Harley-Davidson: Announces second quarter 2017

MILWAUKEEJuly 18, 2017 /PRNewswire/ — Harley-Davidson, Inc. (NYSE:HOG) second quarter 2017 diluted EPS decreased 4.5 percent to $1.48 compared to $1.55 in the second quarter of 2016. Second quarter net income was $258.9 million on consolidated revenue of $1.77 billion versus net income of $280.4 million on consolidated revenue of $1.86 billion for the same period in 2016. 

“We are pleased with our ability to deliver strong margins in the quarter despite challenging market conditions, particularly in the U.S.,” said Matt Levatich, president and CEO, Harley-Davidson. “Given U.S. industry challenges in the second quarter and the importance of the supply and demand balance for our premium brand, we are lowering our full-year shipment and margin guidance.”

Harley-Davidson worldwide retail motorcycle sales were down 6.7 percent in the second quarter compared to the same period in 2016. Harley-Davidson retail motorcycle sales in the U.S. were down 9.3 percent compared to the year-ago quarter, with the overall U.S. industry down for the same period. Harley-Davidson’s U.S. market share for the quarter was 48.5 percent in the 601cc-plus segment. Harley-Davidson’s international retail sales decreased 2.3 percent compared to the second quarter in 2016. 

Through six months, Harley-Davidson’s 2017 diluted EPS was $2.53, down 13.1 percent from $2.91 in the year-ago period. For the first six months, Harley-Davidson’s 2017 net income was $445.2 million on consolidated revenue of $3.27 billion compared to six-month 2016 net income of $530.9 million on consolidated revenue of $3.61 billion. Through six months, worldwide retail motorcycle sales were down 5.7 percent from the same period in 2016. 

“Our long-term strategy, focused on building the next generation of Harley-Davidson riders, is our true north. Our new product investment is one pillar of our long-term strategy to build riders globally and we are energized by the strength of our model year 2018 motorcycles coming later this summer,” said Levatich.

Harley-Davidson Retail Motorcycle Sales 

In units as reported by H-D dealers 

2nd Quarter

Six Months

2017

2016

Change 

2017

2016

Change

U.S.

49,668

54,786

(9.3)%

82,984

90,112

(7.9)%

Canada 

3,827

3,813

0.4%

6,188

6,283

(1.5)%

Latin America

2,355

2,573

(8.5)%

4,697

4,459

5.3%

EMEA  

17,230

17,513

(1.6)%

27,397

27,723

(1.2)%

Asia Pacific 

8,308

8,581

(3.2)%

15,171

16,147

(6.0)%

International Total

31,720

32,480

(2.3)%

53,453

54,612

(2.1)%

Worldwide Total

81,388

87,266

(6.7)%

136,437

144,724

(5.7)%

Harley-Davidson new retail motorcycle sales in the U.S. were down primarily driven by weak industry conditions. New retail sales internationally were also down but generally in-line with company expectations for the second quarter of 2017.  

Motorcycles and Related Products Segment Results

$ in thousands

2nd Quarter

Six Months

2017

2016

Change

2017

2016

Change

Motorcycle Shipments (vehicles)

81,807

88,160

(7.2)%

152,638

171,196

(10.8)%

Revenue

           

 Motorcycles

$1,270,433

$1,330,632

(4.5)%

$2,370,135

$2,648,210

(10.5)%

 Parts & Accessories

$237,498

$258,208

(8.0)%

$406,523

$441,913

(8.0)%

 General Merchandise

$63,017

$75,757

(16.8)%

$118,853

$146,375

(18.8)%

Gross Margin 

36.5%

36.4%

0.1pts

36.2%

36.9%

(0.7)pts

Operating Income 

$319,647

$322,749

(1.0)%

$558,489

$655,206

(14.8)%

Operating Margin 

20.3%

19.3%

1.0pts

19.2%

20.2%

(1.0)pts

 

Revenue from the Motorcycles and Related Products segment was down in the second quarter of 2017 versus prior year largely due to lower motorcycle shipments. Operating margin as a percent of revenue increased versus the prior year quarter primarily as a result of mix favorability driven by demand for the Milwaukee-Eight powered touring motorcycles and lower SG&A spending. 

Financial Services Segment Results

$ in thousands

2nd Quarter

Six Months

2017

2016

Change

2017

2016

Change

Revenue

$188,034

$190,964

(1.5)%

$361,255

$364,322

(0.8)%

Operating Income

$81,935

$89,573

(8.5)%

$134,571

$145,944

(7.8)%

The Financial Services segment operating income was down 8.5 percent due to the full securitization gain on sale recognized during the second quarter of 2016 which did not recur in the second quarter of 2017. 

Income Tax Rate
For the first half of 2017, Harley-Davidson’s effective tax rate was 34.4 percent compared to 32.7 percent in the prior year period. The company continues to expect its full-year 2017 effective tax rate to be approximately 34.5 percent.

Other Results 
Cash and marketable securities totaled $988.5 million at the end of the quarter, compared to $869.7 million in the year-ago quarter. During the first six months of 2017, Harley-Davidson generated $627.1 million of cash from operating activities compared to $456.3 million for the first half of 2016. The company paid a cash dividend of $0.365 per share for the second quarter of 2017, and a cumulative total of $0.73 for the first six months of 2017. On a discretionary basis, the company repurchased 3.0 million shares of its common stock during the second quarter of 2017 for $163.2 million. In the second quarter of 2017, there were approximately 175.3 million weighted-average diluted common shares outstanding, compared to 181.3 million shares in the same period a year ago. At the end of the period, 15.0 million shares remained on a board-approved share repurchase authorization. 

Guidance
Harley-Davidson is revising its full-year guidance for motorcycle shipments and now expects to ship 241,000 to 246,000 motorcycles to dealers worldwide in 2017, which is down approximately 6 percent to 8 percent from 2016. The company had previously provided full-year shipment guidance of flat to down modestly in comparison to 2016. In the third quarter, the company expects to ship 39,000 to 44,000 motorcycles, which is down approximately 10 percent to 20 percent from 2016. The company now expects 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 second 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

 

Six months ended 

   

June 25,

 

June 26,

 

June 25,

 

June 26,

   

2017

 

2016

 

2017

 

2016

                 

Motorcycles and related products revenue

 

$  1,577,135

 

$   1,670,113

 

$  2,905,846

 

$ 3,246,723

Gross profit

 

575,623

 

607,558

 

1,053,108

 

1,197,838

Selling, administrative and engineering expense

 

255,976

 

284,809

 

494,619

 

542,632

  Operating income from motorcycles & related products

 

319,647

 

322,749

 

558,489

 

655,206

                 

Financial services revenue

 

188,034

 

190,964

 

361,255

 

364,322

Financial services expense

 

106,099

 

101,391

 

226,684

 

218,378

  Operating income from financial services

 

81,935

 

89,573

 

134,571

 

145,944

                 

Operating income

 

401,582

 

412,322

 

693,060

 

801,150

Investment income

 

577

 

688

 

1,456

 

1,454

Interest expense

 

7,726

 

7,094

 

15,399

 

14,262

Income before income taxes

 

394,433

 

405,916

 

679,117

 

788,342

Provision for income taxes

 

135,566

 

125,485

 

233,881

 

257,422

Net income

 

$     258,867

 

$      280,431

 

$     445,236

 

$   530,920

                 

Earnings per common share:

               

  Basic

 

$          1.48

 

$           1.55

 

$          2.54

 

$        2.92

  Diluted

 

$          1.48

 

$           1.55

 

$          2.53

 

$        2.91

                 

Weighted-average common shares:

               

  Basic

 

174,409

 

180,587

 

175,178

 

181,976

  Diluted

 

175,324

 

181,339

 

176,170

 

182,740

                 

Cash dividends per common share

 

$        0.365

 

$         0.350

 

$        0.730

 

$      0.700

 

Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

             
   

(Unaudited)

     

(Unaudited)

   

June 25,

 

December 31,

 

June 26,

   

2017

 

2016

 

2016

             

ASSETS

           

Current assets:

           

    Cash and cash equivalents

 

$     988,476

 

$      759,984

 

$     864,670

    Marketable securities

 

 

5,519

 

5,070

    Accounts receivable, net

 

330,933

 

285,106

 

311,956

    Finance receivables, net

 

2,338,533

 

2,076,261

 

2,457,974

    Inventories

 

372,012

 

499,917

 

371,196

    Restricted cash

 

63,225

 

52,574

 

78,078

    Other current assets

 

151,423

 

174,491

 

270,080

Total current assets

 

4,244,602

 

3,853,852

 

4,359,024

             

Finance receivables, net

 

4,994,002

 

4,759,197

 

4,824,071

Other long-term assets

 

1,249,167

 

1,277,191

 

1,165,345

   

$ 10,487,771

 

$   9,890,240

 

$ 10,348,440

             

LIABILITIES AND SHAREHOLDERS’ EQUITY

           

Current liabilities:

           

    Accounts payable & accrued liabilities

 

$     860,758

 

$      721,970

 

$     759,507

    Short-term debt

 

928,445

 

1,055,708

 

1,020,487

    Current portion of long-term debt, net

 

1,565,558

 

1,084,884

 

732,773

Total current liabilities

 

3,354,761

 

2,862,562

 

2,512,767

             

Long-term debt, net

 

4,678,350

 

4,666,975

 

5,308,063

Pension and postretirement healthcare liabilities

 

217,820

 

257,709

 

318,311

Other long-term liabilities

 

190,673

 

182,836

 

188,292

             

Total shareholders’ equity

 

2,046,167

 

1,920,158

 

2,021,007

   

$ 10,487,771

 

$   9,890,240

 

$ 10,348,440

 

Harley-Davidson, Inc.

Condensed Consolidated Statements of Cash Flows

 (In thousands)

         
   

(Unaudited)

 

(Unaudited)

   

Six months ended 

   

June 25,

 

June 26,

   

2017

 

2016

         

Net cash provided by operating activities

 

$     627,068

 

$      456,290

         

Cash flows from investing activities:

       

  Capital expenditures

 

(69,816)

 

(107,531)

  Finance receivables, net

 

(330,040)

 

(361,171)

  Proceeds from sale of finance receivables

 

 

312,571

  Net change in marketable securities

 

6,916

 

40,000

  Other

 

115

 

166

Net cash used by investing activities

 

(392,825)

 

(115,965)

         

Cash flows from financing activities:

       

  Proceeds from issuance of medium-term notes

 

893,668

 

1,193,396

  Repayments of medium-term notes

 

(400,000)

 

(450,000)

  Repayments of securitization debt

 

(275,659)

 

(385,837)

  Net decrease in credit facilities and unsecured commercial paper

 

(128,787)

 

(181,259)

  Borrowings of asset-backed commercial paper

 

341,625

 

33,428

  Repayments of asset-backed commercial paper

 

(77,732)

 

(34,989)

  Net change in restricted cash

 

(7,248)

 

17,992

  Dividends paid

 

(128,452)

 

(127,800)

  Purchase of common stock for treasury

 

(243,055)

 

(269,411)

  Excess tax benefits from share-based payments

 

 

331

  Issuance of common stock under employee stock option plans

 

7,432

 

2,367

Net cash used by financing activities

 

(18,208)

 

(201,782)

         

Effect of exchange rate changes on cash and cash equivalents

 

12,457

 

3,918

         

Net increase in cash and cash equivalents

 

$     228,492

 

$      142,461

         

Cash and cash equivalents:

       

  Cash and cash equivalents – beginning of period

 

$     759,984

 

$      722,209

  Net increase in cash and cash equivalents

 

228,492

 

142,461

  Cash and cash equivalents – end of period

 

$     988,476

 

$      864,670

 

Motorcycles and Related Products Revenue and

 Motorcycle Shipment Data

 
   

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

   

Three months ended

 

Six months ended 

   

June 25,

 

June 26,

 

June 25,

 

June 26,

   

2017

 

2016

 

2017

 

2016

MOTORCYCLES AND RELATED 
PRODUCTS REVENUE (in thousands)

               

  Motorcycles

 

$  1,270,433

 

$   1,330,632

 

$  2,370,135

 

$ 2,648,210

  Parts & Accessories

 

237,498

 

258,208

 

406,523

 

441,913

  General Merchandise

 

63,017

 

75,757

 

118,853

 

146,375

  Other

 

6,187

 

5,516

 

10,335

 

10,225

   

$  1,577,135

 

$   1,670,113

 

$  2,905,846

 

$ 3,246,723

                 

MOTORCYCLE SHIPMENTS:

               

    United States

 

52,966

 

57,804

 

98,750

 

115,439

    International

 

28,841

 

30,356

 

53,888

 

55,757

      Total 

 

81,807

 

88,160

 

152,638

 

171,196

                 

MOTORCYCLE PRODUCT MIX:

               

    Touring

 

36,650

 

27,675

 

65,718

 

66,172

    Cruiser

 

25,247

 

37,655

 

50,401

 

64,584

    Sportster®/ Street

 

19,910

 

22,830

 

36,519

 

40,440

      Total

 

81,807

 

88,160

 

152,638

 

171,196

 

Worldwide Retail Sales of Harley-Davidson Motorcycles(1)

                 
   

Three months ended 

 

Six months ended 

   

June 30,

 

June 30,

 

June 30,

 

June 30,

   

2017

 

2016

 

2017

 

2016

                 

United States

 

49,668

 

54,786

 

82,984

 

90,112

                 

Europe(2)

 

15,357

 

15,188

 

24,341

 

24,034

EMEA – Other

 

1,873

 

2,325

 

3,056

 

3,689

  Total EMEA

 

17,230

 

17,513

 

27,397

 

27,723

                 

Japan

 

2,677

 

2,763

 

4,663

 

4,869

Asia Pacific – Other

 

5,631

 

5,818

 

10,508

 

11,278

  Total Asia Pacific

 

8,308

 

8,581

 

15,171

 

16,147

                 

Latin America

 

2,355

 

2,573

 

4,697

 

4,459

Canada

 

3,827

 

3,813

 

6,188

 

6,283

  Total International Retail Sales

 

31,720

 

32,480

 

53,453

 

54,612

  Total Worldwide Retail Sales

 

81,388

 

87,266

 

136,437

 

144,724

                 
                 

(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. The EMEA Europe total for the six months ended June 30, 2016 includes 251 units originally reported in the EMEA – Other total.

                 

(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)

                 
           

Six months ended 

           

June 30,

 

June 30,

           

2017

 

2016

United States(2) 

         

165,589

 

177,447

                 
           

Five months ended

           

May 31,

 

May 31,

           

2017

 

2016

Europe(3)

         

203,278

 

200,906

                 

(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.

CONTACT: Media, Katie Whitmore, +1-414-343-4480; Financial, Amy Giuffre, +1-414-343-8002

RELATED LINKS
http://www.harley-davidson.com