Bullish on Hogs: High Gas Prices Drive Harley-Davidson Sales Way Up
It's a good time to be a Hog: On Wednesday, Harley-Davidson (HOG) announced a stunning second-quarter jump in income, making the legendary Milwaukee-based motorcycle manufacturer a rare bright spot in a gray economy.
Between April and June 2011, Harley brought in $190.6 million in net income; a year later, its net had jumped 30%, to $247.3 million. But while the company's growing income was a boon for investors -- the year-over-year growth translated to an extra 26 cent dividend on every share -- its changing fortunes also highlight some major, and lasting, political and economic shifts that may have long-lasting effects for the motorcycle market.
Motorcycle Sales Are Revving
Harley isn't the only motorcycle company that is cruising to record profits. According to data recently released by Sageworks, a financial information company, sales at motorcycle and all-terrain vehicle dealers have surged by almost 16% over the past year, surpassing the 15.9% growth rate high they hit in 2004. During the same period, their profits have also gone up steeply -- from about 0.64% in 2009 to 2.55%, almost a four-fold increase.
While the recession can be blamed for some of the earlier slowdown in the motorcycle market -- in 2009, sales fell by 13.77% -- sales had been falling steadily since 2004. Robb Granado, an analyst with Sageworks, offers several possible reasons for the recent rebound. Part, he argues, can be credited to a snap-back from the recession, when tough times kept people from buying bikes and low sales kept dealers from replenishing inventory. But the post-2010 growth, which is still continuing, is harder to explain.
One clue might be the fact that, while this summer's gas hikes have not been as steep as in previous years, prices still remain high, and show signs of rising. Motorcycles are far more fuel efficient than cars -- even Harleys, notorious for their high gas consumption, get between 44 and 59 miles per gallon on the highway. More efficient brands like Kawasaki and Yamaha often do much better, and commuters looking for cost-effective transportation may find that a new motorcycle can quickly pay off.
Another factor, Granado notes, may have been the surprisingly temperate 2012 winter. For many riders, motorcycles are a seasonal option, and often get parked in the garage when the weather gets rough. If last winter was any indication, motorcycle season may be getting longer, further extending the possible savings on gas.
The run on bikes is a worldwide trend. In America, Harley sales are up 4%, a jump that is promising, but pales beside the 10% sales boost the brand has gotten in Asia and the 38% leap it has made in Latin America. Admittedly, other markets are slowing down -- sales have fallen in Europe, the Middle East and Africa -- and the company is going into a seasonally expected slump. But with sales revving up around the world, the future looks bright for motorcycles.
Smart Moves and Tight Turns
Long-term trends seem to be working in Harley-Davidson's favor, but the company has also made some clever moves to shore up its public image and reduce its costs. Long regarded as the brand of bearded barbarians wearing denim vests, Harley has sought to make itself more attractive to women and mainstream riders. As AdWeek recently noted, the motorcycle company has shifted its ad strategy to focus on middle-aged female riders, a group that has gone from 5% of consumers to 11% in the last ten years. For today's Harley, the woman isn't an accessory clinging to the back of a bike anymore; now, she's holding the handlebars.
In other words, Harley is automating, reducing its union workforce, and outsourcing some of its divisions -- basically, following a standard cost-cutting, labor-cutting path to increased profits.
Harley-Davidson's stock has climbed out of the hole it fell into in 2009, and the company reported that retail sales grew more than 25% in the last quarter. Other manufacturers have also announced steep sales growth.
Whether the recent motorcycle sales jump is just a summer fling or the start of a period of sustained growth in fuel-efficient vehicles, one thing is certain: For now at least, bike manufacturers are stepping on the gas -- and dropping some of their excess weight.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at firstname.lastname@example.org, or follow him on Twitter at@bruce1971.