SYS-CON MEDIA Authors: Roberto Medrano, Dmitriy Stepanov, Gilad Parann-Nissany, Srinivasan Sundara Rajan, Sean Houghton

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Harley-Davidson First-Quarter Earnings, Retail Motorcycle Sales Rise

Diluted EPS Grows 22.2% on 9.9% Revenue Increase

MILWAUKEE, April 22, 2014 /PRNewswire/ -- Harley-Davidson, Inc. (NYSE: HOG) first-quarter 2014 diluted earnings per share of $1.21 grew 22.2% from the year-ago period on higher motorcycle shipments and continued improvement in operating efficiencies. First-quarter net income was $265.9 million on consolidated revenue of $1.73 billion, compared to net income of $224.1 million in the year-ago period on consolidated revenue of $1.57 billion.

"Harley-Davidson delivered gains on many fronts in the first quarter, with shipments up 7.3%, strong margin improvement and solid growth in dealer new motorcycle sales," said Keith Wandell, Chairman, President and Chief Executive Officer of Harley-Davidson, Inc.

"Thanks to the great contributions of our employees, dealers and suppliers, we continue to lead at delivering exceptional customer experiences in 89 countries," said Wandell. "Our Project RUSHMORE motorcycles were in high demand in the quarter and we began shipping the Harley-Davidson Street™ 750 and 500 into select markets. These motorcycles, together with continuous improvement in our operations at every level, underscore the momentum we've established as a customer-led company."

Retail Harley-Davidson Motorcycle Sales

Dealers worldwide sold 57,415 new Harley-Davidson® motorcycles in the first quarter of 2014 compared to 54,254 motorcycles in the year-ago quarter. In the U.S., dealers sold 35,730 new Harley-Davidson motorcycles in the quarter, up 3.0% compared to sales of 34,706 motorcycles in the year-ago period. In international markets, dealers sold 21,685 new Harley-Davidson motorcycles during the first quarter, up 10.9% compared to 19,548 motorcycles in the year-ago period, with sales up 20.5% in the Asia Pacific region, 8.2% in the EMEA region and 8.9% in the Latin America region, and down 2.4% in Canada.

"Our dealers had a solid quarter of retail motorcycle sales. Sales in the Asia Pacific region were up strongly, and we are encouraged by the continued growth of new Harley-Davidson motorcycle sales in Europe. We're also excited to be entering the heart of the retail selling season in the U.S., having achieved first-quarter retail growth of 3.0% in the midst of a long, cold winter," said Wandell.

According to Wandell, "there's also great news for Harley-Davidson in the annual reporting of our demographic market share data."

In 2013, for the sixth consecutive year, Harley-Davidson was the number-one seller of new on-road motorcycles in the U.S., both 601cc-plus and across all displacements, to young adults age 18-34, women, African-Americans and Hispanics ("outreach" customers) and Caucasian men age 35-plus ("core" customers), according to Polk 2013 U.S. new motorcycle registration data from IHS Automotive. The Company grew its U.S. market share and also increased its share gap to the nearest competitor in each of these segments, compared to 2012.

"Together with our dealers, we continued to expand the appeal of our products and the Harley-Davidson experience," said Wandell. "Harley-Davidson dealers sold more than four times as many new, on-road motorcycles, 601cc and up, to U.S. young adults last year, and among riders age 35-plus, more than nine times as many to women, more than six times as many to African Americans and more than seven times as many to Hispanics, as the nearest competitor."

According to Harley-Davidson's internal data, retail sales of its motorcycles to U.S. outreach customers grew at more than twice the rate of sales growth to core customers in 2013 compared to 2012.

Harley-Davidson Motorcycles and Related Products Segment Results

First-quarter operating income from motorcycles and related products grew 25.6% to $347.7 million, compared to operating income of $276.8 million in the year-ago period. Operating income in the quarter benefited from higher motorcycle shipments and higher gross margin compared to the prior-year period.

Revenue from motorcycles grew 13.1% to $1.31 billion, compared to revenue of $1.15 billion in the year-ago period. The Company shipped 80,682 motorcycles to dealers and distributors worldwide during the quarter, in line with guidance and a 7.3% increase compared to shipments of 75,222 motorcycles in the year-ago period.

Revenue from motorcycle parts and accessories was $198.1 million during the quarter, up 7.7%, and revenue from general merchandise, which includes MotorClothes® apparel and accessories, was $64.1 million, down 11.1%, compared to the year-ago period.

Gross margin was 37.7% in the first quarter of 2014, compared to 36.7% in the first quarter of 2013. First-quarter operating margin from motorcycles and related products was 22.1%, compared to operating margin of 19.6% in last year's first quarter.

Financial Services Segment Results

Operating income from financial services was $63.2 million in the first quarter of 2014, an 11.7% decrease compared to operating income of $71.5 million in last year's first quarter. First-quarter financial services results reflect a higher provision for credit losses.

Guidance

Harley-Davidson continues to expect to ship 279,000 to 284,000 motorcycles to dealers and distributors worldwide in 2014, an approximate 7% to 9% increase from 2013. In the second quarter of 2014, the Company expects to ship 92,000 to 97,000 motorcycles, up from shipments of 84,606 motorcycles in the year-ago period. The Company continues to expect full-year 2014 operating margin of 17.5% to 18.5% in the Motorcycles segment.  The Company also continues to expect capital expenditures of $215 million to $235 million in 2014.

Income Tax Rate

For the first quarter of 2014, the Company's effective income tax rate was 35.0% compared to 33.8% in the first quarter of 2013.  The lower effective tax rate in the first quarter of 2013 was primarily driven by the retroactive reinstatement of the Research and Development Tax Credit, which included the full-year impact of the 2012 Research and Development Tax Credit.  The Company continues to expect its full-year 2014 effective tax rate to be approximately 35.5%.

Cash Flow

Cash and marketable securities totaled $1.03 billion at the end of the first quarter, compared to $1.15 billion at the end of last year's first quarter. During the first quarter of 2014, Harley-Davidson generated cash from operating activities of $203.6 million, compared to an outflow of $108.5 million in the year-ago quarter. On a discretionary basis, the Company repurchased 1.2 million shares of Harley-Davidson, Inc. common stock during the first quarter of 2014 at a cost of $76.6 million. In the first quarter of 2014, there were approximately 220.5 million Harley-Davidson weighted-average diluted common shares outstanding. At the end of the first quarter of 2014, 28.1 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. Harley-Davidson Motor Company produces custom, cruiser and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear and apparel, and general merchandise. 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 first-quarter results on a Webcast at 8:00 a.m. CT today. The Webcast presentation will be posted prior to the call and can be accessed at http://investor.harley-davidson.com/. Click "Events and Presentations" under "Resources." The audio portion of today's call will also be posted at harley-davidson.com beginning approximately two hours after the conclusion of the call for one year. The audio may also be accessed through May 6, 2014 by calling 404-537-3406 or toll-free in the U.S. at 855-859-2056, pin number 17832552#. 

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 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) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices,  (iii) manage through inconsistent economic conditions, including changing capital, credit and retail markets, (iv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles,  (v) implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, and secure data contained in those systems, (vi) anticipate the level of consumer confidence in the economy, (vii) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (viii) manage production capacity and production changes, (ix) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (x) provide products, services and experiences that are successful in the marketplace, (xi) manage risks that arise through expanding international manufacturing, operations and sales, (xii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (xiii) continue to manage the relationships and agreements that it has with its labor unions to help drive long-term competitiveness, (xiv) manage supply chain issues, including any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xv) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xvi) adjust to healthcare inflation and reform, pension reform and tax changes, (xvii) retain and attract talented employees, (xviii) manage the risks that our independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xix) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (xx) continue to develop the capabilities of its distributor and dealer network, and (xxi) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation. 

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.

TABLES FOLLOW

 

Harley-Davidson, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)




(Unaudited)


(Unaudited)



Three months ended



March 30,


March 31,



2014


2013






Motorcycles and related products revenue


$ 1,571,688


$   1,414,248

Gross profit


592,131


519,442

Selling, administrative and engineering expense


244,439


239,743

Restructuring expense


-


2,938

  Operating income from motorcycles & related products


347,692


276,761






Financial services revenue


154,360


156,965

Financial services expense


91,170


85,420

  Operating income from financial services


63,190


71,545






Operating income


410,882


348,306

Investment income


1,659


1,615

Interest expense


3,677


11,391

Income before income taxes


408,864


338,530

Provision for income taxes


142,947


114,401

Net income


$   265,917


$      224,129






Earnings per common share:





  Basic


$        1.21


$           1.00

  Diluted


$        1.21


$           0.99






Weighted-average common shares:





  Basic


218,986


224,429

  Diluted


220,493


226,148






Cash dividends per common share


$      0.275


$         0.210

 

 

Harley-Davidson, Inc.

Condensed Consolidated Balance Sheets

(In thousands)










(Unaudited)




(Unaudited)



March 30,


December 31,


March 31,



2014


2013


2013








ASSETS







Current assets:







    Cash and cash equivalents


$   935,820


$   1,066,612


$      1,018,759

    Marketable securities


92,940


99,009


135,246

    Accounts receivable, net


324,979


261,065


259,673

    Finance receivables, net


2,223,199


1,773,686


2,074,036

    Inventories


449,044


424,507


416,050

    Restricted cash


117,883


144,807


197,025

    Other current assets


216,606


219,117


232,190

Total current assets


4,360,471


3,988,803


4,332,979








Finance receivables, net


4,214,496


4,225,877


3,959,903

Prepaid pension costs


250,575


244,871


-

Other long-term assets


904,249


945,489


1,042,239



$ 9,729,791


$   9,405,040


$      9,335,121








LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







    Accounts payable & accrued liabilities


$ 1,021,121


$      667,129


$         824,335

    Short-term debt


974,153


666,317


687,705

    Current portion of long-term debt


848,840


1,176,140


715,143

Total current liabilities


2,844,114


2,509,586


2,227,183








Long-term debt


3,271,648


3,416,713


3,892,469

Pension and postretirement healthcare liabilities


250,148


252,536


426,729

Other long-term liabilities


204,046


216,719


131,692








Total shareholders' equity


3,159,835


3,009,486


2,657,048



$ 9,729,791


$   9,405,040


$      9,335,121

 

 

Harley-Davidson, Inc.

Condensed Consolidated Statements of Cash Flows

 (In thousands)




(Unaudited)


(Unaudited)



Three months ended



March 30,


March 31,



2014


2013






Net cash provided by (used by) operating activities


$   203,586


$    (108,489)






Cash flows from investing activities:





  Capital expenditures


(25,881)


(22,261)

  Finance receivables, net


(50,534)


43,147

  Net change in marketable securities


6,001


-

  Other


51


6,656

Net cash (used by) provided by investing activities


(70,363)


27,542






Cash flows from financing activities:





  Repayment of senior unsecured notes


(303,000)


-

  Repayments of securitization debt


(159,938)


(178,923)

  Net increase in credit facilities and unsecured commercial paper


307,803


392,564

  Borrowings of asset-backed commercial paper


13,746


-

  Repayments of asset-backed commercial paper


(16,981)


(17,063)

  Net change in restricted cash


26,924


(9,017)

  Dividends paid


(60,527)


(47,308)

  Purchase of common stock for treasury


(87,690)


(126,411)

  Excess tax benefits from share-based payments


4,763


14,468

  Issuance of common stock under employee stock option plans


8,894


13,887

Net cash (used by) provided by financing activities of continuing operations


(266,006)


42,197






Effect of exchange rate changes on cash and cash equivalents


1,991


(10,629)






Net decrease in cash and cash equivalents


$  (130,792)


$      (49,379)






Cash and cash equivalents:





  Cash and cash equivalents - beginning of period


$ 1,066,612


$   1,068,138

  Net decrease in cash and cash equivalents


(130,792)


(49,379)

  Cash and cash equivalents - end of period


$   935,820


$   1,018,759

 

Motorcycles and Related Products Revenue and

 Motorcycle Shipment Data

(Unaudited)








Three months ended



March 30,


March 31,



2014


2013

MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)





  Motorcycles


$ 1,305,039


$   1,153,827

  Parts & Accessories


198,135


184,038

  General Merchandise


64,114


72,144

  Other


4,400


4,239



$ 1,571,688


$   1,414,248






MOTORCYCLE SHIPMENTS:





    United States


54,291


50,683

    International


26,391


24,539

      Total 


80,682


75,222






MOTORCYCLE PRODUCT MIX:





    Touring


36,178


31,332

    Custom


29,149


30,302

    Sportster® / Street


15,355


13,588

      Total


80,682


75,222

 

Worldwide Retail Sales of Harley-Davidson Motorcycles








Three months ended



March 31,


March 31,



2014


2013

North America Region





  United States


35,730


34,706

  Canada


2,009


2,059

    Total North America Region


37,739


36,765






Europe, Middle East and Africa  Region (EMEA)





  Europe*


8,374


7,700

  Other


1,566


1,483

    Total EMEA Region


9,940


9,183






Asia Pacific Region





  Japan


2,893


2,173

  Other


4,285


3,785

    Total Asia Pacific Region


7,178


5,958






Latin America Region


2,558


2,348






    Total Worldwide Retail Sales


57,415


54,254

    Total International Retail Sales


21,685


19,548


Data Source

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.


* 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)








Three months ended



March 31,


March 31,



2014


2013

United States(2)


62,202


61,452








Three months ended



March 31,


March 31,



2014


2013

Europe(3)


83,118


66,599


1 - Data includes street legal 601+cc models.  Street legal 601+cc models include on-highway, dual purpose models and three-wheeled vehicles. 


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. 

SOURCE Harley-Davidson, Inc.

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