NEWS & EVENTS

Harley-Davidson Reports Second Quarter 2016 Earnings

07/28/2016
Strong share gains in the U.S. in the face of industry headwinds, international sales up

MILWAUKEE, July 28, 2016 /PRNewswire/ -- Harley-Davidson, Inc. (NYSE:HOG) second quarter 2016 diluted earnings per share increased 7.6 percent to $1.55 compared to diluted EPS of $1.44 in the same period in 2015. Net income was $280.4 million on consolidated revenue of $1.86 billion compared to net income of $299.8 million on consolidated revenue of $1.82 billion in last year's second quarter. 

Harley-Davidson worldwide retail motorcycle sales in the second quarter were down 1.9 percent on weak U.S. industry results. Harley-Davidson retail motorcycle sales in the U.S. were down 5.2 percent compared to the year-ago quarter, with the overall U.S. industry down 8.6 percent for the same period. Harley-Davidson U.S. market share for the quarter was 49.5 percent, an increase of 2.0 points over the same period in 2015. International retail sales increased by 4.3 percent over the prior year quarter.

"We are pleased with our ability to gain market share in the U.S.," said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. "Competitiveness in the U.S. remains intense, and our demand-driving investments are showing traction."                    

Through six months, Harley-Davidson's 2016 net income was $530.9 million on consolidated revenue of $3.61 billion compared to six-month 2015 net income of $569.7 million on consolidated revenue of $3.50 billion. Six-month 2016 diluted EPS was $2.91, up 7.4 percent from $2.71 in the year-ago period.  Worldwide retail motorcycle sales were down 0.6 percent from the same period in 2015. International sales were up 4.4 percent, offset by a 3.4 percent decline in U.S. retail sales.

Given market softness in the U.S., the continued competitive environment and global economic uncertainty, the company is taking the precautionary step of lowering its full-year shipment guidance. The company now expects to ship 264,000 to 269,000 motorcycles to dealers worldwide in 2016. This action is consistent with the company's long-standing commitment to manage supply in line with demand.

"While our investments to grow product awareness and ridership globally are beginning to take hold in a number of markets, current conditions in the U.S. and economic headwinds in other parts of the world  combine to raise caution for us as we continue to focus our strategy to drive demand and deliver strong returns to shareholders," said Levatich.

Retail Harley-Davidson Motorcycle Sales


2nd Quarter

Six Months

2016

2015

Change

2016

2015

Change

Americas Region







   U.S.

54,786

57,790

(5.2)%

90,112

93,278

(3.4)%

   Canada

3,813

3,737

2.0%

6,283

5,860

7.2%

   Latin America

2,573

2,708

(5.0)%

4,459

5,273

(15.4)%

Europe, Middle East, Africa (EMEA) Region

17,513

16,179

8.2%

27,723

25,567

8.4%

Asia Pacific Region

8,581

8,517

0.8%

16,147

15,614

3.4%

Worldwide Total

87,266

88,931

(1.9)%

144,724

145,592

(0.6)%

Retail sales in EMEA were up 8.2 percent in the second quarter and 8.4 percent for the first six months behind a strong reception to the new 2016 motorcycle models and increased demand driving investments. Asia Pacific retail sales were up 0.8 percent in the quarter and up 3.4 percent for the first six months compared to 2015. Canada retail sales grew 2.0 percent in the quarter and 7.2 percent for the first six months versus a year ago as the market continued to respond favorably to the company's transition to direct distribution.

Motorcycles and Related Products Segment Results

$ in thousands

2nd Quarter

Six Months

2016

2015

Change

2016

2015

Change

Motorcycle Shipments (vehicles)

88,160

85,172

3.5%

171,196

164,761

3.9%

Revenue







   Motorcycles

$1,330,632

$1,308,837

1.7%

$2,648,210

$2,563,958

3.3%

   Parts & Accessories

$258,208

$256,840

0.5%

$441,913

$440,712

0.3%

   General Merchandise

$75,757

$77,518

(2.3)%

$146,375

$143,946

1.7%

Gross Margin Percent

36.4%

39.2%

(2.8) pts

36.9%

39.1%

(2.2) pts

Operating Income

$322,749

$380,603

(15.2)%

$655,206

$726,057

(9.8)%

Operating Margin Percent

19.3%

23.1%

(3.8)pts

20.2%

23.0%

(2.8)pts

Revenue from motorcycles and related products was up versus the prior quarter behind increased motorcycle shipments. Operating margin as a percent of revenue decreased versus the prior year primarily as a result of lower than expected gross margin driven by unfavorable mix, currency and manufacturing expenses.

Financial Services Segment Results

$ in thousands

 2nd Quarter

Six Months

2016

2015

Change

2016

2015

Change

Revenue

$190,964

$173,609

10.0%

$364,322

$335,984

8.4%

Operating Income

$89,573

$81,913

9.4%

$145,944

$146,577

(0.4)%

Financial services operating income was higher in the second quarter compared to the year ago period driven by a $9.3 million gain generated from a full securitization.

Guidance 
Harley-Davidson is revising its full-year guidance for motorcycle shipments and now expects to ship 264,000 to 269,000 motorcycles to dealers worldwide in 2016, which is approximately down 1 percent to up 1 percent from 2015. The company had previously provided full-year shipment guidance of 269,000 to 274,000 motorcycles.  In the third quarter, the company expects to ship 48,500 to 53,500 motorcycles compared to 53,472 motorcycles shipped in the year-ago period. The company now expects full-year 2016 operating margin of approximately 15 to 16 percent for the Motorcycles segment, compared to prior guidance of 16 to 17 percent. The company continues to expect 2016 capital expenditures for Harley-Davidson, Inc. of $255 million to $275 million.

Income Tax Rate
For the first half of 2016, Harley-Davidson's effective tax rate was 32.7 percent compared to 34.9 percent in 2015. The lower rate is due to the successful closure of various tax audits. The company now expects its full-year 2016 effective tax rate will be approximately 33 percent.

Cash Flow 
Cash and marketable securities totaled $869.7 million at the end of the second quarter, compared to $1.30 billion in the year-ago quarter. During the first six months of 2016, Harley-Davidson generated $456.3 million of cash from operating activities compared to $613.9 million for the same period in 2015.

Shareholder Returns 
The company paid a cash dividend of $0.35 per share for the second quarter for a total of $0.70 for the first six months of 2016. On a discretionary basis, the company repurchased 2.6 million shares of Harley-Davidson common stock for $118.9 million.  In the second quarter of 2016, there were approximately 181.3 million weighted-average diluted shares outstanding, compared to approximately 208.6 million shares in the year-ago quarter. At the end of the second quarter, 23.0 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 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 "Events and Presentations." The audio portion of today's call will also be posted beginning 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) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices,  (iv) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (v) 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, (vi) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio,  (vii) develop and introduce products, services and experiences that are successful in the marketplace, (viii) 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, (ix) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (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) 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, (xii) manage risks that arise through expanding international manufacturing, operations and sales, (xiii) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xiv) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters,  (xv) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xvi) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xvii) manage its exposure to product liability claims and commercial or contractual disputes,  (xviii) execute its flexible production strategy, (xix) adjust to healthcare inflation and reform, pension reform and tax changes, (xx) retain and attract talented employees, (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 26,


June 28,


June 26,


June 28,



2016


2015


2016


2015










Motorcycles and related products revenue


$      1,670,113


$      1,650,783


$      3,246,723


$      3,161,353

Gross profit


607,558


647,214


1,197,838


1,237,489

Selling, administrative and engineering expense


284,809


266,611


542,632


511,432

  Operating income from motorcycles & related products


322,749


380,603


655,206


726,057










Financial services revenue


190,964


173,609


364,322


335,984

Financial services expense


101,391


91,696


218,378


189,407

  Operating income from financial services


89,573


81,913


145,944


146,577










Operating income


412,322


462,516


801,150


872,634

Investment income


688


1,450


1,454


2,772

Interest expense


7,094


9


14,262


18

Income before income taxes


405,916


463,957


788,342


875,388

Provision for income taxes


125,485


164,147


257,422


305,724

Net income


$         280,431


$         299,810


$         530,920


$         569,664










Earnings per common share:









  Basic


$              1.55


$              1.44


$              2.92


$              2.72

  Diluted


$              1.55


$              1.44


$              2.91


$              2.71










Weighted-average common shares:









  Basic


180,587


207,650


181,976


209,115

  Diluted


181,339


208,590


182,740


210,165










Cash dividends per common share


$              0.35


$              0.31


$              0.70


$              0.62











Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets(1)

(In thousands)











(Unaudited)




(Unaudited)




June 26,


December 31,


June 28,




2016


2015


2015










ASSETS








Current assets:








    Cash and cash equivalents


$         864,670


$         722,209


$      1,247,579


    Marketable securities


5,070


45,192


52,516


    Accounts receivable, net


311,956


247,405


277,569


    Finance receivables, net


2,457,974


2,053,582


2,331,723


    Inventories


371,196


585,907


395,044


    Restricted cash


78,078


88,267


136,760


    Other current assets


270,080


235,321


248,787


Total current assets


4,359,024


3,977,883


4,689,978










Finance receivables, net


4,824,071


4,814,571


4,816,772


Other long-term assets


1,165,345


1,180,523


1,042,444




$     10,348,440


$      9,972,977


$    10,549,194










LIABILITIES AND SHAREHOLDERS' EQUITY








Current liabilities:








    Accounts payable & accrued liabilities


$         759,507


$         707,578


$         856,373


    Short-term debt


1,020,487


1,201,380


114,983


    Current portion of long-term debt, net


732,773


838,349


1,544,956


Total current liabilities


2,512,767


2,747,307


2,516,312










Long-term debt, net


5,308,063


4,832,469


4,551,083


Pension and postretirement healthcare liabilities


318,311


358,547


263,155


Other long-term liabilities


188,292


195,000


195,017










Total shareholders' equity


2,021,007


1,839,654


3,023,627




$     10,348,440


$      9,972,977


$    10,549,194










(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)



Six months ended



June 26,


June 28,



2016


2015






Net cash provided by operating activities


$         456,290


$         613,944






Cash flows from investing activities:





  Capital expenditures


(107,531)


(85,180)

  Finance receivables, net


(361,171)


(406,132)

  Proceeds from sale of finance receivables


312,571


-

  Net change in marketable securities


40,000


4,500

  Other


166


5,111

Net cash used by investing activities


(115,965)


(481,701)






Cash flows from financing activities:





  Proceeds from issuance of medium-term notes


1,193,396


595,386

  Repayments of medium-term notes


(450,000)


-

  Proceeds from securitization debt


-


1,195,668

  Repayments of securitization debt


(385,837)


(454,332)

  Net decrease in credit facilities and unsecured commercial paper


(181,259)


(616,586)

  Borrowings of asset-backed commercial paper


33,428


40,209

  Repayments of asset-backed commercial paper


(34,989)


(35,730)

  Net change in restricted cash


17,992


(40,159)

  Dividends paid


(127,800)


(129,745)

  Purchase of common stock for treasury


(269,411)


(358,425)

  Excess tax benefits from share-based payments


331


2,401

  Issuance of common stock under employee stock option plans


2,367


15,664

Net cash (used by) provided by financing activities


(201,782)


214,351






Effect of exchange rate changes on cash and cash equivalents


3,918


(5,695)






Net increase in cash and cash equivalents


$         142,461


$         340,899






Cash and cash equivalents:





  Cash and cash equivalents - beginning of period


$         722,209


$         906,680

  Net increase in cash and cash equivalents


142,461


340,899

  Cash and cash equivalents - end of period


$         864,670


$      1,247,579

 



Motorcycles and Related Products Revenue and

 Motorcycle Shipment Data




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)



Three months ended


Six months ended



June 26,


June 28,


June 26,


June 28,



2016


2015


2016


2015

MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)









  Motorcycles


$      1,330,632


$      1,308,837


$      2,648,210


$      2,563,958

  Parts & Accessories


258,208


256,840


441,913


440,712

  General Merchandise


75,757


77,518


146,375


143,946

  Other


5,516


7,588


10,225


12,737



$      1,670,113


$      1,650,783


$      3,246,723


$      3,161,353










MOTORCYCLE SHIPMENTS:









    United States


57,804


55,128


115,439


111,792

    International


30,356


30,044


55,757


52,969

      Total 


88,160


85,172


171,196


164,761










MOTORCYCLE PRODUCT MIX:









    Touring


27,675


34,563


66,172


73,360

    Cruiser


37,655


29,952


64,584


53,348

    Sportster® / Street


22,830


20,657


40,440


38,053

      Total


88,160


85,172


171,196


164,761

 

Worldwide Retail Sales of Harley-Davidson Motorcycles(1)












Three months ended


Six months ended



June 30,


June 30,


June 30,


June 30,



2016


2015


2016


2015

Americas Region









  United States


54,786


57,790


90,112


93,278

  Canada


3,813


3,737


6,283


5,860

  Latin America


2,573


2,708


4,459


5,273

    Total Americas Region


61,172


64,235


100,854


104,411










Europe, Middle East and Africa Region (EMEA)









  Europe(2)


15,188


14,150


23,783


22,279

  Other


2,325


2,029


3,940


3,288

    Total EMEA Region


17,513


16,179


27,723


25,567










Asia Pacific Region









  Japan


2,763


2,580


4,869


4,552

  Other


5,818


5,937


11,278


11,062

    Total Asia Pacific Region


8,581


8,517


16,147


15,614










    Total Worldwide Retail Sales


87,266


88,931


144,724


145,592










    Total International Retail Sales


32,480


31,141


54,612


52,314










(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)
















Six months ended







June 30,


June 30,







2016


2015





United States(2) 


177,447


187,163





Europe(3)


248,519


229,277














(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. 





 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/harley-davidson-reports-second-quarter-2016-earnings-300305349.html

SOURCE Harley-Davidson, Inc.

Media, Maripat Blankenheim, +1-414-343-7988; Financial, Amy Giuffre, +1-414-343-8002