Tough second quarter, but Harley is still forecasting increased unit shipments for 2015
HARLEY-DAVIDSON is continuing to forecast increased unit shipments for 2015 as a whole despite the fact that Q2 and year-to-date unit sales, unit shipments, net income, consolidated income, operating income/margin, and EPS are all down.
Its latest financial filings state that the company "continues to expect to ship 276,000 to 281,000 motorcycles to dealers and distributors worldwide in 2015, an approximate 2 to 4 percent increase from 2014" and that " revenue, earnings and motorcycle shipments" for the second quarter were "in line with [April revised] company expectations."
This optimism is despite a second quarter decline of -1.4 percent in worldwide sales (88,931 units sold against 90,218 in the second quarter of 2014) and a 0.75 percent drop in the United States (57,790 units against 58,225 in Q2 of 2014).
In international markets, dealers sold 31,141 new Harley-Davidson motorcycles during the second quarter compared to 31,993 motorcycles in the year-ago period, with sales up 16.6 percent in the Asia Pacific region and down -8.9 percent in Harley's most important Middle East & Africa (EMEA) export market, -2.6 percent in the Latin America region and -9.9 percent in Canada.
Operating income from motorcycles and related products decreased -19.6 percent to $380.6 million during the quarter compared to operating income of $473.3 million in the year-ago period, due primarily to lower motorcycle shipments and unfavorable foreign currency exchange rates.
For the first six months of the year Harley report worldwide sales down by -1.4 percent at 145,592 units from 147,633 for the first six months of 2014; with domestic US sales -0.7 percent and -7.7 percent in their EMEA region.
The picture is worse in shipment terms; Harley say they are off by - 4.7 percent for the year-to-date worldwide (164,761 motorcycles in the first half of 2015) which, despite apparent evidence of some momentum pointing to improvement as the second quarter wore on, makes their apparent third quarter and 2015 full-year confidence surprising.
Second-quarter revenue from motorcycles decreased -11.6 percent to $1.31 billion compared to revenue of $1.48 billion in the year-ago period. The company shipped 85,172 motorcycles to dealers and distributors worldwide during the quarter compared to shipments of 92,217 motorcycles in the year-ago period, which it says is also in line with its April revised guidance.
"shipments down -4.7 percent"
Despite having been revised down once this year already, that guidance still suggests that third quarter shipments will be between 54,000 and 59,000 units, compared to 50,670 in the third quarter of 2014.
Flying solo with the financial media for the first time, and fronting up to the investor community (one that is caught between performance anxiety and the potential of the impending share buy-back), for the first time in his capacity as President & CEO, Matt Levatich is quoted as saying "in the face of a tough competitive environment, driven mostly by currency and greater competitive activity, we are leveraging our many strengths and meeting the challenge head on.
"Our actions during the quarter have had a positive impact. We are encouraged by the momentum at retail as the quarter progressed, both in the U.S. and internationally.
"We are confident in the strength of our business and the strategies we have in place to maintain our industry leadership and grow our business over the long term. Our singular focus on the customer through unrivalled products, unique experiences and our expanding dealer network is the bedrock we are building on to continue to grow our reach and impact with customers across the globe."
Revenue from motorcycle parts and accessories was $256.8 million during the quarter, down 5.4 percent, and revenue from general merchandise, which includes MotorClothes apparel and accessories, was $77.5 million, up 1.5 percent compared to the year-ago period.
Through six months, net income was $569.7 million on consolidated revenue of $3.50 billion compared to six-month 2014 net income of $620.1 million on consolidated revenue of $3.73 billion. Six-month 2015 diluted earnings per share were $2.71, down 3.9 percent from EPS of $2.82 in the year-ago period.
Gross margin was 39.2 percent in the second quarter of 2015 compared to 39.5 percent in the second quarter of 2014. Second-quarter operating margin for the motorcycles segment was 23.1 percent compared to operating margin of 25.8 percent in last year's second quarter.
Six-month revenue from motorcycles was down 8.0 percent to $2.56 billion, revenue from parts and accessories decreased 6.2 percent to $440.7 million and revenue from general merchandise increased 2.5 percent to $143.9 million compared to the first six months of 2014. Gross margin through six months was 39.1 percent, and operating margin was 23.0 percent compared to 38.6 percent and 24.1 percent respectively in the year-ago period.
Second-quarter 2015 diluted earnings per share were $1.44 compared to EPS of $1.62 in the year-ago period.
Second-quarter net income was $299.8 million on consolidated revenue of $1.82 billion compared to net income of $354.2 million on consolidated revenue of $2.00 billion in the year-ago period.
Operating income from financial services was $81.9 million in the second quarter of 2015, a 10.0 percent increase compared to operating income of $74.4 million in last year's second quarter. Second quarter financial services results are said to reflect higher net interest income.
Through six months, operating income from financial services was $146.6 million compared to operating income of $137.6 million through six months of 2014. The company previously indicated it expected operating income from financial services to be down modestly in 2015, but now expects operating income to be up modestly compared to the prior year.
The company continues to expect a full-year 2015 operating margin of approximately 18 percent to 19 percent for the motorcycles segment. The company also continues to expect 2015 capital expenditures of $240 million to $260 million.
On a discretionary basis, the company repurchased 2.8 million shares of Harley-Davidson, Inc. common stock during the second quarter of 2015 at a cost of $164.8 million. In the second quarter of 2015, there were approximately 208.6 million weighted-average diluted common shares outstanding, compared to approximately 219.2 million shares in the year-ago quarter.
As reported in AMD Magazine last month, on June 17, 2015, the company disclosed that its Board of Directors authorized the company to repurchase up to an additional 15.0 million shares of its common stock and, significantly, to do so with no dollar limit.
This repurchase authorization is in addition to the share repurchases that the Board authorized in February 2014, pursuant to which the company was authorized to repurchase up to 20.0 million shares of its common stock with no dollar limit.
The company also disclosed that it intends to incur long-term debt in the third quarter of 2015 in the amount of $750 million and to use the proceeds to repurchase common stock through the remainder of 2015.
These repurchases will be in addition to already planned repurchases, which were expected to be in line with repurchases made in the second half of 2014. However, the company now expects the combined effects of the additional indebtedness and share repurchases to be only slightly accretive to earnings per share in 2015, with the full effect on earnings per share beginning in 2016.
At the end of the second quarter, 31.0 million shares remained on board-approved share-repurchase authorizations.