‘Bringing home the bacon’ for H-D in Q4: analyst

BMO Capital Markets analyst Gerrick Johnson has provided Powersports Business with a research note following the Harley-Davidson fourth quarter earnings call on Tuesday.

Titled “Bringing Home the Bacon,” Johnson says that Harley-Davidson “reported strong 4Q21 results that were well ahead of expectations. The 2022 outlook was solid, and while a bit below our high-on-the-Street estimate, still well ahead of the Street consensus. Retail demand remains solid with a significant channel fill opportunity, which provides a reliable outlook for revenue. Management appears to be pulling all the right levers so far in the company’s turnaround that began almost two years ago. We continue to rate shares Outperform.”

“Key Points

“HOG reported 4Q21 adjusted EPS of $0.15. The results were much better than our adjusted ($0.28) estimate, the Street consensus of ($0.34), and reported ($0.46) in 4Q20.

“Worldwide retail sales increased +2% (-12% vs. 2019), compared to our -4% estimate (-18% vs. 2019). U.S. grew +9% (-7% vs. 2019) better than our +3% expectation (-12% vs. 2019), while international contracted -6% (-19% vs. 2019), also ahead of our -12% expectation (-24% vs. 2019).

“HOG introduced 2022 guidance and expects +5% to +10% motorcycle segment revenue growth. Imbedded is an assumption for +MSD% motorcycle MSRP/surcharge increases. Despite management’s stressing of a premium brand experience, HOG has been less aggressive than many realize raising prices, with new MY22 motorcycle prices up, on average by +2.4% after relatively flat prices in 2021. However, prices to consumers are up +5% to +9% owing to freight surcharges.

“2022 Operating margin is expected to be between 11.0% and 12.0%, up from an adjusted 9.1% in 2021. Supply chain and cost inflation pressures are expected to continue but should begin to moderate in 2H22.

“Guidance includes LiveWire. Management had previously guided to a LiveWire operating loss of $111 million in 2022. Thus, the implication is that operating margin for the core business would be more like 13.9% at the guidance midpoint.

“HDFS operating income is expected to decline -20% to -25% given a normalization of allowance releases and loss rates. The implied EPS guidance range is about $4.05-4.50.

“We had been expecting 2022 motor company revenue of $4.97 billion (+12%), motor company operating margin of 9.4%, HDFS operating income of $370 million (-5%), and EPS of $4.60. Consensus had been for motor company revenue of $4.74 billion, motor company operating margin of 9.7%, HDFS income of $339 million, and EPS of $3.79.”