Slumping Sales and Profits in Tough 3rd Quarter for Harley
U.S. Market Share Up, Improved U.S. Dealer Inventory
Harley-Davidson, Inc. (NYSE:HOG) third quarter 2017 diluted EPS decreased to $0.40 from $0.64 in the third quarter of 2016. Third quarter net income was $68.2 million on consolidated revenue of $1.15 billion versus net income of $114.1 million on consolidated revenue of $1.27 billion in the third quarter of 2016.
“The continued weakness in the U.S. motorcycle industry only heightens our resolve and the intensity we are bringing to the quest to build the next generation of Harley-Davidson riders,” said Matt Levatich, president and CEO, Harley-Davidson, Inc. “Launching one hundred new high-impact motorcycles is a critical part of our 10-year journey, and the all new Softail line-up is a significant statement of our commitment.”
Harley-Davidson worldwide retail motorcycle sales were down 6.9 percent in the third quarter compared to the same period in 2016. Harley-Davidson U.S. retail motorcycle sales were down 8.1 percent compared to the year-ago quarter, with the overall U.S. industry down 9.2 percent for the same period. Harley-Davidson’s U.S. market share for the quarter was 53.1 percent in the 601cc-plus segment, up compared to the same quarter in 2016. Harley-Davidson’s international retail motorcycle sales decreased 4.6 percent compared to the third quarter in 2016.
“As the motorcycle industry leader – with dealer strength and rider passion and loyalty like no other – we believe we are uniquely positioned to build ridership and strengthen the sport of motorcycling. Not just in the U.S. but around the world. Our investments in new product and marketing are targeted to drive ridership growth. We have the strategies, plans and people to make it happen,” said Levatich.
Through nine months, Harley-Davidson 2017 diluted EPS was $2.95, down 16.9 percent from $3.55 in the year-ago period. Harley-Davidson 2017 net income was $513.4 million on consolidated revenue of $4.42 billion compared to nine-month 2016 net income of $645.0 million on consolidated revenue of $4.89 billion. For the first nine months, worldwide retail motorcycle sales were down 6.1 percent compared to the same period in 2016.
Harley-Davidson Retail Motorcycle Sales In units as reported by H-D dealers 3rd Quarter Nine Months
2017 2016 Change / 2017 2016 Change
U.S. – 41,793 45,469 (8.1)% / 124,777 135,581 (8.0)%
Canada – 2,575 2,663 (3.3)% / 8,763 8,946 (2.0)%
Latin America – 2,306 2,605 / (11.5)% 7,003 7,064 (0.9)%
EMEA – 10,078 10,224 (1.4)% / 37,475 37,947 (1.2)%
Asia Pacific – 7,457 7,994 (6.7)% / 22,628 24,141 (6.3)%
International Total – 22,416 23,486 (4.6)% / 75,869 78,098 (2.9)%
Worldwide Total – 64,209 68,955 (6.9)% / 200,646 213,679 (6.1)%
Harley-Davidson new retail motorcycle sales in the U.S. were down in the third quarter compared to the third quarter of 2016, primarily driven by weak industry conditions including the impacts of hurricanes in the southeast and Texas. International new retail motorcycle sales were also down in the quarter compared to the same period in 2016, driven by weak performance in Japan, Australia and Mexico.
Motorcycles and Related Products Segment Results $ in thousands 3rd Quarter Nine Months
2017 2016 Change / 2017 2016 Change
Motorcycle Shipments (vehicles) – 41,662 48,611 (14.3)% / 194,300 219,807 (11.6)%
Motorcycles – 653,345 788,856 (17.2)% / 3,023,480 3,437,066 (12.0)%
Parts & Accessories – 229,709 231,279 (0.7)% / 636,232 673,192 (5.5)%
General Merchandise – 72,687 65,289 11.3% / 191,540 211,664 (9.5)%
Gross Margin – 28.8% 33.6% (4.8)pts 34.4% / 36.1% (1.7)pts
Operating Income – 19,648 108,929 (82.0)% / 578,137 764,135 (24.3)%
Operating Margin – 2.0% 10.0% (8.0)pts / 14.9% 17.6% (2.7)pts
Revenue from the Motorcycles and Related Products segment was down in the third quarter of 2017 versus prior year largely due to decreased motorcycle shipments. Operating margin was down in the quarter versus prior year due to lower shipments, unfavorable mix and higher manufacturing costs.
The Financial Services segment operating income was up 11 percent in the third quarter compared to the year ago period due to a lower provision for credit losses. Income Tax Rate For the first nine months of 2017, Harley-Davidson’s effective tax rate was 33.2 percent compared to 32.9 percent in the prior year period. The company now expects its full-year 2017 effective tax rate to be approximately 33.4 percent. Other Results Cash and marketable securities totaled $683.1 million at the end of the third quarter, compared to $795.3 million a year ago. During the first nine months of 2017, Harley-Davidson generated $949.1 million of cash from operating activities compared to $927.8 million for the first nine months of 2016. The company paid a cash dividend of $0.365 per share for the third quarter of 2017, and a cumulative total of $1.095 per share for the first nine months of 2017. On a discretionary basis, the company repurchased 4.5 million shares of its common stock during the third quarter of 2017 for $222 million. In the third quarter of 2017, there were 170.7 million weighted-average diluted common shares outstanding, compared to 179.3 million shares in the same period a year ago. At the end of the period, 10.6 million shares remained on a board-approved share repurchase authorization.
Guidance Harley-Davidson continues to expect to ship 241,000 to 246,000 motorcycles to dealers worldwide in 2017, which is down approximately 6 percent to 8 percent from 2016. In the fourth quarter, the company expects to ship 46,700 to 51,700 motorcycles compared to 42,414 motorcycles shipped in the year-ago period. The company continues to expect 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.