Harley-Davidson Will Continue To Be Harmed By A Weak Product Mix

Harley-Davidson Inc (NYSE: HOG) has been facing pressure from aggressive discounting by competitors and weak domestic demand; and the company does not seem to have the ability to respond promptly to changing consumer trends, Argus’s David Coleman said in a report. He maintains a Hold rating on Harley-Davidson.

Harley-Davidson reported its Q4 2016 adjusted EPS at $0.27, missing Argus’s estimate of $0.30 and the consensus forecast of $0.31. The company’s motorcycle unit sales were down 0.5 percent worldwide.

Unfavorable Product Mix

Coleman expressed concern regarding Harley-Davidson’s ability to adjust production “quickly enough” to cater better to changing consumer trends. Store visits had suggested that the company was struggling to clear older inventory from the showrooms and keep a stock of newer, more popular motorcycles.

Management has repeatedly cited this weak product mix as the reason for disappointing unit sales, Coleman noted, while adding that the product mix was likely to improve in the first quarter.

In an attempt at reducing its manufacturing costs, the company has moved to cheaper parts, including some plastic parts, on certain models, “which could dismay hard-core fans,” the analyst noted. He added, “Although the company continues to restructure its operations, we believe that it will take time to produce meaningful improvement in sales and earnings.”

At last check, shares of Harley-Davidson were relatively flat on the day.