Harley-Davidson Earnings, Retail Motorcycle Sales Rise in Third Quarter

  • Earnings Climb to $0.78 Per Share on Motorcycle Shipment Growth, Improved Motorcycle Operating Margin and Financial Services Results
  • Worldwide Harley-Davidson® Retail New Motorcycle Sales Rise, Led by 5.4 Percent Growth in U.S.
  • Company Marks Continued Progress on Transformation Strategy
  • Company Repurchases Shares

MILWAUKEE, WI – October 18, 2011 – (Motor Sports Newswire) – Harley-Davidson, Inc. (NYSE: HOG) reported continued strong improvement in earnings and dealer retail sales in the third quarter of 2011 and through nine months, compared to 2010.

Income from continuing operations in the third-quarter 2011 rose 95.9 percent to $183.6 million, or $0.78 per share, compared to income of $93.7 million, or $0.40 per share from continuing operations in the year-ago quarter. Third-quarter operating income from Motorcycles and Related Products grew 78.0 percent on higher shipment volume and operating margin improvement, while operating income from Financial Services grew 21.9 percent on continued improvement in credit performance, compared to the third quarter of 2010.

Retail sales of new Harley-Davidson motorcycles grew 5.1 percent worldwide in the third quarter compared to the prior-year period, led by a 5.4 percent rise in the U.S.

For the first nine months of 2011, Harley-Davidson income from continuing operations was up 63.5 percent compared to the year-ago period to $493.4 million, or $2.09 per share. Retail sales of new Harley-Davidson motorcycles through nine months grew 4.9 percent worldwide compared to the year-ago period.

“We are pleased with our sustained progress and we continue to realize strong momentum in the transformation our business,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc.

“Two years ago we embarked on our strategy to focus solely on the Harley-Davidson brand, provide the flexibility required in today’s market and make Harley-Davidson lean, agile and more effective than ever at delivering remarkable products and extraordinary customer experiences. Today, we continue to see the positive results of the course we have charted,” Wandell said. “The changes underway in manufacturing, product development and retail capability will increasingly enable Harley-Davidson to be customer-led like never before.

“Harley-Davidson’s transformation involves a tremendous amount of highly complex, challenging work across every part of the organization. While much remains to be done, we are well down the road and everyone involved deserves much credit for bringing these changes to life,” Wandell said. “I continue to be impressed by the willingness of all employees, including the union leadership, to do the necessary things to transform our business to be a world class, sustainable operation.”

Retail Harley-Davidson Motorcycle Sales

On a worldwide basis, third-quarter retail Harley-Davidson new motorcycle sales grew 5.1 percent compared to last year’s third quarter to 61,838 units. Dealers sold 42,640 new Harley-Davidson motorcycles in the U.S., a 5.4 percent increase compared to last year’s third quarter. In international markets, dealers sold 19,198 new Harley-Davidson motorcycles during the third quarter, an increase of 4.4 percent compared to the year-ago period.

Through nine months, worldwide retail sales of new Harley-Davidson motorcycles increased 4.9 percent compared to the prior-year period to 194,829 units. U.S. retail sales of new Harley-Davidson motorcycles increased 4.7 percent to 127,930 units through three quarters compared to the year-ago period. In international markets, retail sales of new Harley-Davidson motorcycles increased 5.2 percent to 66,899 units for the first nine months of 2011 compared to 2010. Through nine months, industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 3.7 percent, compared to the year-ago period.

Third-quarter and nine-month data are listed in the accompanying tables.

Harley-Davidson Motorcycles and Related Products Segment Financial Results

Third-Quarter Segment Results: Revenue from Harley-Davidson Motorcycles during the third quarter of 2011 of $922.3 million was up 15.5 percent compared to the year-ago period. The Company shipped 61,745 Harley-Davidson motorcycles to dealers and distributors worldwide during the quarter, compared to shipments of 53,293 motorcycles in the third quarter of 2010.

Revenue from Motorcycle Parts and Accessories (P&A) totaled $235.7 million during the quarter, up 7.6 percent, and revenue from General Merchandise, which includes MotorClothes® Apparel and Accessories, was $69.3 million, up 8.2 percent compared to the year-ago period.

Gross margin was 33.7 percent in the third quarter of 2011, compared to 34.9 percent in the third quarter of 2010. Third-quarter operating margin was 14.7 percent, compared to 9.3 percent in the third quarter of 2010.

Nine-Month Segment Results: Through the first nine months of 2011, the Company shipped 182,387 Harley-Davidson motorcycles to dealers and distributors, a 9.9 percent increase compared to last year’s 166,013 units for the period.

Revenue from Harley-Davidson Motorcycles through nine months was $2.76 billion, a 13.2 percent increase compared to the year-ago period. Nine-month P&A revenue was $655.4 million, a 9.3 percent increase from the first nine months of 2010. General Merchandise revenue was $204.8 million, a 3.6 percent increase compared to the same period in 2010.

Gross margin through nine months was 34.0 percent and operating margin was 14.5 percent, compared to 35.5 percent and 11.8 percent respectively through nine months last year.

Financial Services Segment

The Financial Services segment recorded operating income of $62.0 million in the third quarter, compared to operating income of $50.9 million in the year-ago quarter. The increase in year-over-year operating income was largely the result of continued improvement in credit performance at Harley-Davidson Financial Services. Through nine months, operating income from financial services was $212.0 million, compared to operating income of $138.4 million in the first three quarters of 2010.

Guidance

Harley-Davidson continues to expect to ship 228,000 to 235,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2011, including 45,500 to 52,500 motorcycles in the fourth quarter.

For the full year, Harley-Davidson now expects gross margin to be between 33.5 percent and 34.5 percent, compared to previous guidance of 34.0 percent to 35.0 percent.  The Company continues to expect capital expenditures of between $210 million and $230 million, which includes $70 million to $85 million to support restructuring activities.

Restructuring Update

Harley-Davidson has lowered cost estimates related to the restructuring of its production operations and now expects all previously announced company-wide restructuring activities to result in one-time charges of $480 million to $495 million, including 2011 charges of $70 million to $80 million. The Company continues to expect to realize savings on a cumulative basis in 2011 of $210 million to $230 million from restructuring activities initiated since early 2009, and annual ongoing savings of $305 million to $325 million when the restructuring is fully implemented. Through the first nine months of 2011, the Company incurred restructuring charges of $49.0 million, including $12.4 million in the third quarter. During the third quarter, Harley-Davidson completed the consolidation of final assembly operations at York, Pa. Final assembly of all Touring, Softail, Trike and Custom Vehicle Operations (CVO) motorcycles now occurs on a single assembly line.

Income Tax Rate

Through nine months, the Company’s effective tax rate was 30.4 percent, compared to 34.0 percent in the year-ago period. The 2011 effective tax rate through the third quarter was favorably impacted by a settlement of an IRS audit, as well as a change in the Wisconsin income tax law associated with certain net operating losses. In 2011, the Company now expects its full-year effective tax rate from continuing operations to be approximately 31 percent.

Cash Flow

Cash and marketable securities totaled $1.61 billion at the end of the quarter, compared to $1.55 billion at the end of last year’s third quarter. During the first nine months of 2011, Harley-Davidson generated $901.6 million of cash from operating activities. In the first nine months of 2010, the Company generated $1.17 billion of cash from operating activities. Capital expenditures through the first nine months of 2011 were $106.1 million.

Share Repurchase

The Company repurchased 2.5 million shares of Harley-Davidson, Inc. common stock at a cost of $90.8 million during the third quarter of 2011. At the end of the third quarter, there were approximately 232 million shares of Harley-Davidson common stock outstanding and 22.4 million shares remaining on board-approved share repurchase authorizations.

Company Background

Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company produces heavyweight custom, cruiser and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear and apparel, and general merchandise. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and select European countries. For more information, visit Harley-Davidson’s Web site at www.harley-davidson.com.

Conference Call and Webcast Presentation

Harley-Davidson will discuss third-quarter results on a Webcast at 8:00 a.m. CT today. The Webcast presentation will be posted prior to the call and can be accessed at http://investor.harley-davidson.com/. Click “Events and Presentations” under “Resources.”

Forward-Looking Statements

The Company intends that certain matters discussed in this release are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this release are only made as of the date of this release, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company’s ability to (i) execute its business strategy, (ii) effectively execute the Company’s restructuring plans within expected costs and timing, (iii) implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, and secure data contained in those systems, (iv) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices,  (v) anticipate the level of consumer confidence in the economy, (vi) manage through inconsistent economic conditions, including changing capital, credit and retail markets, (vii) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (viii) successfully implement with our labor unions the agreements that we have executed with them that we believe will provide flexibility and cost-effectiveness to accomplish restructuring goals and long-term competitiveness, (ix) manage supply chain issues, including the ability of several Company suppliers to execute short-term and long-term contingency plans for maintaining supply, or obtaining alternate supply, of certain components and sub-components currently manufactured in Japan, (x) manage production capacity and production changes, (xi) provide products, services and experiences that are successful in the marketplace, (xii) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xiii) manage the risks that our independent dealers may have difficulty obtaining capital and managing through unfavorable economic conditions and consumer demand, (xiv) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (xv) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (xvi) sell all of its motorcycles and related products and services to its independent dealers, (xvii) continue to develop the capabilities of its distributor and dealer network, (xviii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xix) adjust to healthcare inflation and reform, pension reform and tax changes, (xx) retain and attract talented employees, and (xxi) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation.

In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.

TABLES FOLLOW
Harley-Davidson, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 25, September 26, September 25, September 26,
2011 2010 2011 2010
Motorcycles and related products revenue $    1,232,699 $    1,087,115 $    3,635,487 $    3,259,551
Gross profit 415,391 379,806 1,235,525 1,156,337
Selling, administrative and engineering expense 222,258 210,828 660,890 624,984
Restructuring expense 12,429 67,476 49,022 145,837
 Operating income from motorcycles & related products 180,704 101,502 525,613 385,516
Financial services revenue 164,557 172,845 492,296 516,387
Financial services expense 102,573 121,977 280,322 377,992
 Operating income from financial services 61,984 50,868 211,974 138,395
Operating income 242,688 152,370 737,587 523,911
Investment income 2,479 1,239 5,625 3,666
Interest expense 11,270 23,102 34,101 70,148
Income before income taxes 233,897 130,507 709,111 457,429
Provision for income taxes 50,303 36,790 215,677 155,684
Income from continuing operations 183,594 93,717 493,434 301,745
Loss from discontinued operations, net of tax (4,888) (108,434)
Net income $       183,594 $         88,829 $       493,434 $       193,311
Earnings per common share from continuing operations:
 Basic $             0.79 $             0.40 $             2.11 $             1.29
 Diluted $             0.78 $             0.40 $             2.09 $             1.29
Loss per common share from discontinued operations:
 Basic $                  – $           (0.02) $                  – $           (0.46)
 Diluted $                  – $           (0.02) $                  – $           (0.46)
Earnings per common share:
 Basic $             0.79 $             0.38 $             2.11 $             0.83
 Diluted $             0.78 $             0.38 $             2.09 $             0.82
Weighted-average common shares:
 Basic 233,800 233,504 233,989 233,232
 Diluted 235,861 234,786 235,981 234,627
Cash dividends per common share $           0.125 $             0.10 $           0.350 $             0.30
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) (Unaudited)
September 25, December 31, September 26,
2011 2010 2010
ASSETS
Current assets:
   Cash and cash equivalents $    1,428,753 $    1,021,933 $    1,494,301
   Marketable securities 179,285 140,118 55,229
   Accounts receivable, net 285,332 262,382 306,085
   Finance receivables, net 1,104,056 1,080,432 1,065,103
   Restricted finance receivables held by variable interest entities, net 586,144 699,026 674,371
   Inventories 345,963 326,446 319,101
   Restricted cash held by variable interest entities 238,208 288,887 287,613
   Other current assets 217,445 247,402 297,157
Total current assets 4,385,186 4,066,626 4,498,960
Finance receivables held for investment, net 2,095,839 1,553,781 2,045,249
Restricted finance receivables held by variable interest entities, net 2,119,789 2,684,330 2,425,788
Other long-term assets 1,103,545 1,126,003 1,070,963
$    9,704,359 $    9,430,740 $  10,040,960
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
   Accounts payable & accrued liabilities $    1,021,433 $       782,017 $       934,651
   Short-term debt 774,971 480,472 587,981
   Current portion of long-term debt 201,426
   Current portion of long-term debt held by variable interest entities 644,779 751,293 731,833
Total current liabilities 2,441,183 2,013,782 2,455,891
Long-term debt 2,804,605 2,516,650 2,814,400
Long-term debt held by variable interest entities 1,350,294 2,003,941 1,801,537
Pension and postretirement healthcare liabilities 368,891 536,847 626,128
Other long-term liabilities 138,126 152,654 153,054
Total shareholders’ equity 2,601,260 2,206,866 2,189,950
$    9,704,359 $    9,430,740 $  10,040,960
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended
September 25, September 26,
2011 2010
Net cash provided by operating activities
 of continuing operations $       901,601 $    1,169,502
Cash flows from investing activities of continuing operations:
 Capital expenditures (106,115) (77,559)
 Finance receivables held for investment, net (33,775) 200,573
 Net change in marketable securities (37,678) (13,918)
Net cash (used by) provided by investing activities of continuing operations (177,568) 109,096
Cash flows from financing activities of continuing operations:
 Proceeds from issuance of medium-term notes 394,277
 Proceeds from securitization debt 571,276
 Repayments of securitization debt (1,333,541) (1,518,528)
 Net increase in credit facilities and unsecured commercial paper 182,058 145,687
 Net borrowings of asset-backed commercial paper (483) (845)
 Net change in restricted cash 50,679 78,928
 Dividends (82,557) (70,480)
 Purchase of common stock for treasury (97,456) (1,687)
 Excess tax benefits from share-based payments 2,702 3,590
 Issuance of common stock under employee stock option plans 7,763 7,466
Net cash used by financing activities of continuing operations (305,282) (1,355,869)
Effect of exchange rate changes on cash and cash equivalents
 of continuing operations (11,857) 4,921
Net increase (decrease) in cash and cash equivalents of continuing operations 406,894 (72,350)
Cash flows from discontinued operations:
 Cash flows from operating activities of discontinued operations (74) (68,650)
 Cash flows from investing activities of discontinued operations
 Effect of exchange rate changes on cash and cash equivalents
   of discontinued operations (1,195)
(74) (69,845)
Net increase (decrease) in cash and cash equivalents $       406,820 $     (142,195)
Cash and cash equivalents:
 Cash and cash equivalents – beginning of period $    1,021,933 $    1,630,433
 Cash and cash equivalents of discontinued operations – beginning of period 6,063
 Net increase (decrease) in cash and cash equivalents 406,820 (142,195)
 Cash and cash equivalents – end of period $    1,428,753 $    1,494,301
Motorcycles and Related Products Revenue and
Motorcycle Shipment Data
(Unaudited)
Three months ended Nine months ended
September 25, September 26, September 25, September 26,
2011 2010 2011 2010
MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)
 Harley-Davidson® motorcycles $       922,257 $       798,769 $    2,761,374 $    2,439,206
 Buell® motorcycles 212 828 1,189 11,734
 Parts & Accessories 235,676 218,975 655,387 599,845
 General Merchandise 69,333 64,052 204,809 197,667
 Other 5,221 4,491 12,728 11,099
$    1,232,699 $    1,087,115 $    3,635,487 $    3,259,551
MOTORCYCLE SHIPMENTS:
 Harley-Davidson
   United States 41,066 34,394 118,555 104,019
   International 20,679 18,899 63,832 61,994
     Total Harley-Davidson 61,745 53,293 182,387 166,013
 Buell 44 157 264 2,551
MOTORCYCLE PRODUCT MIX:
 Harley-Davidson
   Touring 22,357 20,042 70,410 63,413
   Custom 25,638 22,581 71,526 69,323
   Sportster® 13,750 10,670 40,451 33,277
     Total Harley-Davidson 61,745 53,293 182,387 166,013
Worldwide Retail Sales of Harley-Davidson Motorcycles
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
North America Region
 United States 42,640 40,459 127,930 122,145
 Canada 2,458 2,562 9,288 9,354
   Total North America Region 45,098 43,021 137,218 131,499
Europe Region (Includes Middle East and Africa)
 Europe* 8,064 7,973 33,337 31,440
 Other 1,243 941 3,947 3,079
   Total Europe Region 9,307 8,914 37,284 34,519
Asia Pacific Region
 Japan 2,868 3,199 7,827 8,454
 Other 2,620 2,194 7,745 6,832
   Total Asia Pacific Region 5,488 5,393 15,572 15,286
Latin America Region 1,945 1,521 4,755 4,416
   Total Worldwide Retail Sales 61,838 58,849 194,829 185,720
Data Source (subject to update)
Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company.  The Company must rely on information that its dealers supply concerning new retail sales, and this information is subject to revision.
Only Harley-Davidson® motorcycles are included in the Harley-Davidson Motorcycle Sales data.
* Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Heavyweight Motorcycle Registration Data(1)
Nine months ended
September 30, September 30,
2011 2010
United States(2) 231,117 222,935
Eight months ended
August 31, August 31,
2011 2010
Europe(3) 241,744 247,517
1 – Heavyweight data includes street legal 651+cc models.  Street legal 651+cc models include on-highway, dual purpose models and three-wheeled vehicles.
2 – United States data is derived from information provided by Motorcycle Industry Council (MIC).  This third party data is subject to revision and update.  Prior periods have been adjusted to include all dual purpose models that were previously excluded.
3 – Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.  Industry retail motorcycle registration data includes 651+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency.  Europe market data is reported on a one-month lag.  This third-party data is subject to revision and update.
SOURCE: Harley-Davidson, Inc.
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