Harley-Davidson Announces Third Quarter Results
Third Quarter 2018
- More Roads accelerated plan for growth unveiled and progress made
- EPS
$0.68 , up vs prior year ($0.78 excluding manufacturing optimization costs) - HDFS earnings up year-over-year on improved loss performance
- Repurchased 1.9 million shares; paid
$0.37 per share dividend, up 1.4 percent versus prior year quarter - International retail sales growth accelerated
- Manufacturing optimization initiative on track, reduced total cost estimate
- Confirmed full-year shipment and operating margin guidance
- 2019 motorcycle innovation enhances product leadership in Touring and Cruiser segments
- 115th anniversary celebrations demonstrated power of iconic global brand
Third quarter 2018 GAAP diluted EPS was
"Third quarter progress tracked to our plans with numerous highlights including another quarter of improved international retail sales growth and increased year-over-year earnings per share. We unveiled our More Roads to
Strategy Acceleration
During the quarter,
Through 2022, the Company's More Roads to
- New products – Keep current riders engaged and inspire a new generation of
Harley-Davidson riders - Broader access – Meet customers where they are and how they want to engage with a multi-channel retail experience
- Stronger dealers – Drive a performance framework to improve dealer financial strength and the
Harley-Davidson customer experience
The company believes its accelerated plan will drive revenue growth and expand operating margins. The company expects to fund strategic opportunities while maintaining its current investment and return profile and capital allocation strategy.
"In the third quarter, we delivered new products and innovations with our model year 2019 motorcycles and engaged our dealers to support bringing the LiveWire™ electric motorcycle to market in 2019. Our brand and select products are now also accessible through a
Building Riders
As
- 260,000 visitors to 115th anniversary celebrations in
Milwaukee andPrague - 43 million social video views and over 200 million media impressions from #FindYourFreedom intern content
- Expanded access to
Harley-Davidson through anAmazon storefront, new international dealers and new urban apparel stores inAsia
Manufacturing Optimization
To further improve its manufacturing operations and cost structure, in the first quarter of 2018 the Company commenced its multi-year manufacturing optimization initiative anchored by the consolidation of its motorcycle assembly plant in
Harley-Davidson Retail Motorcycle Sales |
||||||
Vehicles |
3rd Quarter |
9 months |
||||
2018 |
2017 |
Change |
2018 |
2017 |
Change |
|
U.S. |
36,220 |
41,793 |
(13.3)% |
112,019 |
124,777 |
(10.2)% |
EMEA |
10,543 |
10,078 |
4.6% |
39,249 |
37,475 |
4.7% |
Asia Pacific |
7,433 |
7,457 |
(0.3)% |
21,480 |
22,628 |
(5.1)% |
Latin America |
2,577 |
2,306 |
11.8% |
7,652 |
7,003 |
9.3% |
Canada |
2,453 |
2,575 |
(4.7)% |
8,340 |
8,763 |
(4.8)% |
International Total |
23,006 |
22,416 |
2.6% |
76,721 |
75,869 |
1.1% |
Worldwide Total |
59,226 |
64,209 |
(7.8)% |
188,740 |
200,646 |
(5.9)% |
The U.S. 601+cc industry was down 9.8 percent in the third quarter compared to 2017.
Motorcycles and Related Products Segment Results |
|||||||
$ in thousands |
3rd Quarter |
9 months |
|||||
2018 |
2017 |
Change |
2018 |
2017 |
Change |
||
Motorcycle Shipments (vehicles) |
48,639 |
41,662 |
16.7% |
185,176 |
194,300 |
(4.7)% |
|
Revenue |
$1,123,945 |
$962,136 |
16.8% |
$4,013,013 |
$3,867,982 |
3.7% |
|
Motorcycles |
$821,670 |
$639,849 |
28.4% |
$3,144,796 |
$2,975,650 |
5.7% |
|
Parts & Accessories |
$212,406 |
$228,993 |
(7.2)% |
$612,495 |
$633,532 |
(3.3)% |
|
General Merchandise |
$58,266 |
$72,687 |
(19.8)% |
$183,520 |
$191,540 |
(4.2)% |
|
Gross Margin |
30.9% |
28.5% |
2.4 pts. |
33.7% |
34.2% |
(0.5) pts. |
|
Operating Income |
$65,662 |
$17,352 |
278.4% |
$481,906 |
$571,250 |
(15.6)% |
|
Operating Margin |
5.8% |
1.8% |
4.0 pts. |
12.0% |
14.8% |
(2.8) pts. |
Third quarter revenue from the Motorcycles and Related Products segment (Motorcycles segment) was up versus the prior year. Operating margin as a percent of revenue increased in the quarter compared to 2017 due to higher gross margin and lower SG&A as a percent of revenue.
Financial Services Segment Results |
||||||
$ in thousands |
3rd Quarter |
9 months |
||||
2018 |
2017 |
Change |
2018 |
2017 |
Change |
|
Revenue |
$191,724 |
$189,059 |
1.4% |
$558,000 |
$550,314 |
1.4% |
Operating Income |
$83,754 |
$77,060 |
8.7% |
$227,874 |
$211,631 |
7.7% |
Financial Services segment operating income increased 8.7 percent in the third quarter compared to 2017.
Income Tax Rate
Other Results
Cash and marketable securities were
2018 Outlook
For the full-year 2018, the company continues to expect the following:
- Motorcycle shipments to be approximately 231,000 to 236,000 motorcycles. In the fourth quarter, the company expects to ship approximately 45,800 to 50,800 motorcycles
- Motorcycles segment operating margin as a percent of revenue to be approximately 9 to 10 percent
The company has adjusted certain expectations and now expects the following:
- Financial Services segment operating income to be up versus its previous expectation of flat to up slightly
- Effective tax rate of approximately 22.5 to 24.0 percent versus its previous expectation of 23.5 to 25.0 percent
- Capital expenditures of
$230 million to $250 million including approximately$50 million to support manufacturing optimization, compared to its previous expectation of$250 million to $270 million
Company Background
Webcast Presentation
Harley-Davidson will discuss third quarter 2018 results on a webcast at 8:00 a.m. CT today. The webcast login and supporting slides can be accessed at http://investor.harley-davidson.com/news-and-events/events-and-presentations. The audio replay will be available by approximately
Non-GAAP Measures
This press release includes financial measures that have not been calculated in accordance with U.S. generally accepted accounting principles (GAAP) and are therefore referred to as non-GAAP financial measures. The non-GAAP measures described below are intended to be considered by users as supplemental information to the equivalent GAAP measures, to aid investors in better understanding the Company's financial results. The Company believes that these non-GAAP measures provide useful perspective on underlying business results and trends, and a means to assess period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted.
The non-GAAP measures included in this press release are diluted EPS excluding manufacturing optimization costs and net income excluding manufacturing optimization costs. Manufacturing optimization costs include restructuring expenses and costs associated with temporary inefficiencies incurred in connection with the manufacturing optimization initiative. A reconciliation of these non-GAAP measures to the comparable GAAP measure is included later in this press release.
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, strategies, 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 above depends upon, among other factors, the company's ability to (i) execute its business plans and strategies, including the elements of the More Roads to
The Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Further, actual foreign currency exchange rates may vary from underlying assumptions. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the
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 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
### (HOG-F)
Harley-Davidson, Inc. |
||||||||
Condensed Consolidated Statements of Income(1) |
||||||||
(In thousands, except per share amounts) |
||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||
Three months ended |
Nine months ended |
|||||||
September 30, |
September 24, |
September 30, |
September 24, |
|||||
2018 |
2017 |
2018 |
2017 |
|||||
Motorcycles and related products revenue |
$ 1,123,945 |
$ 962,136 |
$ 4,013,013 |
$ 3,867,982 |
||||
Gross profit |
347,415 |
274,313 |
1,353,273 |
1,322,098 |
||||
Selling, administrative and engineering expense |
266,921 |
256,961 |
797,323 |
750,848 |
||||
Restructuring expense |
14,832 |
- |
74,044 |
- |
||||
Operating income from motorcycles & related products |
65,662 |
17,352 |
481,906 |
571,250 |
||||
Financial services revenue |
191,724 |
189,059 |
558,000 |
550,314 |
||||
Financial services expense |
107,970 |
111,999 |
330,126 |
338,683 |
||||
Operating income from financial services |
83,754 |
77,060 |
227,874 |
211,631 |
||||
Operating income |
149,416 |
94,412 |
709,780 |
782,881 |
||||
Other income (expense), net |
644 |
2,296 |
1,509 |
6,887 |
||||
Investment (loss) income |
(1,106) |
1,083 |
2,630 |
2,539 |
||||
Interest expense |
7,762 |
7,896 |
23,180 |
23,295 |
||||
Income before provision for income taxes |
141,192 |
89,895 |
690,739 |
769,012 |
||||
Provision for income taxes |
27,337 |
21,686 |
159,783 |
255,567 |
||||
Net income |
$ 113,855 |
$ 68,209 |
$ 530,956 |
$ 513,445 |
||||
Earnings per common share: |
||||||||
Basic |
$ 0.69 |
$ 0.40 |
$ 3.18 |
$ 2.96 |
||||
Diluted |
$ 0.68 |
$ 0.40 |
$ 3.17 |
$ 2.95 |
||||
Weighted-average common shares: |
||||||||
Basic |
165,927 |
169,850 |
166,885 |
173,362 |
||||
Diluted |
166,664 |
170,688 |
167,681 |
174,303 |
||||
Cash dividends per common share |
$ 0.370 |
$ 0.365 |
$ 1.110 |
$ 1.095 |
(1) See note regarding the adoption of new accounting standards below. |
Harley-Davidson, Inc. |
||||||
Reconciliation of GAAP amounts to Non-GAAP amounts |
||||||
(In thousands, except per share amounts) |
||||||
(Unaudited) |
(Unaudited) |
|||||
Three months |
Nine months |
|||||
September 30, |
September 30, |
|||||
2018 |
2018 |
|||||
Net income excluding manufacturing optimization costs |
||||||
Net income (GAAP) |
$ 113,855 |
$ 530,956 |
||||
Restructuring expense and cost of temporary inefficiencies |
21,038 |
83,370 |
||||
Tax effect of adjustments(1) |
(5,102) |
(20,218) |
||||
Adjustments net of tax |
15,936 |
63,152 |
||||
Adjusted net income (Non-GAAP) |
$ 129,791 |
$ 594,108 |
||||
Diluted earnings per share excluding manufacturing optimization costs |
||||||
Diluted earnings per share (GAAP) |
$ 0.68 |
$ 3.17 |
||||
Adjustments net of tax, per share |
0.10 |
0.38 |
||||
Adjusted diluted earnings per share (Non-GAAP) |
$ 0.78 |
$ 3.55 |
||||
Weighted average diluted shares outstanding |
166,664 |
167,681 |
(1)The income tax effect of adjustments has been computed using the company's effective income tax rate excluding discrete items. |
Harley-Davidson, Inc. |
|||||||
Condensed Consolidated Balance Sheets(1) |
|||||||
(In thousands) |
|||||||
(Unaudited) |
(Unaudited) |
||||||
September 30, |
December 31, |
September 24, |
|||||
2018 |
2017 |
2017 |
|||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ 926,992 |
$ 687,521 |
$ 683,134 |
||||
Marketable securities |
10,011 |
- |
- |
||||
Accounts receivable, net |
332,309 |
329,986 |
343,124 |
||||
Finance receivables, net |
2,116,386 |
2,105,662 |
2,058,168 |
||||
Inventories |
516,247 |
538,202 |
469,091 |
||||
Restricted cash |
36,471 |
47,518 |
52,209 |
||||
Other current assets |
151,042 |
175,853 |
182,416 |
||||
Total current assets |
4,089,458 |
3,884,742 |
3,788,142 |
||||
Finance receivables, net |
5,187,176 |
4,859,424 |
5,042,857 |
||||
Other long-term assets |
1,227,166 |
1,228,506 |
1,257,360 |
||||
$ 10,503,800 |
$ 9,972,672 |
$ 10,088,359 |
|||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Accounts payable & accrued liabilities |
$ 875,799 |
$ 757,419 |
$ 851,075 |
||||
Short-term debt |
1,373,859 |
1,273,482 |
834,875 |
||||
Current portion of long-term debt, net |
1,526,156 |
1,127,269 |
1,530,401 |
||||
Total current liabilities |
3,775,814 |
3,158,170 |
3,216,351 |
||||
Long-term debt, net |
4,196,517 |
4,587,258 |
4,607,791 |
||||
Pension and postretirement healthcare liabilities |
166,936 |
173,359 |
215,396 |
||||
Other long-term liabilities |
211,561 |
209,608 |
192,001 |
||||
Total shareholders' equity |
2,152,972 |
1,844,277 |
1,856,820 |
||||
$ 10,503,800 |
$ 9,972,672 |
$ 10,088,359 |
(1)See note regarding the adoption of new accounting standards below. |
Harley-Davidson, Inc. |
||||||
Condensed Consolidated Statements of Cash Flows(1) |
||||||
(In thousands) |
||||||
(Unaudited) |
(Unaudited) |
|||||
Nine months ended |
||||||
September 30, |
September 24, |
|||||
2018 |
2017 |
|||||
Net cash provided by operating activities |
$ 1,122,555 |
$ 949,075 |
||||
Cash flows from investing activities: |
||||||
Capital expenditures |
(119,845) |
(114,022) |
||||
Finance receivables, net |
(474,465) |
(447,250) |
||||
Other |
(21,753) |
7,272 |
||||
Net cash used by investing activities |
(616,063) |
(554,000) |
||||
Cash flows from financing activities: |
||||||
Proceeds from issuance of medium-term notes |
1,144,018 |
893,668 |
||||
Repayments of medium-term notes |
(877,488) |
(400,000) |
||||
Repayments of securitization debt |
(224,507) |
(367,298) |
||||
Net increase (decrease) in credit facilities and unsecured commercial paper |
102,154 |
(225,038) |
||||
Borrowings of asset-backed commercial paper |
120,903 |
371,253 |
||||
Repayments of asset-backed commercial paper |
(156,258) |
(129,690) |
||||
Dividends paid |
(186,105) |
(190,121) |
||||
Purchase of common stock for treasury |
(195,998) |
(465,167) |
||||
Issuance of common stock under employee stock option plans |
3,157 |
7,884 |
||||
Net cash used by financing activities |
(270,124) |
(504,509) |
||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(12,567) |
28,817 |
||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
$ 223,801 |
$ (80,617) |
||||
Cash, cash equivalents and restricted cash: |
||||||
Cash, cash equivalents and restricted cash - beginning of period |
$ 746,210 |
$ 827,131 |
||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
223,801 |
(80,617) |
||||
Cash, cash equivalents and restricted cash - end of period |
$ 970,011 |
$ 746,514 |
||||
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheet: |
||||||
Cash and cash equivalents |
$ 926,992 |
$ 683,134 |
||||
Restricted cash |
36,471 |
52,209 |
||||
Restricted cash included in other long-term assets |
6,548 |
11,171 |
||||
Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows |
$ 970,011 |
$ 746,514 |
(1)See note regarding the adoption of new accounting standards below. |
Adoption of New Accounting Standards
On
ASU 2014-09 Revenue from Contracts with Customers was adopted using the modified retrospective method. As a result, the Company recorded a
ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash was adopted on a retrospective basis. As a result, the change in restricted cash has been excluded from financing activities and included in the change in cash, cash equivalents and restricted cash and the prior period has been recast to reflect the new presentation.
ASU 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost was adopted on a retrospective basis. As a result, the non-service cost components of net periodic benefit cost have been presented in Other income (expense), net and the prior period has been recast to reflect the new presentation.
Motorcycles and Related Products Revenue and |
||||||||
Motorcycle Shipment Data |
||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||
Three months ended |
Nine months ended |
|||||||
September 30, |
September 24, |
September 30, |
September 24, |
|||||
2018 |
2017 |
2018 |
2017 |
|||||
MOTORCYCLES AND RELATED PRODUCTS REVENUE(1)(in thousands) |
||||||||
Motorcycles |
$ 821,670 |
$ 639,849 |
$ 3,144,796 |
$ 2,975,650 |
||||
Parts & Accessories |
212,406 |
228,993 |
612,495 |
633,532 |
||||
General Merchandise |
58,266 |
72,687 |
183,520 |
191,540 |
||||
Licensing |
10,680 |
9,904 |
29,445 |
29,237 |
||||
Other |
20,923 |
10,703 |
42,757 |
38,023 |
||||
$ 1,123,945 |
$ 962,136 |
$ 4,013,013 |
$ 3,867,982 |
|||||
MOTORCYCLE SHIPMENTS: |
||||||||
United States |
26,213 |
19,668 |
108,057 |
118,418 |
||||
International |
22,426 |
21,994 |
77,119 |
75,882 |
||||
Total |
48,639 |
41,662 |
185,176 |
194,300 |
||||
MOTORCYCLE PRODUCT MIX: |
||||||||
Touring |
22,204 |
14,674 |
84,125 |
80,392 |
||||
Cruiser |
16,049 |
17,292 |
61,951 |
67,693 |
||||
Sportster®/ Street |
10,386 |
9,696 |
39,100 |
46,215 |
||||
Total |
48,639 |
41,662 |
185,176 |
194,300 |
(1) In connection with the adoption of ASU 2014-09, the Company has revised its presentation of disaggregated revenue and the prior period has been recast to reflect the new presentation. |
Worldwide Retail Sales of Harley-Davidson Motorcycles(1) |
||||||||
Three months ended |
Nine months ended |
|||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||
2018 |
2017 |
2018 |
2017 |
|||||
United States |
36,220 |
41,793 |
112,019 |
124,777 |
||||
Europe(2) |
9,239 |
8,970 |
34,967 |
33,311 |
||||
EMEA - Other |
1,304 |
1,108 |
4,282 |
4,164 |
||||
Total EMEA |
10,543 |
10,078 |
39,249 |
37,475 |
||||
Asia Pacific(3) |
4,578 |
5,136 |
14,126 |
15,782 |
||||
Asia Pacific - Other |
2,855 |
2,321 |
7,354 |
6,846 |
||||
Total Asia Pacific |
7,433 |
7,457 |
21,480 |
22,628 |
||||
Latin America |
2,577 |
2,306 |
7,652 |
7,003 |
||||
Canada |
2,453 |
2,575 |
8,340 |
8,763 |
||||
Total International Retail Sales |
23,006 |
22,416 |
76,721 |
75,869 |
||||
Total Worldwide Retail Sales |
59,226 |
64,209 |
188,740 |
200,646 |
(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. |
||||||||
(3)Asia Pacific data includes Japan, Australia, New Zealand and Korea. |
Motorcycle Registration Data(1) |
||||||||
Nine months ended |
||||||||
September 30, |
September 30, |
|||||||
2018 |
2017 |
|||||||
United States(2) |
222,468 |
243,718 |
||||||
Europe(3) |
347,884 |
345,701 |
(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. |
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SOURCE
Media, Patricia Sweeney, +1-414-343-8199; Financial, Amy Giuffre, +1-414-343-8002