What Happened?
Shares of american motorcycle manufacturing company Harley-Davidson (NYSE: HOG) fell 6.6% in the morning session after the company reported third-quarter results where a significant revenue miss and deteriorating cash flow overshadowed a strong profit beat. The company's revenue of $1.07 billion declined 6.7% year-on-year, falling short of Wall Street's expectation of $1.32 billion. This pointed to ongoing struggles with consumer demand, despite the number of motorcycles sold increasing to 36,500, which was up significantly from the previous year. Another major concern for investors was the company's free cash flow, which swung to a negative $129.1 million from a positive $300.4 million in the same quarter last year. While earnings per share of $3.10 easily surpassed estimates, this was driven by a sharp increase in operating margin from expense management, not sales growth. Investors seemingly focused on the weak revenue and cash burn as indicators of the core business's health, raising concerns about future growth.
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What Is The Market Telling Us
Harley-Davidson’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 19.8% on the news that the company announced a strategic partnership for its financial services arm that overshadowed disappointing second-quarter results. The motorcycle maker announced a strategic partnership with KKR and PIMCO for its financing arm, Harley-Davidson Financial Services (HDFS). This deal was set to unlock approximately $1.25 billion to $1.5 billion in cash, which the company planned to use to reduce debt by $450 million and accelerate a $1 billion share buyback program. This major strategic shift helped investors look past a challenging quarter where profit fell by nearly half. The company's revenue declined 19% to $1.31 billion, driven by a 27% drop in motorcycle sales and a 28% decrease in global shipments amid soft consumer demand. The positive reaction indicated investors prioritized the company's move to lighten its balance sheet and return capital to shareholders over the weak underlying performance.
Harley-Davidson is down 14% since the beginning of the year, and at $25.34 per share, it is trading 26.6% below its 52-week high of $34.50 from November 2024. Investors who bought $1,000 worth of Harley-Davidson’s shares 5 years ago would now be looking at an investment worth $771.41.
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