American Motorcycle Dealer AMD 248 March 2020 | Page 4

Mid-Cycle Cycles Everywhere hope it is as much about gaining momentum as it is about draining the parts bin, but far from being a novelty, a spike of excitement and interest every four or five years, mid-cycle new models, specials, limited editions and paint jobs are so 'de rigueur' now that they risk rendering the annual summer MY announcements predictable and meaningless. At the very least, in these days of underpopulated print and saturated online so- called media, the chances of so many coming at once from the market's two primary OEMs almost certainly means that the consumer attention they are designed to capture is becoming diluted. Not that the days of seeing a huge bounce in share price in response to a new model initiative are going to come back any time soon. The last time I can recall a reasonable stock market reaction to Harley's summer new model announcement was in 2013 when the MY2014 Project Rushmore Touring model updates were unveiled - and that wasn't an earth shattering reaction, a few dollars maybe, but it was en route to the post financial crisis high of around $72.00 in May 2014. The start of dealer shipments of Harley's much vaunted five-years-in-the-making entry into motorcycle electrification with the LiveWire finally going live in August last year didn't bother the Wall Street Richter Scale - in fact the share price just continued south. It was around the spring and summer of 2014 that there appeared to be what would prove to be a false dawn for the motorcycle industry in the United States. It looked like the 36 months of modest market growth seen following the nadir of the financial crisis may have been locked in, but alas it was not. Ever since then it has been mostly decline for registrations in the USA as well as for Harley's share price. I wrote last month about how the share price had, effectively, halved in five years. Well, it doesn't look like the atrophy is going to start reversing any time soon. The 2019 full year fiscals and the associated start of murmurings from the generally tolerant analysts who dial in to the CEO and CFO Q&A on the quarterly day of reckoning didn't do anything to staunch the haemorrhaging. At the end of 2019 the H-D share price was $37.19. By the end of January, a few days after the 2019 financial announcements, it was down to $34.84. Worse, at the time of writing (February 27th) the price had plumbed the depths of $31.54, which is less than a dollar above the lowest seen since the post downturn peak in 2014 and represents a further 15% drop in Harley's market capitalization in just two months. Okay, the tail end of that period coincided with the (start of the?) general coronavirus scare and sell-off - which itself throws a potentially huge curve ball into every aspect of everything we do - but even a brief uptick in response to the dividend news hasn't helped Harley's share price keep its head above water. Harley's most recent share buy-back authorization means it could, if it wanted to (and it does have the cash), buy back more than 11% of its outstanding stock in the next year or more. Even that and the increase of quarterly dividend from $0.375 per share to $0.38 hasn't encouraged many investors to stay in the waiting room, I even though on an annualized basis that still represents a healthy return relative to the S&P 500 average. My piece last month was written a few days before the 2019 full year fiscals were unveiled, so always a risky moment to make forecasts, but as it transpires, I wasn't far off. Its 2019 Q4 results were probably the best quarterlies in three years in terms of the decline of motorcycle sales, with the wider domestic U.S. market also showing signs that overall sales may now be starting to reach the bottom of a very rocky, very wide U-curve. Unfortunately though, as we all know to our chagrin, in absolute terms the actual numbers are not the stuff of legendary financial performance, which may cast some light on Harley's enthusiasm for premium mid-cycle specials, paint jobs and accessory packages - a disease that Indian has caught. It will also make sense of Harley's Qianjiang partnership in the 2 million-unit domestic Chinese 150 to 400 cc market. While it might feel like "chocolate by the checkout" compared to $20k plus M-8s, it nonetheless will be income, will be profit, and will be unit growth (of a kind). Harley is relatively cash-rich and remains a profitable enterprise, which is simultaneously a strength and a weakness. While the cost to acquire Harley would be higher than if it was in need of turning around from a loss making position, the fact that any new owner would immediately be buying into a potential cash cow where the turnaround priorities are more strategic and longer term in nature must also increase its likely appeal to buyers - hostile, leveraged or otherwise. Harley CEO Matt Levatich and CFO John Olin made sure that returning shareholder value (dividends ahead of the S&P 500 average, share buy-backs etc.) were as central to the 'More Roads' strategic plan as the 100 new models in ten years would be. It was and remains a very broad definition of "sustainability". In that respect Harley is doing the best job it can in terms of keeping the sharks at a distance. But none of that changes the fact that Harley revenue declined way more in percentage terms last quarter and last year as a whole than had been the expectation. While we are edging closer to the next slew of internal combustion engine new models, in the shape of the Pan America dual sport and Bronx Streetfighter (both now expected around November 2020 apparently) and the "significant revenue growth" Levatich and Olin are promising from 2021 onwards, do they have any more than a year (if that) to convince the sharks that they remain a long term opportunity rather than just today's lunch? Harley is profitable and relatively cash-rich Robin Bradley Co-owner/Editor-in-Chief [email protected]