2017 Letter to Shareholders
BUILDING THE NEXT GENERATION OF HARLEY-DAVIDSON RIDERS IN AN ERA OF CHANGE
2017 LETTER TO SHAREHOLDERS
Unwavering brand stewardship remained our guide during 2017 as we laid the important groundwork for an exciting future for Harley-Davidson.
We took full advantage of our tremendous strengths and leading with intensity on every competitive opportunity with a clear eye on a new, long-term goal of inspiring people around the world to join our great sport and actively participate in it.
I am pleased with how our actions reflected the reality of the current environment and positioned us well to face it. We continued to lead with strong product and a disciplined approach in our operations and actions; the net of all our actions drove another year of strong cash generation and cash returns to you, our shareholders.
At the same time, we respected the premium Harley-Davidson has earned over the past 115 years. With pivotal moves like the launch of our all-new, highly acclaimed Softail motorcycles, improved rider training conversion and expanded international reach, we continued to enhance the Harley-Davidson value proposition -- and not damage it by implementing short-sighted tactics.
We remained focused on delivering strong margins and strong returns over the long-term, despite near-term headwinds.
Our discipline to aggressively manage supply in line with demand in the U.S. delivered the intended results in 2017, and U.S. dealer inventory was well-positioned as we entered 2018. Our increased focus on resource allocation and our cost structure during the year resulted in a $41 million reduction in selling, administrative and engineering expenses in the Motorcycles and Related Products Segment (year over year) and positioned us to better compete in today’s environment.
We worked to continue to provide value to our investors. We paid dividends of $1.46 per share, and repurchased 8.7 million shares for $456.1 million. Guided by our focused strategies, we will continue to invest wisely in our business and return excess cash to you, our shareholders.
241,498HARLEY-DAVIDSON MOTORCYCLES SHIPMENTS
The Journey: Year One
Last year, we unveiled our 10-year strategy, featuring five bold objectives to set us on a path for growth.
We began a crucial mindset and cultural shift at the company from “we build motorcycles” to “we build riders.” We closed the year with over 32,000* more Harley-Davidson riders in the U.S. compared to one year ago.
These riders were inspired because of efforts including:
- A more inclusive and welcoming brand promise. “All for Freedom. Freedom for All” – informed by deep insights about what is the common thread of our brand for BOTH today’s and tomorrow’s riders.
- Improved Riding Academy conversion – not simply training riders but creating riders. Sales conversions were up, and we gained insights on how to continue to further improve this important capability.
- Emphasis on market strategies that find and support people who are progressing along the rider development path – to move them from interest to participation and purchase more quickly.
- Increased access to riding through a partnership with EagleRider that enables customers to more readily experience the thrill of Harley-Davidson motorcycles.
- And, our most exciting and best performing products ever.
Our model year 2018 line-up reflected a significant investment in design and innovation; a custom revolution with the ground-up redesign of our Big Twin cruisers – the all new Harley-Davidson Softail motorcycles – the most powerful, agile and responsive cruisers we’ve ever delivered.
These bikes were built to make the ride that much better for riders. Built to inspire existing riders to ride more, competitive owners to join our brand and the next generation of riders to join in.
Add to that our 115th anniversary bikes – offered in limited quantities and two “statement” paint schemes – and our commitment to product to drive ridership has never been clearer. Never been stronger. Never been higher impact.
We believe our ability to drive demand and deepen foundational strengths set us up for long-term success. Now we can turn the page and focus on the next chapter of our company’s great history. Now more than ever, our business focus goes beyond our commitment to building unmatched, unmistakable motorcycles, accessories and apparel – we are committed to building riders.
Our entire 2018 line is geared toward inspiring the next generation of Harley-Davidson riders, because great product is the foundation of a great ride. And while new product is certainly a highlight for all of us, what we’re really about is riders and creating opportunities to inspire and build that next generation.
BUILD 2MNEW RIDERS IN THE U.S.
LAUNCH 100NEW HIGH-IMPACT H-D MOTORCYCLES
GROW TO 50%ANNUAL VOLUME FROM INTERNATIONAL BUSINESS
DELIVER ROIC IN TOP 25% OF S&P 500SUPERIOR RETURN ON INVESTED CAPITAL FOR HDMC
GROW OUR BUSINESSWITHOUT GROWING OUR ENVIRONMENTAL IMPACT
We have the right strategy, the right team and an unwavering commitment to deliver on our long-term objectives.
We’re increasing our focus, investment and intensity on welcoming new riders in 2018, including increasing access by adding new dealers outside the U.S. and implementing aggressive U.S. market initiatives to drive retail performance today and ridership growth along the way.
I am thrilled to see others in the industry joining the march to build ridership in the U.S. We will continue to lead the effort and encourage other manufacturers, motorcycle media, dealers and riders everywhere, to unite and leverage our collective power to inspire future riders to experience the exhilaration and freedom of motorcycles.
The challenges we face today require the best from the entire organization as we take decisive action to position our business for long-term performance and strength.
Some actions will be difficult, including the recent decision to undertake a significant, multi-year manufacturing optimization initiative anchored by the consolidation of our final assembly plant in Kansas City into our plant in York, Pennsylvania. This decision was made after very careful consideration of our manufacturing footprint and the appropriate capacity given the current business environment; it is geared to improve our cost structure while maintaining our world-class manufacturing operations. Harley-Davidson’s Kansas City employees have worked hard to deliver exceptional, high-quality products to our customers and we thank them for their commitment and dedication.
Other actions are rooted in excitement and promise, such as our decision to invest more aggressively in leading the application of electric vehicle technology on premium motorcycles to inspire ridership among new audiences. Our investments include the launch of our first electric motorcycle within 18 months and the recent announcement of our collaboration with electric vehicle technology-leader Alta Motors. These investments among others, will drive engagement in the sport and our brand in non-traditional spaces the world over. At the same time, we will stay true to our roots and maintain our leadership position in the heavyweight motorcycle market.
2018 is our 115th anniversary year, and we’re very proud of that because it takes strength, courage and creativity to persevere for that long, no matter what the industry. Our history is loaded with episodes of triumph and episodes that challenged prevailing thinking and tested our fortitude and resolve. There’s no better way to describe our journey than that of a true legacy. And we understand legacy is way more than history. Legacy is not simply the road we’ve traveled, but the road we are on.
Our focus, right here, right now, is on our future and on bringing forward all the substantial strengths of this brand, our employees and our dealers to shape that future.
Thank you for your investment in Harley-Davidson -- we’re glad to have you riding with us.
President and Chief Executive Officer