Harley-Davidson Reports Third Quarter 2016 Earnings

18 10 2016

New Model Year Motorcycles Drive Increased Retail Sales in September

MILWAUKEE, WI – October 18, 2016 – (Motor Sports Newswire) –  Harley-Davidson, Inc. (NYSE: HOG) third quarter 2016 diluted earnings per share decreased 7.2 percent to $0.64 compared to diluted EPS of $0.69 in the same period in 2015. Net income was $114.1 million on consolidated revenue of $1.27 billion compared to net income of $140.3 million on consolidated revenue of $1.32 billion in the third quarter of 2015.

Harley-Davidson worldwide retail motorcycle sales in the third quarter were down 4.5 percent, primarily on weak U.S. industry trends. Harley-Davidson retail motorcycle sales in the U.S. were down 7.1 percent compared to the year-ago quarter, with the overall U.S. industry also down for the same period. Harley-Davidson’s U.S. market share for the quarter was 52.3 percent in the 601cc-plus segment, essentially flat compared to the third quarter in 2015. Harley-Davidson international retail sales increased by 1.0 percent over the prior year quarter.

“We continue to effectively navigate a fiercely competitive environment and an ongoing weak U.S. industry,” said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. “We are pleased with the positive results and the enthusiasm we’ve seen for our Model Year 2017 motorcycles, featuring the new Milwaukee-Eight engine. We are confident that the entire line-up will drive retail sales growth for the remainder of 2016 and position us well heading into the spring riding season next year.”

The Milwaukee-Eight™ engine packs innovative technologies that deliver improved horsepower, torque, and comfort and enhanced sound. It was introduced on Touring motorcycles in August as part of the Model Year 2017 product launch. Response to the new model year motorcycles drove increased retail sales in September over prior year.

Through nine months, Harley-Davidson 2016 net income was $645.0 million on consolidated revenue of $4.89 billion compared to nine-month 2015 net income of $710.0 million on consolidated revenue of $4.81 billion. Diluted EPS was $3.55 compared to diluted EPS of $3.41 in the year-ago period. Worldwide retail motorcycle sales were down 1.9 percent compared to the same period in 2015. International retail sales were up 3.3 percent, offset by a decline of 4.7 percent in U.S. retail sales.

Recognizing the continued slower industry growth in the U.S., the company will streamline its operations in the fourth quarter of 2016. It expects to incur expenses of approximately $20 million to $25 million in the fourth quarter, primarily for employee separation and reorganization costs.

“Our value as a company and as a brand is the sum of 113 years of commitment to our riders and the freedom seekers we will inspire to ride in the future,” said Levatich. “We remain intensely focused on growing the sport and delivering strong business results.”

Retail Harley-Davidson Motorcycle Sales

$ in thousands

3rd Quarter

Nine Months

2016

2015

Change

2016

2015

Change

Americas Region

   U.S.

45,469

48,918

(7.1)%

135,581

142,196

(4.7)%

   Canada

2,663

2,554

4.3%

8,946

8,414

6.3%

   Latin America

2,605

2,818

(7.6)%

7,064

8,091

(12.7)%

Europe, Middle East, Africa (EMEA) Region

10,224

10,031

1.9%

37,947

35,598

6.6%

Asia Pacific Region

7,994

7,857

1.7%

24,141

23,471

2.9%

Worldwide Total

68,955

72,178

(4.5)%

213,679

217,770

(1.9)%

Retail sales in EMEA were up 1.9 percent in the third quarter and up 6.6 percent for the first nine months due to the popularity of Model Year 2016 cruiser motorcycles and our focus on driving demand through test rides. Asia Pacific retail sales were up 1.7 percent in the quarter and up 2.9 percent for the first nine months compared to 2015 behind strong growth in Australia and Japan.

Motorcycles and Related Products Segment Results

$ in thousands

3rd Quarter

Nine Months

2016

2015

Change

2016

2015

Change

Motorcycle Shipments (vehicles)

48,611

53,472

(9.1)%

219,807

218,233

0.7%

Revenue

   Motorcycles

788,856

812,398

(2.9)%

3,437,066

3,376,356

1.8%

   Parts & Accessories

231,279

252,226

(8.3)%

673,192

692,938

(2.8)%

   General Merchandise

65,289

69,008

(5.4)%

211,664

212,954

(0.6)%

Gross Margin Percent

33.6

34.6

(1.0)pts

36.1

37.9

(1.8)pts

Operating Income

108,929

143,065

(23.9)%

764,135

869,122

(12.1)%

Operating Margin Percent

10.0%

12.5%

(2.5)pts

17.6%

20.2%

(2.6)pts

Revenue from motorcycles and related products was down compared to the third quarter in 2015, primarily behind decreased motorcycle shipments. Operating margin as a percent of revenue decreased versus the prior year as a result of lower gross margin behind unfavorable manufacturing expense and higher year-over-year SG&A.

Financial Services Segment Results

$ in thousands

 3rd Quarter

Nine Months

2016

2015

Change

2016

2015

Change

Revenue

183,183

177,109

3.4%

547,505

513,093

6.7%

Operating Income

69,447

72,771

(4.6)%

215,391

219,348

(1.8)%

Operating income from financial services was down 4.6 percent in the third quarter compared to the year ago period.

Guidance
Harley-Davidson continues to expect to ship 264,000 to 269,000 motorcycles in 2016, which is approximately down 1 percent to up 1 percent from 2015. In the fourth quarter of 2016, the company expects to ship 44,200 to 49,200 motorcycles compared to 48,149 motorcycles shipped in the year-ago period. The company continues to expect full-year 2016 operating margin of approximately 15 to 16 percent for the Motorcycles segment. The company continues to expect 2016 capital expenditures for Harley-Davidson, Inc. of $255 million to $275 million.

Income Tax Rate
For the first nine months, Harley-Davidson’s effective tax rate was 32.9 percent compared to 34.8 percent in 2015. The company continues to expect its full-year 2016 effective tax rate will be approximately 33 percent.

Cash Flow
Cash and marketable securities totaled $795.3 million at the end of the third quarter, compared to $1.42 billion a year ago. During the first nine months of the year, Harley-Davidson generated $927.8 million of cash from operating activities compared to $1.02 billion for the same period in 2015.

Shareholder Returns
In the third quarter, the company paid a cash dividend of $0.35 per share. During the same time period, on a discretionary basis, the company repurchased 2.1 million shares of Harley-Davidson common stock for $104.6 million. Also in the third quarter, there were approximately 179.3 million weighted-average diluted shares outstanding, compared to approximately 204.6 million shares in the year-ago quarter. As of September 25, 2016, a total of 20.9 million shares remained 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. Since 1903, Harley-Davidson Motor Company has fulfilled dreams of personal freedom with custom, cruiser and touring motorcycles, riding experiences and events and a complete line of Harley-Davidson motorcycle parts, accessories, general merchandise, riding gear and apparel. 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 other select international markets. 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 supporting slides will be posted prior to the call and can be accessed at http://investor.harley-davidson.com under “Events and Presentations.” The audio portion of today’s call will also be posted approximately two hours after the call concludes.

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, unfavorably or favorably, 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) manage through changes in general economic conditions, including changing capital, credit and retail markets, and political events, (iii) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (iv) drive demand by executing its marketing strategy of appealing to and growing sales to multi-generational and multi-cultural customers worldwide in an increasingly competitive marketplace, (v) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles and collections, (vi) develop and introduce products, services and experiences that are successful in the marketplace, (vii) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles to the market in excess of demand at reduced prices, (viii) prevent and detect any issues with its motorcycles or any associated manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, (ix) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (x) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xi) effectively execute reorganization actions within expected costs and realize the expected benefits of those actions, (xii) continue to develop the capabilities of its distributors and dealers and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xiii) manage risks that arise through expanding international manufacturing, operations and sales, (xiv) manage through the effects inconsistent and unpredictable weather and weather patterns may have on retail sales of motorcycles, (xv) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xvi) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xvii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xviii) retain and attract talented employees, (xix) manage its exposure to product liability claims and commercial or contractual disputes, (xx) execute its flexible production strategy, (xxi) adjust to healthcare inflation and reform, pension reform and tax changes, (xxii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, and (xxiii) continue to manage the relationships and agreements that the company has with its labor unions to help drive long-term competitiveness.

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.

Harley-Davidson, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Three months ended

Nine months ended

September 25, 

September 27,

September 25, 

September 27,

2016

2015

2016

2015

Motorcycles and related products revenue

$    1,091,630

$   1,140,321

$    4,338,353

$   4,301,674

Gross profit

367,019

394,039

1,564,857

1,631,528

Selling, administrative and engineering expense

258,090

250,974

800,722

762,406

  Operating income from motorcycles & related products

108,929

143,065

764,135

869,122

Financial services revenue

183,183

177,109

547,505

513,093

Financial services expense

113,736

104,338

332,114

293,745

  Operating income from financial services

69,447

72,771

215,391

219,348

Operating income

178,376

215,836

979,526

1,088,470

Investment income

2,300

3,211

3,754

5,983

Interest expense

7,706

4,879

21,968

4,897

Income before income taxes

172,970

214,168

961,312

1,089,556

Provision for income taxes

58,905

73,821

316,327

379,545

Net income

$       114,065

$      140,347

$       644,985

$      710,011

Earnings per common share:

  Basic

$            0.64

$           0.69

$            3.57

$           3.43

  Diluted

$            0.64

$           0.69

$            3.55

$           3.41

Weighted-average common shares:

  Basic

178,438

203,598

180,779

207,255

  Diluted

179,320

204,580

181,582

208,282

Cash dividends per common share

$            0.35

$           0.31

$            1.05

$           0.93

Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets(1)

(In thousands)

(Unaudited)

(Unaudited)

September 25,

December 31,

September 27,

2016

2015

2015

ASSETS

Current assets:

    Cash and cash equivalents

$       790,284

$      722,209

$    1,368,554

    Marketable securities

5,038

45,192

47,358

    Accounts receivable, net

346,176

247,405

294,054

    Finance receivables, net

2,205,644

2,053,582

2,068,873

    Inventories

426,547

585,907

466,657

    Restricted cash

65,088

88,267

113,499

    Other current assets

263,567

235,321

251,225

Total current assets

4,102,344

3,977,883

4,610,220

Finance receivables, net

4,944,322

4,814,571

5,009,473

Other long-term assets

1,165,560

1,180,523

1,092,341

$  10,212,226

$   9,972,977

$  10,712,034

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

    Accounts payable & accrued liabilities

$       798,127

$      707,578

$       781,246

    Short-term debt

1,055,428

1,201,380

990,049

    Current portion of long-term debt, net

700,152

838,349

885,889

Total current liabilities

2,553,707

2,747,307

2,657,184

Long-term debt, net

5,170,609

4,832,469

5,040,644

Pension and postretirement healthcare liabilities

303,319

358,547

254,864

Other long-term liabilities

192,223

195,000

199,669

Total shareholders’ equity

1,992,368

1,839,654

2,559,673

$  10,212,226

$   9,972,977

$  10,712,034

(1)

ASU 2015-03 Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs was adopted retrospectively on January 1, 2016. Debt issuance costs in Other current assets and Other long-term assets have been reclassified to Current-portion of long-term debt, net and Long-term debt, net for 2015 balances to reflect the adoption of the new guidance.

Harley-Davidson, Inc.

Condensed Consolidated Statements of Cash Flows

 (In thousands)

(Unaudited)

(Unaudited)

Nine months ended

September 25,

September 27,

2016

2015

Net cash provided by operating activities

$       927,809

$   1,020,957

Cash flows from investing activities:

  Capital expenditures

(162,726)

(139,054)

  Finance receivables, net

(569,013)

(719,472)

  Proceeds from sale of finance receivables

312,571

  Net change in marketable securities

40,014

9,500

  Acquisition of business 

(59,910)

  Other

251

5,172

Net cash used by investing activities

(378,903)

(903,764)

Cash flows from financing activities:

  Proceeds from issuance of senior unsecured notes

740,949

  Proceeds from issuance of medium-term notes

1,193,396

595,386

  Repayments of medium-term notes

(451,336)

(600,000)

  Proceeds from securitization debt

1,195,668

  Repayments of securitization debt

(535,616)

(764,909)

  Net (decrease) increase in credit facilities and unsecured commercial paper

(146,328)

258,734

  Borrowings of asset-backed commercial paper

33,428

69,191

  Repayments of asset-backed commercial paper

(55,170)

(55,124)

  Net change in restricted cash

30,981

(15,165)

  Dividends paid

(190,387)

(191,451)

  Purchase of common stock for treasury

(374,234)

(894,565)

  Excess tax benefits from share-based payments

1,291

2,878

  Issuance of common stock under employee stock option plans

6,444

16,755

Net cash (used by) provided by financing activities

(487,531)

358,347

Effect of exchange rate changes on cash and cash equivalents

6,700

(13,666)

Net increase in cash and cash equivalents

$        68,075

$      461,874

Cash and cash equivalents:

  Cash and cash equivalents – beginning of period

$       722,209

$      906,680

  Net increase in cash and cash equivalents

68,075

461,874

  Cash and cash equivalents – end of period

$       790,284

$   1,368,554

Motorcycles and Related Products Revenue and

 Motorcycle Shipment Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Three months ended

Nine months ended

September 25,

September 27,

September 25,

September 27,

2016

2015

2016

2015

MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)

  Motorcycles

$       788,856

$      812,398

$    3,437,066

$   3,376,356

  Parts & Accessories

231,279

252,226

673,192

692,938

  General Merchandise

65,289

69,008

211,664

212,954

  Other

6,206

6,689

16,431

19,426

$    1,091,630

$   1,140,321

$    4,338,353

$   4,301,674

MOTORCYCLE SHIPMENTS:

    United States

26,269

30,092

141,708

141,884

    International

22,342

23,380

78,099

76,349

      Total 

48,611

53,472

219,807

218,233

MOTORCYCLE PRODUCT MIX:

    Touring

23,295

21,994

89,467

95,354

    Cruiser

13,986

18,405

78,570

71,753

    Sportster® / Street

11,330

13,073

51,770

51,126

      Total

48,611

53,472

219,807

218,233

Worldwide Retail Sales of Harley-Davidson Motorcycles(1)

Three months ended

Nine months ended

September 30,

September 30,

September 30,

September 30,

2016

2015

2016

2015

Americas Region

  United States

45,469

48,918

135,581

142,196

  Canada

2,663

2,554

8,946

8,414

  Latin America

2,605

2,818

7,064

8,091

    Total Americas Region

50,737

54,290

151,591

158,701

Europe, Middle East and Africa Region (EMEA)

  Europe(2)

8,807

8,441

32,590

30,720

  Other

1,417

1,590

5,357

4,878

    Total EMEA Region

10,224

10,031

37,947

35,598

Asia Pacific Region

  Japan

2,762

2,642

7,631

7,194

  Other

5,232

5,215

16,510

16,277

    Total Asia Pacific Region

7,994

7,857

24,141

23,471

    Total Worldwide Retail Sales

68,955

72,178

213,679

217,770

    Total International Retail Sales

23,486

23,260

78,098

75,574

(1)

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.

(2)

Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

Motorcycle Registration Data(1)

Nine months ended

September 30,

September 30,

2016

2015

United States(2) 

263,479

279,013

Europe(3)

337,694

313,302

(1)

Data includes on-road 601+cc models. On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. 

(2) 

United States data is derived from information provided by Motorcycle Industry Council (MIC). This third party data is subject to revision and update.  

(3) 

Europe data includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. Industry retail motorcycle registration data includes 601+cc models derived from information provided by Association des Constructeurs Europeens de Motocycles (ACEM), an independent agency. This third-party data is subject to revision and update. 

Source: Harley-Davidson, Inc.

Harley-Davidson

####


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