Harley-Davidson Announces Third Quarter 2017 Results

U.S. Market Share Up, Improved U.S. Dealer Inventory

MILWAUKEE, WI – October 17, 2017 – (Motor Sports Newswire) – Harley-Davidson, Inc. (NYSE: HOG) third quarter 2017 diluted EPS decreased to $0.40 from $0.64 in the third quarter of 2016. Third quarter net income was $68.2 million on consolidated revenue of $1.15 billion versus net income of $114.1 million on consolidated revenue of $1.27 billion in the third quarter of 2016.

“The continued weakness in the U.S. motorcycle industry only heightens our resolve and the intensity we are bringing to the quest to build the next generation of Harley-Davidson riders,” said Matt Levatich, president and CEO, Harley-Davidson, Inc. “Launching one hundred new high-impact motorcycles is a critical part of our 10-year journey, and the all new Softail line-up is a significant statement of our commitment.”

Harley-Davidson worldwide retail motorcycle sales were down 6.9 percent in the third quarter compared to the same period in 2016. Harley-Davidson U.S. retail motorcycle sales were down 8.1 percent compared to the year-ago quarter, with the overall U.S. industry down 9.2 percent for the same period. Harley-Davidson’s U.S. market share for the quarter was 53.1 percent in the 601cc-plus segment, up compared to the same quarter in 2016. Harley-Davidson’s international retail motorcycle sales decreased 4.6 percent compared to the third quarter in 2016.

“As the motorcycle industry leader – with dealer strength and rider passion and loyalty like no other – we believe we are uniquely positioned to build ridership and strengthen the sport of motorcycling. Not just in the U.S. but around the world. Our investments in new product and marketing are targeted to drive ridership growth. We have the strategies, plans and people to make it happen,” said Levatich.

Through nine months, Harley-Davidson 2017 diluted EPS was $2.95, down 16.9 percent from $3.55 in the year-ago period. Harley-Davidson 2017 net income was $513.4 million on consolidated revenue of $4.42 billion compared to nine-month 2016 net income of $645.0 million on consolidated revenue of $4.89 billion. For the first nine months, worldwide retail motorcycle sales were down 6.1 percent compared to the same period in 2016.

Harley-Davidson Retail Motorcycle Sales

In units as reported by H-D dealers

3rd Quarter

Nine Months

2017

2016

Change

2017

2016

Change

U.S.

41,793

45,469

(8.1)%

124,777

135,581

(8.0)%

Canada

2,575

2,663

(3.3)%

8,763

8,946

(2.0)%

Latin America

2,306

2,605

(11.5)%

7,003

7,064

(0.9)%

EMEA 

10,078

10,224

(1.4)%

37,475

37,947

(1.2)%

Asia Pacific

7,457

7,994

(6.7)%

22,628

24,141

(6.3)%

International Total

22,416

23,486

(4.6)%

75,869

78,098

(2.9)%

Worldwide Total

64,209

68,955

(6.9)%

200,646

213,679

(6.1)%

Harley-Davidson new retail motorcycle sales in the U.S. were down in the third quarter compared to the third quarter of 2016, primarily driven by weak industry conditions including the impacts of hurricanes in the southeast and Texas. International new retail motorcycle sales were also down in the quarter compared to the same period in 2016, driven by weak performance in Japan, Australia and Mexico.

 

Motorcycles and Related Products Segment Results

$ in thousands

3rd Quarter

Nine Months

2017

2016

Change

2017

2016

Change

Motorcycle Shipments (vehicles)

41,662

48,611

(14.3)%

194,300

219,807

(11.6)%

Revenue

 Motorcycles

653,345

788,856

(17.2)%

3,023,480

3,437,066

(12.0)%

 Parts & Accessories

229,709

231,279

(0.7)%

636,232

673,192

(5.5)%

 General Merchandise

72,687

65,289

11.3%

191,540

211,664

(9.5)%

Gross Margin

28.8%

33.6%

(4.8)pts

34.4%

36.1%

(1.7)pts

Operating Income

19,648

108,929

(82.0)%

578,137

764,135

(24.3)%

Operating Margin

2.0%

10.0%

(8.0)pts

14.9%

17.6%

(2.7)pts

Revenue from the Motorcycles and Related Products segment was down in the third quarter of 2017 versus prior year largely due to decreased motorcycle shipments. Operating margin was down in the quarter versus prior year due to lower shipments, unfavorable mix and higher manufacturing costs. 

Financial Services Segment Results

$ in thousands

3rd Quarter

Nine Months

2017

2016

Change

2017

2016

Change

Revenue

189,059

183,183

3.2%

550,314

547,505

0.5%

Operating Income

77,060

69,447

11.0%

211,631

215,391

(1.7)%

The Financial Services segment operating income was up 11 percent in the third quarter compared to the year ago period due to a lower provision for credit losses.

Income Tax Rate
For the first nine months of 2017, Harley-Davidson’s effective tax rate was 33.2 percent compared to 32.9 percent in the prior year period. The company now expects its full-year 2017 effective tax rate to be approximately 33.4 percent.

Other Results
Cash and marketable securities totaled $683.1 million at the end of the third quarter, compared to $795.3 million a year ago. During the first nine months of 2017, Harley-Davidson generated $949.1 million of cash from operating activities compared to $927.8 million for the first nine months of 2016. The company paid a cash dividend of $0.365 per share for the third quarter of 2017, and a cumulative total of $1.095 per share for the first nine months of 2017. On a discretionary basis, the company repurchased 4.5 million shares of its common stock during the third quarter of 2017 for $222 million. In the third quarter of 2017, there were 170.7 million weighted-average diluted common shares outstanding, compared to 179.3 million shares in the same period a year ago. At the end of the period, 10.6 million shares remained on a board-approved share repurchase authorization.

Guidance
Harley-Davidson continues to expect to ship 241,000 to 246,000 motorcycles to dealers worldwide in 2017, which is down approximately 6 percent to 8 percent from 2016. In the fourth quarter, the company expects to ship 46,700 to 51,700 motorcycles compared to 42,414 motorcycles shipped in the year-ago period. The company continues to expect full-year 2017 operating margin to be down approximately 1 percentage point compared to 2016. The company continues to expect 2017 capital expenditures to be $200 million to $220 million.

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 the Events and Presentations section. 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) 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, (iii) develop and introduce products, services and experiences that are successful in the marketplace, (iv) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (v) 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, (vi) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (vii) manage risks that arise through expanding international manufacturing, operations and sales, (viii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (ix) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (x) 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, (xi) retain and attract talented employees, (xii) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (xiii) 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, (xiv) adjust to tax reform, healthcare inflation and reform and pension reform, (xv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xvi) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xvii) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xviii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xix) manage its exposure to product liability claims and commercial or contractual disputes, (xx) execute its flexible production strategy,  (xxi) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, and (xxii) 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 24,

September 25,

September 24,

September 25,

2017

2016

2017

2016

Motorcycles and related products revenue

$         962,136

$  1,091,630

$      3,867,982

$      4,338,353

Gross profit

276,975

367,019

1,330,083

1,564,857

Selling, administrative and engineering expense

257,327

258,090

751,946

800,722

  Operating income from motorcycles & related products

19,648

108,929

578,137

764,135

Financial services revenue

189,059

183,183

550,314

547,505

Financial services expense

111,999

113,736

338,683

332,114

  Operating income from financial services

77,060

69,447

211,631

215,391

Operating income

96,708

178,376

789,768

979,526

Investment income

1,083

2,300

2,539

3,754

Interest expense

7,896

7,706

23,295

21,968

Income before income taxes

89,895

172,970

769,012

961,312

Provision for income taxes

21,686

58,905

255,567

316,327

Net income

$           68,209

$    114,065

$         513,445

$         644,985

Earnings per common share:

  Basic

$              0.40

$         0.64

$              2.96

$              3.57

  Diluted

$              0.40

$         0.64

$              2.95

$              3.55

Weighted-average common shares:

  Basic

169,850

178,438

173,362

180,779

  Diluted

170,688

179,320

174,303

181,582

Cash dividends per common share

$            0.365

$        0.350

$            1.095

$            1.050

Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

(Unaudited)

September 24,

December 31,

September 25,

2017

2016

2016

ASSETS

Current assets:

    Cash and cash equivalents

$         683,134

$    759,984

$         790,284

    Marketable securities

5,519

5,038

    Accounts receivable, net

343,124

285,106

346,176

    Finance receivables, net

2,058,168

2,076,261

2,205,644

    Inventories

469,091

499,917

426,547

    Restricted cash

52,209

52,574

65,088

    Other current assets

182,416

174,491

263,567

Total current assets

3,788,142

3,853,852

4,102,344

Finance receivables, net

5,042,857

4,759,197

4,944,322

Other long-term assets

1,257,360

1,277,191

1,165,560

$     10,088,359

$  9,890,240

$    10,212,226

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

    Accounts payable & accrued liabilities

$         851,075

$    721,970

$         798,127

    Short-term debt

834,875

1,055,708

1,055,428

    Current portion of long-term debt, net

1,530,401

1,084,884

700,152

Total current liabilities

3,216,351

2,862,562

2,553,707

Long-term debt, net

4,607,791

4,666,975

5,170,609

Pension and postretirement healthcare liabilities

215,396

257,709

303,319

Other long-term liabilities

192,001

182,836

192,223

Total shareholders’ equity

1,856,820

1,920,158

1,992,368

$     10,088,359

$  9,890,240

$    10,212,226

Harley-Davidson, Inc.

Condensed Consolidated Statements of Cash Flows

 (In thousands)

(Unaudited)

(Unaudited)

Nine months ended

September 24,

September 25,

2017

2016

Net cash provided by operating activities

$         949,075

$    927,809

Cash flows from investing activities:

  Capital expenditures

(114,022)

(162,726)

  Finance receivables, net

(447,250)

(569,013)

  Proceeds from sale of finance receivables

312,571

  Net change in marketable securities

6,916

40,014

  Other

356

251

Net cash used by investing activities

(554,000)

(378,903)

Cash flows from financing activities:

  Proceeds from issuance of medium-term notes

893,668

1,193,396

  Repayments of medium-term notes

(400,000)

(451,336)

  Repayments of securitization debt

(367,298)

(535,616)

  Net decrease in credit facilities and unsecured commercial paper

(225,038)

(146,328)

  Borrowings of asset-backed commercial paper

371,253

33,428

  Repayments of asset-backed commercial paper

(129,690)

(55,170)

  Net change in restricted cash

3,767

30,981

  Dividends paid

(190,121)

(190,387)

  Purchase of common stock for treasury

(465,167)

(374,234)

  Excess tax benefits from share-based payments

1,291

  Issuance of common stock under employee stock option plans

7,884

6,444

Net cash used by financing activities

(500,742)

(487,531)

Effect of exchange rate changes on cash and cash equivalents

28,817

6,700

Net (decrease) increase in cash and cash equivalents

$         (76,850)

$      68,075

Cash and cash equivalents:

  Cash and cash equivalents – beginning of period

$         759,984

$    722,209

  Net (decrease) increase in cash and cash equivalents

(76,850)

68,075

  Cash and cash equivalents – end of period

$         683,134

$    790,284

Motorcycles and Related Products Revenue and

 Motorcycle Shipment Data

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Three months ended

Nine months ended

September 24,

September 25,

September 24,

September 25,

2017

2016

2017

2016

MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)

  Motorcycles

$         653,345

$    788,856

$      3,023,480

$      3,437,066

  Parts & Accessories

229,709

231,279

636,232

673,192

  General Merchandise

72,687

65,289

191,540

211,664

  Other

6,395

6,206

16,730

16,431

$         962,136

$  1,091,630

$      3,867,982

$      4,338,353

MOTORCYCLE SHIPMENTS:

    United States

19,668

26,269

118,418

141,708

    International

21,994

22,342

75,882

78,099

      Total 

41,662

48,611

194,300

219,807

MOTORCYCLE PRODUCT MIX:

    Touring

14,674

23,295

80,392

89,467

    Cruiser

17,292

13,986

67,693

78,570

    Sportster®/ Street

9,696

11,330

46,215

51,770

      Total

41,662

48,611

194,300

219,807

Worldwide Retail Sales of Harley-Davidson Motorcycles(1)

Three months ended

Nine months ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

United States

41,793

45,469

124,777

135,581

Europe(2)

8,970

8,807

33,311

32,841

EMEA – Other

1,108

1,417

4,164

5,106

  Total EMEA

10,078

10,224

37,475

37,947

Japan

2,331

2,762

6,994

7,631

Asia Pacific – Other

5,126

5,232

15,634

16,510

  Total Asia Pacific

7,457

7,994

22,628

24,141

Latin America

2,306

2,605

7,003

7,064

Canada

2,575

2,663

8,763

8,946

  Total International Retail Sales

22,416

23,486

75,869

78,098

  Total Worldwide Retail Sales

64,209

68,955

200,646

213,679

(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 the Company does not regularly verify the information that its dealers supply. 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. The EMEA Europe total for the nine months ended September 30, 2016 includes 251 units originally reported in the EMEA – Other total.

Motorcycle Registration Data(1)

Nine months ended 

September 30,

September 30,

2017

2016

United States(2) 

243,718

263,479

Europe(3)

345,701

337,695

(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.

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