In a research note sent to Powersports Business titled “Hardwire Fails to Amp Investors,” following the Q4 2020 Harley-Davidson earnings release, BMO Capital Markets analyst Gerrick Johnson reports that Harley-Davidson “released 4Q20 financial results below expectations, which we think were elevated after a surprisingly strong 3Q. The company's five-year plan, aka Hardwire, also failed to impress. The plan was high level with few details. The financial outlook accompanying it was also very conservative. We are not surprised by the Street's negative reaction, which presents a buying opportunity. Going forward, expectations have been reset, the financial bar is low, and we expect positive newsflow in the form of new product announcements and more granular details related to the Hardwire.”
“HOG unveiled its much anticipated Hardwire plan in conjunction with 4Q earnings. We went into the event not expecting many specifics. However, we were surprised at how few specifics there really were. The overriding goal of the plan is to increase brand desirability, concentrating on core product segments while selectively entering new areas. HOG plans on expanding its complementary business, improving the dealer network, expanding its digital platform, and enhancing the customer experience. This sounds great, but details on how this actually happens and what products are coming to market will have to wait.
“The financial targets associated with the plan were conservative. A conservative plan was anticipated, but we think investors were surprised at how low the bar had been set. HOG is forecasting mid-single-digit motorcycle revenue growth and low-double-digit EPS growth through 2025. Management had commented several times how it planned to avoid over-promising and under-delivering, a common occurrence under prior management.
“HOG also provided 2021 guidance, which calls for +20% to +25% motorcycle revenue growth, operating margin of 5% to 7%, and Financial Services growth of +10% to +15%, which implies an EPS range of $2.00 to $2.50. This was below our $3.10 estimate for 2021, the Street's at $2.84.
“The company's 4Q20 results took a back seat to the Hardwire. HOG reported an adjusted 4Q20 loss per share of ($0.44), well short of our adjusted $0.15 estimate and the Street's $0.21. Motorcycle-related sales declined -39% to $531 million, compared to our $736 million (-16%) estimate, and the Street's $771 million (-12%). Worldwide retail sales declined -14% (US -15%, international -14%), in-line with our expectation.”
— Dave McMahon, editor, dmcmahon at powersportsbusiness.com