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Tuesday, 24 April 2018


Harley Q1 Revenue Up, but Domestic U.S. Sales Down by -12 percent in a 601+ cc Market That Was Down -11.1 percent
In an announcement that is long on hyperbole and the promise of sunlit uplands to come, in the context of the hopes pinned on the M-8 Softails, Harley-Davidson’s first quarter performance disappoints.

The good news is that revenue is up as the company’s model mix continues to track higher in mean price-point terms and that international sales were essentially flat (actually +0.2 percent up) against recent declines.
The bad news is that Harley still appears to be underselling a declining domestic U.S. market and seeing an ever greater proportion of its sales dependency migrating away from the kind of price points where growth is expected to be found in the next five years. While the M-8s (Softails and otherwise) are continuing to favorably affect the revenue position, there is no evidence that they are enabling Harley to grow new unit sales ahead of market decline.
Indeed, the company also announced that it is accelerating its strategy for growth, “anchored by its objective to build the next generation of riders globally” and that, in what is a tacit admission that its plans to return to growth have failed so far, the company says that it is “currently refining its plans, and this summer intends to reveal significant additional steps to improve performance and value creation through 2022.”
Harley-Davidson international retail motorcycle sales were up +0.2 percent in the first quarter of 2018 compared to 2017, and U.S. retail sales were down -12.0 percent. Worldwide retail sales decreased -7.2 percent.
“We are pleased to deliver revenue growth on the heels of our recent product investments in Softail and Touring. This, plus solid financial services segment performance and strong cash returns during the first quarter, underscores our commitment to drive shareholder value,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc.  “Our international markets returned to retail sales growth supporting our long-term objective to increase international sales to build the next generation of riders globally.”
The company says that during the first quarter it continued progress on its 2027 objectives: build 2 million new riders in the U.S., grow its international business to 50 percent of annual volume, launch 100 new high impact motorcycles, and do so profitably and sustainably.
The company’s release also states that, considering the prolonged softness in the U.S. industry, and what the company believes is untapped potential in international markets (and in certain high-growth spaces globally), the company is “crafting strategy accelerants to deliver significant value through 2022” and that it “plans to leverage its core business more fully and expand in new directions to accelerate value creation as it pursues its long-term objectives.”
Matt Levatich goes on to say that “our view of the highly competitive global motorcycle market is grounded in a realistic assessment of risks, opportunities and capabilities needed to inspire ridership and grow our business.  Our data-driven insights compel us to enhance and accelerate our strategies to ensure we deliver on our long-term objectives as we build the next generation of Harley-Davidson riders.”
Continuing its “building riders” thesis, Harley states that as it “continues to make progress building the next generation of riders,” it has “increased its reach and impact during the first quarter through a wide range of efforts.”
The efforts cited include adding to the “long legacy of its Sportster motorcycle line with the introduction of the Iron 1200 and Forty-Eight Special models, the latest in a line of 100 high-impact motorcycles the company expects to introduce by 2027”; continuing to “grow the appeal of motorcycling by debuting Harley-Davidson Snow Hill Climb at X Games Aspen alongside ski, snowboard and other action-sports competitions” and that it “increased brand access by adding new international dealers and new apparel and lifestyle boutiques in popular shopping areas in China and India” and “welcomed riders and non-riders to celebrate freedom as the company recognizes 115 years of continuous motorcycle manufacturing in 2018”. Fans were “invited to join the global freedom movement on social media and join celebrations in Prague in July and Milwaukee over Labor Day weekend.”
Harley also sees its investment in a “collaborative agreement” with Alta Motors as “supporting Harley-Davidson’s commitment to lead in the electrification of the sport of motorcycling to reach new customers in new spaces.”
Still claiming that reducing manufacturing capacity is a good thing and a practical step towards growth, the company went on to say that it had commenced its previously announced “multi-year manufacturing optimization initiative anchored by the consolidation of its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa.” in order to “further improve its manufacturing operations and cost structure.”
The company says that it continues to expect to incur restructuring and other consolidation costs of $170 million to $200 million and capital investment of approximately $75 million through 2019 and expects ongoing annual cash savings of $65 million to $75 million after 2020.  In the first quarter, costs related to the manufacturing optimization were $47.6 million.
Harley-Davidson’s first quarter market share was 50.4 percent in the U.S. The 601+ cc industry in Europe was down -7.3 percent in the first quarter compared to 2017.  Harley-Davidson’s first quarter market share was up +1.3 percentage points to 10.4 percent in Europe.
First quarter revenue from motorcycles and related products was up versus the prior year. Operating margin as a percentage of revenue decreased in the quarter compared to 2017, primarily due to costs associated with the “manufacturing optimization initiative.”
Financial Services operating income increased +20.8 percent compared to the first quarter of 2017. Harley-Davidson’s first quarter effective tax rate was 24.1 percent compared to 34.5 percent in 2017, due to the favorable impact of the ‘2017 Tax Cuts and Jobs Act’.
Cash and marketable securities were $753.5 million at the end of Q1 2018 compared to $844.7 million in 2017. Harley-Davidson generated $191.6 million of cash from operating activities in 2018 so far compared to $159.9 million in 2017. The company paid a cash dividend of $0.37 per share for the first quarter, an increase of 1.4 percent compared to the prior year.
On a discretionary basis, Harley-Davidson repurchased 1.4 million shares of its common stock during the first quarter for $65.1 million. During the quarter, there were approximately 169.2 million weighted-average diluted common shares outstanding.  At the end of the quarter, 24.2 million shares remained on board-approved share repurchase authorizations.
Harley forecasts motorcycle shipments to be approximately 231,000 to 236,000 motorcycles in 2018; approximately 67,500 to 72,500 in the second quarter.