Harley-Davidson Announces First Quarter 2020 Results, COVID-19 Response Actions and Steps Toward Recovery
"Throughout this global crisis, we prioritize the well-being of our employees and the Harley-Davidson community in every decision we make. Our brand is rooted in community, and we care deeply for all of those who have been personally affected. We also honor the heroes working tirelessly to bring care, relief and an end to this terrible pandemic. Finally, in the face of significant uncertainty, we have taken swift action to protect the company by bolstering our already strong balance sheet and liquidity position," said
"COVID-19 has dramatically changed our business environment and it is critical we respond with agility to this new reality. The crisis has provided an opportunity to reevaluate every aspect of our business and strategic plan. We have determined that we need to make significant changes to the company; to our priorities, to our operating model and to our strategy to drive more consistent performance as we emerge from this crisis. We will reduce complexity, sharpen focus and increase the speed of decision-making. These efforts will pave the way for a new strategic plan that incorporates some key products and initiatives from the current plan but focuses on improved profitability and long-term growth. As a result, we will emerge as a stronger and more efficient company and reignite the Harley-Davidson soul," said Zeitz.
COVID-19 Response and Recovery Actions
The company is executing its plan to address the impact of COVID-19 and begin its recovery through a multitude of recent actions across the following areas:
Cash Preservation – Reduced planned capital spending and also reduced planned spending across every part of the organization including freezing hiring, temporarily reducing salaries and eliminating merit increases for employees in 2020. The company also implemented other aggressive cost management efforts such as retiming the launch of new products. In total, the company expects these efforts to preserve approximately
Liquidity – Maintained
Supporting Dealers and Riders - Eased the burden on Harley-Davidson dealers by providing support based on the unique needs of each region, including financial support for motorcycle inventory, extending credit payment due dates on Parts & Accessories (P&A) and General Merchandise (GM) and adjusting dealer requirements for warranty and training. The company also offered dealer discounts on certain
Community Strength – Acted quickly and in alignment with government efforts to protect the safety and health of employees and the Harley-Davidson community. The company implemented travel restrictions, enhanced sanitation practices, cancelled events and closed facilities including temporarily suspending global manufacturing starting in March. In support of relief efforts, the
As the company focuses on recovery efforts for the business, it has prepared and started implementing rigorous protocols and procedures for worker safety and is working with its supply chain to be ready to resume operations. The company has restarted some manufacturing and will gradually ease work-at-home restrictions at the appropriate time, which will vary by region.
The Rewire
The company is executing a set of actions, referred to as The Rewire, that will be further developed over the coming months, leading to a new strategic plan. These actions are part of a comprehensive Rewire playbook designed to address top priority opportunities, drive consistent execution and reset the company's operating model in order to reduce complexity, sharpen focus and increase the speed of decision making. The company expects The Rewire actions - those already taken and those that will be implemented over the coming months - to lead to the definition of a new 5-year strategic plan that will incorporate key products and initiatives from the More Roads plan but will focus more on the markets and products that can drive performance in terms of profitability and growth. Key elements of The Rewire:
Enhance core strengths and better balance expansion into new spaces
- Return focus to the strength of brand and company, starting with dealers, customers, stronghold products and committed employees globally.
- Re-evaluate strategies to reach new riders and build ridership.
Prioritize the markets that matter
- Narrow focus and invest in the markets, products and customer segments that offer the most profit and potential. This includes building on Harley-Davidson's strong position in the
U.S. - Establish a simplified market coverage model and take cost out of the process.
Reset product launches and product line up for simplicity and maximum impact
- Continue to be guided by the voice of customers and dealers to optimize value and profit delivery.
- Simplify and retime launches to reflect the new reality, align with the start of riding season and better suit the capacity of the company and dealers.
- Expand profitable iconic motorcycles to excite existing customers. Remain committed to Adventure Touring, Streetfighter and advancing electric motorcycles.
Build the Parts & Accessories and General Merchandise businesses to full potential
- Develop a comprehensive strategy across P&A and
GM businesses that focuses on assortment and distribution opportunities, maximizes channels, improves ecommerce capabilities and grows revenue and margins for both the company and dealers. - Align P&A and
GM strategies with motorcycle strategy for a holistic presentation to the market.
Adjust and align the organizational structure, cost structure and operating model to reduce complexity and drive efficiency to set Harley-Davidson up for stability and success
- Create a framework including an organization that is more focused, profitable and nimble; a cost structure that is adjusted to the new realities of the market post crisis; and an operating model designed to increase empowerment and accountability.
- Establish commercially led central and new regional structures to gain a deeper understanding of customers and to return focus to dealers and selling.
- Elevate the role of Motorcycle Management and sharpen marketing strategy and execution to enable a bigger impact with an improved go-to-market process.
Each of these key elements of The Rewire playbook includes actions that have been implemented or are currently being developed. The company plans to share more about The Rewire in its Q2 update.
First Quarter 2020 Results
First quarter 2020 results reflect the impact of COVID-19 on the company's business. GAAP diluted EPS was
Harley-Davidson Retail Motorcycle Sales
Motorcycles |
1st Quarter |
|||||
2020 |
2019 |
Change |
||||
|
23,732 |
28,091 |
(15.5)% |
|||
EMEA |
7,730 |
10,797 |
(28.4)% |
|||
|
5,752 |
6,074 |
(5.3)% |
|||
|
1,759 |
2,241 |
(21.5)% |
|||
|
1,466 |
1,948 |
(24.7)% |
|||
International Total |
16,707 |
21,060 |
(20.7)% |
|||
Worldwide Total |
40,439 |
49,151 |
(17.7)% |
Global retail motorcycle sales in the first quarter were significantly impacted by COVID-19.
Motorcycles and Related Products Segment Results
$ in thousands |
1st Quarter |
|||||
2020 |
2019 |
Change |
||||
Motorcycle Shipments (vehicles) |
52,973 |
58,891 |
(10.0)% |
|||
Revenue |
|
|
(8.0)% |
|||
Motorcycles |
|
|
(6.8)% |
|||
Parts & Accessories |
|
|
(15.7)% |
|||
General Merchandise |
|
|
(11.3)% |
|||
Gross Margin |
29.0% |
29.1% |
(0.1) pts. |
|||
Operating Income |
|
|
(22.0)% |
|||
Operating Margin |
7.7% |
9.1% |
(1.4) pts. |
Revenue from the Motorcycles and Related Products segment was down in the first quarter compared to prior year reflecting the temporary global motorcycle manufacturing suspension that began in mid-March. Gross margin was largely flat during the quarter, while operating margin was down year-over-year primarily due to lower revenues and increased SG&A, offset by lower restructuring expense.
Financial Services Segment Results
$ in thousands |
1st Quarter |
|||||
2020 |
2019 |
Change |
||||
Revenue |
|
|
5.1% |
|||
Operating Income |
|
|
(60.9)% |
Financial Services segment first quarter operating income of
Other Results
Cash - Cash and marketable securities were
Tax Rate - Harley-Davidson's first quarter effective tax rate was 26.3 percent compared to 24.9 percent in Q1 2019.
Dividend & Share Repurchase - The company paid a cash dividend of
2020 Outlook
As a result of the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, Harley-Davidson withdrew all guidance on
Company Background
Webcast Presentation
Harley-Davidson will discuss first quarter 2020 results and developments in the business on an audio 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 Disclosure
This press release includes financial measures that have not been calculated in accordance with
The non-GAAP measures included in this press release are adjusted net income and adjusted diluted EPS excluding restructuring plan costs and the impact of recent EU and
Cautionary Note Regarding Forward-Looking Statements
The company intends that certain matters discussed in this press 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," "may," "will," "estimates," "is on-track" or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments, 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 press 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 are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this press release are only made as of the date of this press release, and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Important factors that could affect future results and cause those results to differ materially from those expressed in the forward-looking statements include, among others, the following: (i) the COVID-19 pandemic including the length and severity of the pandemic across the globe and the pace of recovery following the pandemic; (ii) adverse economic, political or market conditions in the
The company's operations, demand for its products, and its liquidity could be adversely impacted by work stoppages, facility closures, strikes, natural causes, widespread infectious disease, terrorism, or other factors. 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 Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions, the impact of COVID-19, or other factors. In recent years, HDFS has experienced historically low levels of retail credit losses, but there is no assurance that this will continue. The company believes that HDFS' retail credit losses may increase over time due to changing consumer credit behavior and HDFS' efforts to increase prudently structured loan approvals to sub-prime borrowers, as well as actions that the company has taken and could take that impact motorcycle values. Refer to "Risk Factors" under Item 1A of the company's Annual Report on Form 10-K for the year ended
### (HOG-F)
|
||||||||
Condensed Consolidated Statements of Income |
||||||||
(In thousands, except per share amounts) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
Motorcycles and Related Products revenue |
|
$ 1,195,637 |
||||||
Gross profit |
318,920 |
347,439 |
||||||
Selling, administrative and engineering expense |
234,353 |
225,428 |
||||||
Restructuring expense |
- |
13,630 |
||||||
Operating income from Motorcycles and Related Products |
84,567 |
108,381 |
||||||
Financial Services revenue |
198,456 |
188,743 |
||||||
Financial Services expense |
175,510 |
130,012 |
||||||
Operating income from Financial Services |
22,946 |
58,731 |
||||||
Operating income |
107,513 |
167,112 |
||||||
Other income (expense), net |
155 |
4,660 |
||||||
Investment (loss) income |
(5,347) |
6,358 |
||||||
Interest expense |
7,755 |
7,731 |
||||||
Income before income taxes |
94,566 |
170,399 |
||||||
Income tax provision |
24,871 |
42,454 |
||||||
Net income |
$ 69,695 |
$ 127,945 |
||||||
Earnings per share: |
||||||||
Basic |
$ 0.46 |
$ 0.80 |
||||||
Diluted |
$ 0.45 |
$ 0.80 |
||||||
Weighted-average shares: |
||||||||
Basic |
153,004 |
159,311 |
||||||
Diluted |
153,744 |
160,026 |
||||||
Cash dividends per share: |
$ 0.380 |
$ 0.375 |
|
||||||||
Reconciliation of GAAP Amounts to Non-GAAP Amounts |
||||||||
(In thousands, except per share amounts) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
Net income excluding restructuring plan costs and the impact of recent EU and |
||||||||
Net income (GAAP) |
$ 69,695 |
$ 127,945 |
||||||
Restructuring plan costs |
- |
17,210 |
||||||
Impact of incremental tariffs |
12,607 |
20,977 |
||||||
Tax effect of adjustments(a) |
(3,316) |
(9,260) |
||||||
Adjustments, net of tax |
9,291 |
28,927 |
||||||
Adjusted net income (non-GAAP) |
$ 78,986 |
$ 156,872 |
||||||
Diluted EPS excluding restructuring plan costs and the impact of recent EU and |
||||||||
Diluted EPS (GAAP) |
$ 0.45 |
$ 0.80 |
||||||
Adjustments net of tax, per share |
0.06 |
0.18 |
||||||
Adjusted diluted EPS (non-GAAP) |
$ 0.51 |
$ 0.98 |
||||||
(a) The income tax effect of adjustments has been computed using the company's effective income tax rate |
|
||||||||
Condensed Consolidated Balance Sheets |
||||||||
(In thousands) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
|
|
|
||||||
2020 |
2019 |
2019 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
|
$ 833,868 |
$ 749,600 |
|||||
Marketable securities |
- |
- |
10,003 |
|||||
Accounts receivable, net |
299,148 |
259,334 |
353,541 |
|||||
Finance receivables, net |
2,358,989 |
2,272,522 |
2,443,899 |
|||||
Inventories, net |
610,924 |
603,571 |
595,806 |
|||||
Restricted cash |
99,903 |
64,554 |
43,471 |
|||||
Other current assets |
142,357 |
168,974 |
177,761 |
|||||
4,976,382 |
4,202,823 |
4,374,081 |
||||||
Finance receivables, net |
4,933,418 |
5,101,844 |
4,994,693 |
|||||
Other long-term assets |
1,230,147 |
1,223,492 |
1,211,839 |
|||||
|
|
$ 10,580,613 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ 917,946 |
$ 876,668 |
$ 1,025,089 |
|||||
Short-term debt |
1,335,664 |
571,995 |
1,192,925 |
|||||
Current portion of long-term debt, net |
2,326,460 |
1,748,109 |
1,372,050 |
|||||
4,580,070 |
3,196,772 |
3,590,064 |
||||||
Long-term debt, net |
4,478,078 |
5,124,826 |
4,744,694 |
|||||
Pension and postretirement healthcare liabilities |
128,054 |
128,651 |
192,759 |
|||||
Other long-term liabilities |
261,762 |
273,911 |
255,485 |
|||||
Shareholders' equity |
1,691,983 |
1,803,999 |
1,797,611 |
|||||
|
|
$ 10,580,613 |
|
||||||||
Condensed Consolidated Statements of Cash Flows |
||||||||
(In thousands) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
Net cash (used) provided by operating activities |
$ (8,582) |
$ 32,671 |
||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(32,928) |
(35,255) |
||||||
Finance receivables, net |
61,200 |
(35,548) |
||||||
Acquisition of business |
- |
(7,000) |
||||||
Other investing activities |
16 |
603 |
||||||
Net cash provided (used) by investing activities |
28,288 |
(77,200) |
||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of medium-term notes |
- |
546,655 |
||||||
Repayments of medium-term notes |
(600,000) |
(750,000) |
||||||
Proceeds from securitization debt |
522,694 |
- |
||||||
Repayments of securitization debt |
(130,918) |
(76,505) |
||||||
Net increase in unsecured commercial paper |
772,208 |
58,527 |
||||||
Borrowings of asset-backed commercial paper |
225,187 |
- |
||||||
Repayments of asset-backed commercial paper |
(67,809) |
(72,401) |
||||||
Dividends paid |
(58,817) |
(60,859) |
||||||
Repurchase of common stock |
(7,071) |
(61,712) |
||||||
Issuance of common stock under employee stock option plans |
34 |
616 |
||||||
Net cash provided (used) by financing activities |
655,508 |
(415,679) |
||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(5,732) |
(409) |
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
$ 669,482 |
$ (460,617) |
||||||
Cash, cash equivalents and restricted cash: |
||||||||
Cash, cash equivalents and restricted cash, beginning of period |
$ 905,366 |
$ 1,259,748 |
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
669,482 |
(460,617) |
||||||
Cash, cash equivalents and restricted cash, end of period |
|
$ 799,131 |
||||||
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows: |
||||||||
Cash and cash equivalents |
|
$ 749,600 |
||||||
Restricted cash |
99,903 |
43,471 |
||||||
Restricted cash included in Other long-term assets |
9,884 |
6,060 |
||||||
Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows |
|
$ 799,131 |
Motorcycles and Related Products Revenue |
||||||||
and Motorcycle Shipment Data |
||||||||
(Revenue in thousands) |
||||||||
(Unaudited) |
(Unaudited) |
|||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
MOTORCYCLES AND RELATED PRODUCTS REVENUE |
||||||||
Motorcycles |
$ 899,365 |
$ 964,575 |
||||||
Parts & accessories |
134,685 |
159,703 |
||||||
General merchandise |
49,160 |
55,401 |
||||||
Licensing |
8,029 |
8,577 |
||||||
Other |
8,549 |
7,381 |
||||||
$ 1,099,788 |
$ 1,195,637 |
|||||||
MOTORCYCLE SHIPMENTS |
||||||||
|
33,024 |
34,505 |
||||||
International |
19,949 |
24,386 |
||||||
52,973 |
58,891 |
|||||||
MOTORCYCLE PRODUCT MIX |
||||||||
Touring |
21,597 |
25,043 |
||||||
Cruiser(a) |
20,131 |
20,451 |
||||||
Sportster®/ Street |
11,245 |
13,397 |
||||||
52,973 |
58,891 |
|||||||
(a)Includes Softail®, CVOTM, and LiveWireTM |
Worldwide Retail Sales of Harley-Davidson Motorcycles(a) |
||||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
|
23,732 |
28,091 |
||||||
|
6,534 |
9,427 |
||||||
EMEA - Other |
1,196 |
1,370 |
||||||
Total EMEA |
7,730 |
10,797 |
||||||
|
3,709 |
3,786 |
||||||
|
2,043 |
2,288 |
||||||
Total |
5,752 |
6,074 |
||||||
|
1,759 |
2,241 |
||||||
|
1,466 |
1,948 |
||||||
Total international retail sales |
16,707 |
21,060 |
||||||
Total worldwide retail sales |
40,439 |
49,151 |
(a) 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. |
||||||||
(b) Includes |
||||||||
(c) Includes |
Motorcycle Registration Data(a) |
||||||||
Three months ended |
||||||||
|
|
|||||||
2020 |
2019 |
|||||||
|
47,232 |
54,324 |
||||||
|
95,307 |
109,282 |
(a) Data includes on-road models with internal combustion engines with displacements greater than 600cc's and electric motorcycles with kilowatt peak power equivalents greater than 600cc's (601+cc). On-road 601+cc models include dual purpose models, three-wheeled motorcycles and autocycles. Registration data for Harley-Davidson Street® 500 motorcycles is not included in this table. |
||||||||
(b) |
||||||||
(c) Europe data includes |
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SOURCE
Media Contact: Jenni Coats, jenni.coats@Harley-Davidson.com, 414.343.7902; Financial Contact: Shannon Burns, shannon.burns@Harley-Davidson.com, 414.343.8002