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Retail Sales Lower than Expected in Harley-Davidson Second Quarter 2017 Results

Harley-Davidson News

Retail Sales Lower than Expected in Harley-Davidson Second Quarter 2017 Results

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Company Delivered Strong Margins, Retail Sales Lower Than Expected

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.

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This is a submitted Press Release and posted as-is. American Iron Magazine cannot confirm or deny information or claims made within Press Releases, and does not necessarily endorse these product or services.

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