Month: April 2020

Parker surprises positively

Parker Hannifin, the global industrial hardware store for all the major metal bashers like Boeing and Caterpillar reported results this morning. In a word – impressive.

All we care about is the orders trend. Parker supplies to global top tier firms around the world in pneumatics, hydraulics, pumps, solenoids, valves, actuators, linear motion, factory automation controls and so on. Think of it as a Bunnings Warehouse for multinational industrial corporations. Parker’s order book is a great read across on the state of global industrial production.

Orders for the quarter ending March 31, 2020, compared with the same quarter a year ago were as follows:

· Orders decreased 2% for total Parker

· Orders decreased 7% in the Diversified Industrial North America businesses

· Orders decreased 2% in the Diversified Industrial International businesses

· Orders increased 12% in the Aerospace Systems Segment on a rolling 12-month average basis.

Given COVID19, that is a pretty strong result on orders. Having said that, the next quarter maybe slightly more challenging and the company has pulled 2020 guidance.

At first glance, this is a pretty good outcome. The shares have retraced 50% from the recent lows.

Harley’s horrible huffing contains plenty of puffing

HDQ1US

When companies won’t give guidance, we must find ways to see where we were relative to history to get a picture of the future. Harley-Davidson (HOG) makes a good case study. Coronavirus may be one factor but the company has already produced results that have undercut the worst levels experienced during the GFC. We have long criticised HOG for fuzzy maths under the disastrous leadership of the recently ousted CEO Matt Levatich.

While there are strictly no direct apples for apples comparisons on the timing of coronavirus and the GFC (the latter requiring no lockdown), we note the weakness in Q1 2020 unit sales in the chart above.

This is what the trend of Q2 looks like.

HDUSQ2

If we assumed a similar slowdown for April and May then theoretically the company would comfortably breach the Q2 2009 unit sales level of 58,179 which is only 18.6% below the Q2 2019 level. Q1 2020 global sales fell by 17.7%, even though the company made a very misleading statement which we’ll get to in a moment.

One thing that struck us was the steadily rising value of quarterly inventory as a percentage of quarterly non-finance revenues since Q1 2014. While the former value is a balance sheet item and the latter P&L, Q1 is generally a period where new models are rolled out ahead of the busiest Q2 & Q3 seasons to ensure the distribution network can move metal.

HDQ1Inv

Shipments reflect this. The inventory metric drops off into Q2 although exhibits a similar type of trend to Q1. Given Q2 2009 was the beginning of the tough times post-GFC, will we see the high watermark breached or will the slowdown in production offset it? How badly are revenues affected such even flat inventories lead to a deterioration of this measure?

In Q4 2019, inventories to motorcycle revenues surged to 69.1%.

We note that Q1 2020 shipments equated to an inventory of 12,534 units (+29.0%YoY).

HDq2Inv

Here is where it gets interesting. By HOG’s own admission in the quarterly investor presentation pack (p.7), it noted that Q1 2020 US retail sales were on target to be one of ‘the strongest quarters in the last 6 years through to mid-March‘, until COVID. 6 years ago US Q1 unit sales hit 35,730 units. US sales in Q1 2020 ended up at 23,732.

By deduction,

In Q1 2014, over 90 days HOG shifted on average 397 bikes per day. (35,730/90 = 397)

In Q1 2020, over the 74 days to mid-March, HOG was moving on average 321 bikes per day. (23,732/74 = 320.7027).

If we assumed that HOG was to hit that magic target over the 16 days stolen by COVID19, it would have had to punch out 750 bikes a day. (11,998/16 = 749.875).

We would love to see the order book for these magical beasts that were waiting for a home…it would seem the sales and marketing department cherry-picked one strong day and multiplied it over the quarter to create such a questionable statement.

Here is a chart of motorcycle related revenue for Q1 since 2008. No wonder the shares have underperformed since 2014, even with a small fortune squandered on share buybacks.

HSQ1rev

The Q2 revenue book doesn’t look too flash either if April is wiped out. At present 50% of dealers are shut since late March. Is the market prepared for a sub Q2 2009 print? The share price has rebounded strongly after the Q1 results even though there is no guidance to speak of.

HDq2Rev

But it gets worse. So poor has the Q3 season become for HOG that its unit sales have missed the Q3 2009 post-GFC low for seven out of the last 10 years. Are we to believe if the world is out of lockdown by Q3 that there will be a miraculous surge in new bike sales when unemployment is likely to remain at troubling levels potentially above that of GFC?

HDq3US

HOG is a great example of a divine franchise. It wasted far too much money on share buybacks (now suspended) and sits with a credit rating just two notches above junk.

The annualised Q1 2020 loss experience for the finance business sit at 10-year highs even before it has been thumped by the coming turndown. People buy HOGs as a hobby, not transport. A purely discretionary purchase. We imagine that restoring household balance sheets will take precedence to stumping up serious coin for a Harley cruiser.

Sadly Levatich and his 2027 vision have not been consigned to the dustbin of history which is the only logical filing cabinet for it. Completely unrealistic, devoid of reality and totally in denial of the shifting sands in the global motorbike market.

The new “Rewire Plan” (p.5) while sketchy on detail (as it would with an interim CEO) is a reheat of Levatich’s plan. Sad.

In our view, the entire motorcycle industry needs a strong HOG. New management is a good start but it won’t help if they intend to convince investors that they were on course to shoot Q1 to its best level in 6 years with questionable math. How quickly can inventory be pared? What models will revive its fortunes?

HOG needs to get in touch with its core customer base the way Willie Davidson did after the dark days of AMF ownership. It needs to build products which hark back to its former glory rather answer questions in segments that no one is asking it to fill.

Indian, its rival of 100 years ago is killing it with the FTR1200. Indian’s parent company, Polaris Industries, posted a small single-digit increase for motorcycles in Q1 2020. Enough excuses HOG. You are running out of time and your retained earnings are 1/5th what they were 5 years ago!

Why is the market giving it the benefit of the doubt when the worst is still ahead?

HOG

Harley needs a crisis manager. Will the incoming CEO possess those skills?

Constituents throw Contrarian Governor a surprise parade

South Dakota’s Republican Governor Kristi Noem received a surprise parade as a thank you for not putting the state under draconian stay at home orders.

Some would argue that South Dakota is a hick state full of Trump supporters and host to the Sturgis Harley Davidson rallies.

Noem put faith in her constituents when she said,

Thanks to a strong commitment and respect for the principle of personal responsibility, South Dakotans have dramatically changed the trajectory of our initial COVID-19 projections. With our hospitalization capacity currently at a manageable level, South Dakotans are asked to the following steps as we look to get back to normal.

So refreshing to see a government not treat its citizens as mindless idiots that need ever increasing levels of state control. As we can see in the attached charts, South Dakota experienced some of the lowest infections and death rates per capita.

Climate experts demand Planet of the Humans be taken down

Planet of the humans

You have to love the climate alarmists. Instead of challenging, dissecting and dismantling each point made in ‘Planet of the Humans‘ that was factually incorrect or misleading, it is far easy to lean on “the science is settled” argument and put pressure on YouTube pull it down.

How do these people honestly think they will persuade climate sceptics or people sitting on the fence if the only answer is to stifle or shut down debate? What of those climate alarmists who may have been disappointed to see the crony socialism at play? If the science is indeed on their side, why not provide the rebuttals rich in data and empirical facts? That way people can make even more informed decisions instead of being pilloried for questioning such findings.

Let’s be honest. The truth is that renewables rely very heavily on the fossil fuel industry. From the mining of the raw materials to the energy-intensive manufacturing processes.

We, like most rational people, want clean air and efficient use of resources that minimise waste but the problem is that the economics to put these green dreams into action is punitive. Should we accept that one needs 400x the area of a gas-fired power plant to produce the same amount of output with renewables?

We could go on and on. Bill McKibben of the Sierra Club gifted us some amusing backflips much like his colleague Aaron Mair did in a Senate Judiciary Subcommittee hearing on the environment. The video is utterly hilarious in showing just how little the Sierra Club knows about the supposed field of expertise – global warming. The hot air was in abundance.

We have always wondered why even if one wanted to believe the supposed 97% of scientists that concur with global warming, isn’t there any curiosity about what the 3% have to say that challenges the prevailing sentiment?

Media bias, fake news & censorship

We have argued for some time that media bias is a large problem. The GDELT Project conducts research which outlines the number of times that certain topics are mentioned by the major TV networks. Left or right-wing media, we can be assured that it is not the principle that matters, but the side.

Take the Brett Kavanaugh sexual assault allegations before his confirmation. CNN mentioned his name over 15,000 times, mostly in the negative. Fox News talked of him some 24,000 times, mostly in the positive.

Despite the more credible evidence that came out with respect to Epstein (surrounding Prince Andrew) and Weinstein we saw these networks devoted mere fractions of the attention vs Kavanaugh. 18% to be precise.

So now that sexual assault allegations have come out with respect to presidential candidate Joe Biden, we can see the mainstream media has all but ignored it, especially after the 1993 video resurfaced.

It doesn’t need to be the US media either. The Chinese media has a damning trend with respect to COVID19. It is a dark zone of statistics about who knew what when. This chart lists the number of “censored posts”.

Figure

The global media’s focus only got interested post-January 20th when China finally admitted the virus spread beyond its borders. The chart below documents the frequency of mentions of coronavirus, SARS or pneumonia.

After Trump’s Jan 31st travel ban, global media interest waned until late February when countries like Italy and Iran were experiencing logarithmic infection rates. March 12th marks the day of WHO’s declaration of a pandemic.

Figure

The media may throw shade at the relative handling by governments (especially the US) but they need only reflect on their perfect 20-20 hindsight.

Which sums up much of media today – reactive, not proactive. So much for the in-depth investigative journalism that made waves in the past, now it is all Bout chasing clickbait.

This recent article from ABC News which led with the title, ‘Maryland agency receives more than 100 disinfectant use calls‘ bears this out.

No mention of the title was contained in the written content.

A pandemic of the novel coronavirus has now killed more than 195,000 people worldwide.

Over 2.7 million people across the globe have been diagnosed with COVID-19, the disease caused by the new respiratory virus, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The actual numbers are believed to be much higher due to testing shortages, many unreported cases and suspicions that some governments are hiding the scope of their nations’ outbreaks.

Since the first cases were detected in China in December, the United States has become the worst-affected country, with more than 890,000 diagnosed cases and at least 51,017 deaths.

Tune into ABC at 1 p.m. ET and ABC News Live at 4 p.m. ET every weekday for special coverage of the novel coronavirus with the full ABC News team, including the latest news, context and analysis.

The video content made no mention of the title either. But hey, why would anyone wish to link the content to the sensationalist headline?

Shameless.

Brittany bashes Biden’s backers

MRCTV’s Brittany M. Hughes tears shreds off the mainstream media which refuses to cover the Biden sexual assault accusation. Switching from the non-stop crusade to back Christine Blasey-Ford flakey testimony when Justice Kavanaugh was up for a SCOTUS nomination to virtual silence over Tara Reade’s accusations against Biden. We guess #MeToo only matters depending on what side of politics one sits.

Then again, it wasn’t so long ago that ABC’s Amy Robach admitted the network had the story on Epstein for 3 years but buried it so they wouldn’t risk losing front row seats for Wills & Kate’s royal wedding.

Principles. Principles. Journalistic integrity is a rare commodity these days.