts & Accessories | 534 | 568 | -6% |
| Apparel | 183 | 187 | -2.1% |
| Licensing | 18 | 21 | -13.4% |
| Other | 59 | 61 | -3.3% |
| HDFS | 782 | 707 | 10.6% |
Contribution of Different Business Segments to Overall Revenue
The HDMC revenue accounted for $876 million in Q3 2024, while HDFS contributed $269 million. The overall contribution from HDMC stands at approximately 76% of total revenue, highlighting its significance to the company’s financial performance.
Analysis of Significant Changes in Revenue Streams
Notably, the motorcycle segment experienced a sharp decline due to a combination of factors, including higher interest rates affecting consumer spending and adjustments in dealer inventory levels. Apparel sales, however, showed resilience with a 13% increase year-over-year, indicating a potential shift in consumer preferences towards accessories rather than major purchases like motorcycles.
The HDFS segment, on the other hand, saw a revenue increase of 10%, driven by higher interest income and a lower provision for credit losses, reflecting a strong performance in financing activities despite the overall downturn in motorcycle sales.
A Deep Dive into Harley-Davidson, Inc. (HOG) Profitability
Profitability Metrics
Gross Profit Margin: For the third quarter of 2024, the gross profit was $264 million, which translates to a gross margin of 30.1%. This represents a decrease from 31.7% in the same period in 2023, reflecting a decline of 1.6 percentage points.
Operating Profit Margin: The operating income for the third quarter of 2024 was $106 million, resulting in an operating margin of 9.2%. This is a significant decrease from the 13.5% operating margin reported in the third quarter of 2023.
Net Profit Margin: The net income attributable to the company for the third quarter of 2024 was $119 million, yielding a net profit margin of approximately 10.3%, down from 12.8% in the previous year.
Trends in Profitability Over Time
In terms of profitability trends, the company has faced challenges in 2024. Year-to-date figures indicate a consolidated operating income of $610 million, down 24% from the previous year. The decline in gross profit from $1.385 billion to $1.158 billion over the nine-month period reflects ongoing operational challenges and market conditions.
Comparison of Profitability Ratios with Industry Averages
When compared to industry averages, the operating margin of 9.2% is lower than the motorcycle industry average, which typically hovers around 12-15%. The gross margin of 30.1% is also below the industry benchmark, indicating potential areas for improvement in cost management and pricing strategies.
Analysis of Operational Efficiency
Operational efficiency has been impacted by a 32% decline in revenue from motorcycle sales, which directly affects gross margins. The company reported a decrease in selling, administrative, and engineering expenses to $208.7 million in Q3 2024, down from $235.4 million in Q3 2023. However, this reduction was not sufficient to offset the larger decline in revenue, resulting in a significant drop in operating income.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Profit | $264 million | $411 million | -$147 million |
| Gross Margin | 30.1% | 31.7% | -1.6 pts |
| Operating Income | $106 million | $209 million | -49% |
| Operating Margin | 9.2% | 13.5% | -4.3 pts |
| Net Income | $119 million | $199 million | -40% |
| Net Margin | 10.3% | 12.8% | -2.5 pts |
The operational efficiency metrics indicate that while the company has made strides in reducing expenses, the significant drop in revenue has overshadowed these efforts, resulting in reduced profitability across all key metrics.
Debt vs. Equity: How Harley-Davidson, Inc. (HOG) Finances Its Growth
Debt vs. Equity: How Harley-Davidson, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, the company reported the following debt levels:
| Debt Type | Amount (in millions) |
|---|---|
| Short-term Debt | $497.4 |
| Current Portion of Long-term Debt | $2,561.5 |
| Long-term Debt | $4,739.5 |
The total debt amounted to $7,798.4 million, which reflects the company's reliance on both short-term and long-term financing to support its operations and growth initiatives.
Debt-to-Equity Ratio
The debt-to-equity ratio, calculated as total liabilities divided by shareholders’ equity, stands at:
| Metric | Amount |
|---|---|
| Total Liabilities | $13,026.7 million |
| Shareholders’ Equity | $3,425.1 million |
| Debt-to-Equity Ratio | 3.80 |
This ratio indicates that the company has a high level of debt relative to its equity, which is significantly above the industry average of approximately 1.5.
Recent Debt Issuances and Credit Ratings
In the third quarter of 2024, the company had:
| Issuance Type | Amount (in millions) |
|---|---|
| Medium-term Notes Issuance | $495.9 |
| Securitization Debt Proceeds | $1,145.2 |
The company’s credit rating remains stable, with a rating of Baa3 from Moody's and BBB- from S&P, indicating an investment-grade status.
Balancing Debt Financing and Equity Funding
The company maintains a strategic balance between debt and equity financing. In 2024, the company repurchased $359.8 million of its own shares while paying $69.5 million in dividends, demonstrating a commitment to returning value to shareholders while managing its debt obligations.
For the current year, capital investments are projected between $225 million and $250 million, which will be funded through a combination of operating cash flow and additional debt issuance as needed.
Assessing Harley-Davidson, Inc. (HOG) Liquidity
Assessing Harley-Davidson's Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 1.41, calculated from current assets of $5,889,936,000 and current liabilities of $4,169,517,000.
Quick Ratio: The quick ratio is approximately 0.92, derived from liquid assets (cash, cash equivalents, and receivables) of $2,243,910,000 + $307,701,000 + $2,300,551,000 = $4,852,162,000 divided by current liabilities of $4,169,517,000.
Analysis of Working Capital Trends
The working capital as of September 30, 2024, is $1,720,419,000, indicating a decrease from the previous year's working capital of $2,750,965,000. This trend reflects a significant reduction in cash flow and inventory management challenges.
Cash Flow Statements Overview
| Cash Flow Type | Q3 2024 (in millions) | Q3 2023 (in millions) |
|---|---|---|
| Net Cash Provided by Operating Activities | $930.7 | $706.8 |
| Net Cash Used in Investing Activities | ($486.2) | ($511.1) |
| Net Cash Provided by Financing Activities | $313.5 | $253.6 |
Year-to-date through Q3 2024, the company generated $930.7 million from operating activities, showing an improvement compared to $706.8 million in the same period of 2023.
Potential Liquidity Concerns or Strengths
Despite a strong cash position with cash and cash equivalents of $2,243,910,000 at the end of Q3 2024, the company faces challenges due to a decline in revenue of 26% year-over-year, leading to potential liquidity concerns. The effective management of working capital and cash flow will be crucial in navigating these challenges moving forward.
Is Harley-Davidson, Inc. (HOG) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of the company, we will explore key financial ratios including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is approximately 11.8, based on the latest diluted earnings per share (EPS) of $4.27 and a stock price of $50.39.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 2.5, calculated using a book value per share of $20.16.
Enterprise Value-to-EBITDA (EV/EBITDA)
The EV/EBITDA ratio is estimated at 8.4, derived from an enterprise value of approximately $7.8 billion and an EBITDA of $925 million.
Stock Price Trends
Over the last 12 months, the stock price has shown significant volatility:
- 12 months ago: $48.50
- Highest price in the past year: $56.32
- Lowest price in the past year: $35.73
- Current price: $50.39
Dividend Yield and Payout Ratios
The current dividend yield is 3.43%, with an annual dividend of $0.5175 per share. The payout ratio is 12.1%.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a majority rating of Hold with some recommending Buy due to potential recovery in sales. The average target price set by analysts is $55.00.
| Metric | Value |
|---|---|
| P/E Ratio | 11.8 |
| P/B Ratio | 2.5 |
| EV/EBITDA | 8.4 |
| Stock Price 12 Months Ago | $48.50 |
| Highest Stock Price (12 Months) | $56.32 |
| Lowest Stock Price (12 Months) | $35.73 |
| Current Stock Price | $50.39 |
| Dividend Yield | 3.43% |
| Annual Dividend | $0.5175 |
| Payout Ratio | 12.1% |
| Analyst Consensus | Hold |
| Average Target Price | $55.00 |
Key Risks Facing Harley-Davidson, Inc. (HOG)
Key Risks Facing Harley-Davidson, Inc.
As of 2024, the financial health of Harley-Davidson, Inc. is influenced by various internal and external risk factors that could significantly impact its operations and market performance.
Overview of Internal and External Risks
- Industry Competition: The motorcycle industry is highly competitive, with numerous manufacturers vying for market share. This competition can pressure pricing and margins.
- Regulatory Changes: Changes in environmental regulations may require costly adjustments in manufacturing processes. Compliance with safety standards is also critical.
- Market Conditions: Economic downturns can lead to decreased consumer spending on discretionary items like motorcycles, impacting sales volumes.
Operational, Financial, and Strategic Risks
Recent earnings reports have highlighted significant operational risks. For Q3 2024, the company reported:
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Revenue | $1,151 million | $1,549 million | -26% |
| Operating Income | $106 million | $209 million | -49% |
| Net Income | $119 million | $199 million | -40% |
| Diluted EPS | $0.91 | $1.38 | -34% |
In Q3 2024, motorcycle shipments decreased by 39% compared to the previous year, with significant revenue declines in motorcycles and parts and accessories:
| Category | Q3 2024 Revenue | Q3 2023 Revenue | Change (%) |
|---|---|---|---|
| Motorcycles | $616 million | $1,023 million | -40% |
| Parts & Accessories | $174 million | $185 million | -6% |
| Apparel | $56 million | $49 million | +13% |
Furthermore, operational risks include supply chain disruptions, which can affect production efficiency and costs. The company's reliance on a network of dealers means their financial health directly impacts sales performance.
Mitigation Strategies
The company has implemented several strategies to mitigate risks:
- Cost Management: Efforts to reduce operational costs through streamlined processes and improved supply chain management.
- Product Diversification: Expanding product lines to include electric motorcycles and enhancing offerings in apparel and accessories.
- Financial Services Support: Utilizing Harley-Davidson Financial Services to provide financing options that can stimulate sales during economic downturns.
As of Q3 2024, the effective tax rate was 18%, and the company reported cash and cash equivalents totaling $2.2 billion, which provides a buffer against economic fluctuations.
In summary, Harley-Davidson faces a multitude of risks that require vigilant management and strategic planning to navigate effectively.
Future Growth Prospects for Harley-Davidson, Inc. (HOG)
Future Growth Prospects for Harley-Davidson, Inc.
Analysis of Key Growth Drivers
Product innovations are central to the company's strategy. The launch of new touring models has garnered positive feedback, which is expected to drive sales. In 2024, the U.S. Touring market share has reached 75%, an increase of 4 percentage points year-over-year .
Market expansions are also crucial. The company aims to strengthen its presence in international markets, which have seen a decline. In Q3 2024, international retail sales dropped 18% compared to the previous year.
Acquisitions, particularly in the electric motorcycle segment, are being pursued. The company has a controlling interest in LiveWire Group, Inc., which is projected to sell between 600 and 1,000 electric motorcycles in 2024.
Future Revenue Growth Projections and Earnings Estimates
For the full year 2024, the company expects HDMC revenue to decline by 14% to 16% compared to 2023 . However, Harley-Davidson Financial Services (HDFS) anticipates an operating income increase of 5% to 10%.
| Metric | 2024 Estimate | 2023 Actual |
|---|---|---|
| HDMC Revenue Change | -14% to -16% | Not Applicable |
| HDFS Operating Income Growth | 5% to 10% | 14% |
| LiveWire Electric Motorcycle Sales | 600 to 1,000 units | Not Applicable |
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is focusing on enhancing its dealer network and improving customer experience through digital platforms. Investments in technology are aimed at streamlining operations and expanding the customer base.
Additionally, the ongoing collaboration with LiveWire is positioned to capture the growing electric vehicle market, targeting environmentally conscious consumers .
Competitive Advantages That Position the Company for Growth
The brand's established reputation and loyalty among customers provide a significant competitive edge. The company commands a 75% share of the U.S. Touring motorcycle market, which is a strong indicator of brand strength.
Furthermore, the company's financial stability, with cash and cash equivalents totaling $2.24 billion as of September 30, 2024, supports ongoing investments and strategic initiatives .
The operational efficiency improvements and cost management strategies have resulted in a 29% increase in HDFS operating income.
| Financial Metrics | Q3 2024 | Q3 2023 |
|---|---|---|
| Cash and Cash Equivalents | $2.24 Billion | $1.88 Billion |
| HDFS Operating Income | $76.74 Million | $59.38 Million |
| Global Retail Motorcycle Sales Change | -13% | Not Applicable |
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Article updated on 8 Nov 2024
Resources:
- Harley-Davidson, Inc. (HOG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Harley-Davidson, Inc. (HOG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Harley-Davidson, Inc. (HOG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.