Harley-Davidson experienced mixed reviews in its third quarter, with profit for lower-end model motorcycles are up while sales of custom-touring models are falling.
Third quarter sales increased by 13% to $1.23 billion, with retail sales in the United States up by 5.4% and 5.1% worldwide. The company earned $183.6 million compared to the third quarter of 2010 when it earned $88.8 million.
Despite the slow economy, customers are returning to Harley showrooms. This is the second consecutive quarter the company has experienced increased sales. The second quarter increase marked the first time in five years that there was an increase in domestic sales.
The majority of revenue resulted from the sale of the SuperLow, the company’s lowest-priced model at $8,000, and other lower-end models.
Shares Down Over High-End Model Sales Struggles
And while sales of low-end bikes are rising, Harley is struggling to compete in the high-end market, where models begin at $30,000. Concern over the decrease in higher-end sales caused shares to drop 7% to $3.04 a share earlier this week.
The problem is a result of Harley restructuring its York, PA, factory. The factory will be consolidating production of 20 models of motorcycles from four assembly lines down to one, which has lead to a decrease in the number of bikes the factory can produce.
When completed, the restructuring is expected to increase the company’s long-term profitability.
Wedbush analyst Rommel Dionisio told CBS News the margin trends are disappointing and that “the company's overall recovery appears to be on track and noted that the bulk of the restructuring will be completed by the end of this year.”
Harley experiences a yearly decrease in sales during the colder months.
New Miami Headquarters For Latin American Market
The company expects to ship between 228,000 and 235,000 motorcycles worldwide by the end of the year.
Last week, Harley announced the opening of a new Latin American headquarters, located in Miami, FL. Harley is expecting sales outside of the US to increase 40% by 2014. The Latin American market is considered to be one of the fastest-growing markets.
"This new regional headquarters is part of [business] transformation, and confirmation that Harley-Davidson is committed to fulfilling the dreams of customers in Latin America from Tierra del Fuego to the Rio Grande," Harley Vice President and Managing Director Mark Van Genderen said in a press release.
Harley Chief Keith Wandell told Reuters: “the company's results, which beat Wall Street expectations, are proof that consumers want to spend their money.”
Harley has long been an iconic symbol of American freedom. At the same time, it is also a barometer of discretionary spending. The demand for high-end products is being affected by brand loyalty, and the financial comfort level of its customer base.
Key Statistics – World Motorcycle Market (source: Datamonitor)
- The global motorcycle market is expected to increase 38% between 2010-2014 to nearly $90 billion.
- During the same time period, the global motorcycles market is predicted to have a volume increase of 42 million units, up 24%.
- Slightly over 45% of the global motorcycle market value is from Asia-Pacific sales.
- The world’s leading player is Honda, with a 25% share of the market volume.