Why Harley-Davidson Stock Dropped 15%
With fundamentals declining on nearly all fronts, Harley-Davidson, Inc. (NYSE:HOG) seems like it’s on the ropes. HOG stock used to perform fairly well while Harley-Davidson motorbikes were the market leader. But that era is at an end.
On Tuesday October 20th, Harley-Davidson announced its quarterly earnings. Net profit shrank 6.5% from $150.1 million to $140.3 million as competitors slashed prices to dig into Harley-Davidson’s market share.
While it still commands more than half of the U.S. market, HOG stock lost nearly four percent of its business to rivals. Selling Harley-Davidson bikes overseas became tough as well, owing the unnatural strength of the U.S. dollar.
Harley-Davidson stock fell by more than 15% after the results became public. It should be noted that upper management at Harley-Davidson aren’t completely willing to pass on the buck. They admitted some fault during an earnings call with analysts.
“Our performance didn’t meet our expectations,” said Harley Chief Executive Matt Levatich. “We faced our own headwinds including limited product availability and voluntary recalls.”
A HOG Stock Revival?
Harley-Davidson’s management team is taking action after markets punished them for a dismal quarter. The company is eliminating 250 jobs, or four percent of its entire workforce.
Initial estimates suggest the layoffs will cost $30.0 to $35.0 million in the fourth quarter of 2015. The restructuring will be a one-time price tag, but HOG stock was damaged nonetheless. Any savings from the firing of 250 Harley employees are going towards the marketing budget.
The hope is that demand for Harley-Davidson bikes can rise if the firm engages in a price war. The operating environment is challenging, but the firm hopes to revitalize its brand and HOG stock through better quality and affordability.
Despite having a famous brand, Harley Davidson’s reputation for quality suffered a big hit this year. The amount of recalls in the last three quarters outstripped recalls in the last three years. After $32.0 million in recall costs, plenty of investors were willing to cut their losses on HOG stock.