Harley-Davidson ( HOG ) will release its Q2 2017 results on July 18 th 2017 . The company is facing a continuous decline in its sales as it does not find favor with the highest spending generation in the U.S. – the millennials. According to Alliance Bernstein , this younger generation is “adopting motorcycling at a far lower rate than prior generations,” leading to the decline in sales of Harley-Davidson. Consequently, consensus revenue and EPS (earnings per share) estimates for the company for Q2 2017 are lower than those for the same period last year.
While Harley-Davidson is suffering due to soft industry sales in the U.S., the company was successful in increasing its market share from 50.9% in Q1 2016 to 51.3% in Q1 2017, reflecting its resilience despite low demand. According to our estimates, U.S. Motorcycles is the most valuable segment for the company, accounting for more than 30% of its valuation. However, based on end of quarter dealer checks Longbow Research estimates that there could be a 1-3% decline in the company’s U.S. sales for this quarter. This is disappointing since the comparative number – Q2 2016 was soft when the sales had declined by more than 5%.
The overall outlook for this quarter indicates a declining revenue and earnings trend, however the following developments provide growth opportunities for the company:
Possible Acquisition Of Ducati
As Volkswagen looks to sell its Ducati segment (at a discount given the diesel scandal surrounding the company), Harley-Davidson is emerging as one of the key potential acquirers. If this deal materializes it could benefit the company to drive sales, as the joint entity can expand in Europe and the U.S. Harley-Davidson can use its production capacity to further the Ducati brand which is known for its sports bikes and grow in that segment, as well. Experts believe that this deal can give new growth opportunities to the company.
New Generation Of Harley Riders
Harley-Davidson is working on a new generation of “Harley Riders” to attract the younger millennial generation, as its core customers now move into the “older generation.” The company’s long term strategy for the next decade focuses on building two million new Harley Riders in the U.S.
Recently Harley-Davidson partnered with a Canadian motorcycle app to encourage riders to explore the country. The app, named EatSleepRIDE, tracks rider’s routes via GPS allowing them to save their favorite routes and connect with other riders. A smartphone app allowing users to track their rides can find favor in the younger generation, and a focus on such digital initiatives can improve Harley-Davidson’s popularity.
While we expect Q2 2017 to be another disappointing quarter for the company, the long term outlook remains positive as the company works on several initiatives to drive long term growth.
See our complete analysis for Harley-Davidson
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