Cost-Cutting Plans Boosts the Harley-Davidson (NYSE:HOG) Stock

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The Harley-Davidson (NYSE:HOG) stock jumped by more than 9 percent on Tuesday, shrugging off sluggish motorcycle sales in the US, after the company announced cost-cutting plans. In afternoon trade, it went up by 9.45 percent, reaching a two-month high, before profit-taking brought down the gains to 9.03 percent.

Changing Fortunes in the Motorcycle Market

The Wisconsin-based motorcycle manufacturer has said that they plan to slow down production and lay off many workers to deal with declining domestic sales. The move is likely to cost the business between $20 million and $25 million. According to data with the Motorcycle Industry Council, registrations in the United States have fallen by 5.6 percent in the first nine months of this year. It now stands at 279,013.

One reason for this is because most people with disposable income now prefer automobiles instead of motorcycles. Arun Kumar from AlixPartners consultant says that there are those who want to upgrade from motorcycles to luxury automobiles as well.

The good news is, everything might not be lost for the motorcycle industry yet. The downward sales figures could just be a temporary phase. Motorcycles of Harley-Davidson are sold worldwide, but the US remains their strongest market, in spite of several efforts to boost sales overseas. Their worldwide retail sales have also struggled in recent months.

CFRA Research equity feels that retail motorcycle demand is likely to pick up sometime next year. Harley-Davidson might have to hire again if this happens or manage productions with fewer people at that time.

Results Beat Analyst Expectations

Harley-Davidson (NYSE:HOG) has also reported weaker earnings for each share, lower net income, and lower quarterly profit.

The, per share earnings of the business, have come down from 69 cents of last year to 64 cents now. The net income in last year’s second quarter was $140.3 million, but this time it is down to $114.1 million. Last time, the revenue was $1.32 billion, while now it stands at $1.27 billion. Analysts had, however, said that it would be even lower at $1.09 billion given the low demand in the market.

So Harley-Davidson is at least performing better than expected, which encouraged the investors, pushing the stock price up.

The 2017 motorcycle lineup of Harley looks impressive. The September sales figures are also encouraging. But some analysts are doubtful whether the business will be able to hold on to this growth in the short-term at least.