Why Harley-Davidson's Quarter Was So Ugly

• Harley-Davidson Inc HOG shares are tanking on Tuesday following a big earnings miss.
• The company once again lowered its guidance and announced it is increasing product development.
• Wedbush maintains its Neutral rating and $57 price target for Harley.

Harley-Davidson shares plummeted 15 percent in morning trading on Tuesday following a disappointing earnings report prior to the market open. Following the release, Wedbush analyst James Hardiman penned a report outlining the Harley quarter and detailing exactly what went so wrong.

Earnings And Guidance

The headline numbers from Harley fell well short of expectations. The company reported Q3 EPS of $0.69, $0.10 below consensus predictions. In addition, the company lowered its full-year shipment guidance range from 276-281K to 265-270K. The original guidance for the year was even higher, at 282-286K. The new guidance now represents a best-case scenario of zero shipment growth year-over-year for the company.

Spending Ramp-Up

In the face of slumping shipment numbers, the company also announced a $70 million increase in 2015 investment, including a 35 percent increase in new product development. “While we believe this is the correct long-term move, the dramatic increase in spending during 2016 is likely to have a negative effect on 2016 earnings power,” Hardiman explains.

Market Share

The news doesn’t get much better when it comes Harley’s Q3 market share. While Harley experienced a 2.5 percent growth decline during the quarter, the combined heavyweight motorcycle segment witnessed an overall 4.5 percent growth, indicating that Harley is lagging its competitors.

Outlook

Hardiman believes that innovation is the only savior for Harley in the long-term and that the move to increase product development will be the key to the company’s future. For now, Wedbush maintains its Neutral rating on Harley-Davidson and its $57 price target for the stock.

Disclosure: the author holds no position in the stocks mentioned.