Harley-Davidson Profitability Displays Improvement in Q2 Despite Temporary Operational Setbacks

Although wide-moat Harley-Davidson was plagued by a two-week production hold (due to a third-party supplier issue), it was able to print 15.1% motorcycle operating margins in the second quarter, nearly back to 2019’s profit level, and displaying a 120-basis-point expansion despite inflationary and economic headwinds. The halt led to shipment declines of 15% (to 48,000) and bike revenue downtick of 9%, but total revenue contracted just 5% benefiting from price increases and robust growth in apparel, licensing, and other revenue (9% of period sales). Harley reaffirmed its full-year goals, implying shipment losses from the production pause will be recovered in the back half of 2022. With the firm forecasting motorcycle revenue growth of 5%-10% in 2022, second-half sales increases of around 10% are feasible if production remains intact. Our confidence in demand is bolstered by Harley’s ability to capture pricing, as average selling prices rose 7%, indicating the appetite for the company’s product remains intact.