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Harley in talks to raise $1.3 billion to boost cash in midst of collapse

Gabrielle Coppola
Bloomberg

Harley-Davidson Inc. shares climbed after the struggling motorcycle maker’s new acting chief executive officer laid out plans to cut costs and complexity and focus on its strengths.

The stock rose as much as 17% after the unveiling of a strategy dubbed “The Rewire,” which Morgan Stanley analyst Adam Jonas said could make Harley one of few manufacturers to grow profits in the coming years.

The logo for Harley-Davidson appears above a trading post on the floor of the New York Stock Exchange in this March 3, 2020, file photo. Harley-Davidson Inc. shares climbed after the new acting CEO laid out plans to cut costs and complexity and focus on its strengths.

Key Insights

“It is clear to us that HOG will be less adventurous in terms of trying its hand at segments and markets where the brand faces extremely low chances of success with high up-front costs and high risks of brand atrophy that could threaten the company’s long term survival,” Jonas, who rates the stock the equivalent of a buy, wrote in a report Tuesday.

Harley announced it’s in talks with major U.S. banks to secure $1.3 billion in funding and expects to tap capital markets for more in the coming weeks after sales of its motorcycles declined in every market worldwide, including a 13th consecutive quarterly drop in the U.S.

Harley “has become accustomed to over-committing and under-delivering; we need to set achievable plans and realistic goals,” CEO Jochen Zeitz said during the earnings call. “It is clear that our strategy needs to be refocused to better align with our capacity and capabilities and also updated given our new reality.”

After starting 2020 off with a 16% drop in first-quarter U.S. retail sales, Harley is in all likelihood headed for its sixth straight annual decline.

The fall-out from the coronavirus was swift: U.S. sales had been up 6.6% before the pandemic took hold in mid-March, but the drop during the first three months ended up being Harley’s biggest first-quarter fall since 2010.

Market Reaction

Harley shares rose 14% as of 9:50 a.m. in New York; the stock had plunged 49% this year through Monday’s close