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Tuesday, 23 July 2019


Harley Q2 U.S. Sales -8.5%, International sales -8.9%; Thailand EU Softail/XL Production Delayed to October

Harley-Davidson worldwide retail sales decreased -8.4% in the second quarter, while U.S. retail sales were down -8.0% in the quarter driven largely by continued weak industry sales with international retail sales down -8.9%.
The U.S. 601+ cc industry was down -4.9% in the second quarter compared to the same period in 2018. Harley-Davidson's second quarter U.S. market share was 46.6%. Harley-Davidson's year-to-date Europe market share was 8.8% through June.
"In the second quarter we achieved significant advancements under our 'More Roads' plan and we continued to lay a solid foundation for future growth," said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. "The decisions and investments we're making, within a highly dynamic and competitive global marketplace, demonstrate our intense focus to build the next generation of riders and maximize shareholder value."

Harley-Davidson says it continues to inspire diverse, new riders around the globe. Harley-Davidson ridership in the U.S. has been up each year since 2001 and was at an all-time high of over 3 million riders in 2018. The company increased its reach and impact in the second quarter and delivered more, younger riders - U.S. rider training participation was up, with the greatest increase among 18-34 year-olds.
Of total U.S. new retail sales in Q2, the mix of 18-34 year-olds was up +2.7%. Emerging market year-over-year retail sales growth of +7.6% was aided by more accessible pricing from local manufacturing in Thailand.
In which connection, European Union regulatory approval for Thai production to qualify for tariff relief was delayed, with production of European destined Softails and Sportsters now slated to start in October this year. Tariff relief approval has now been received by Harley, meaning that the units shipped to Europe from Harley's Thailand plant will be at the standard WTO 6% rate rather than the punitive increase to 31% on domestic U.S. produced models imposed by the European Union a year ago.
Non Trike Touring model tariff relief is expected to be approved later in 2019. Without the agreed exemptions and ramp up of production in Thailand, U.S. built Harley inventory could have otherwise been facing even higher tariffs in the future - a ramp-up to around 56% is slated for 2021 under current plans.
As a result of the timing of these approvals and softer than expected European retail sales as key drivers, the company has adjusted its 2019 outlook and now expects motorcycle shipments to be approximately 212,000 to 217,000 for the full year. In the third quarter, the company expects to ship approximately 43,000 to 48,000 motorcycles
Harley-Davidson's strategic objectives through 2027 are to build 2 million new riders in the U.S., grow international business to 50% of annual volume, launch 100 new high impact motorcycles and do so profitably and sustainably.
The 'More Roads to Harley-Davidson' accelerated plan for growth drives the company's strategy to deliver sustainable growth and build the next generation of riders by delivering exciting products in existing and new spaces, broader access to Harley-Davidson and an optimized customer experience through an even stronger dealer network. The company plans to maintain its investment and return profile and capital allocation strategy, while it funds strategic opportunities expected to drive revenue growth and expand operating margin through 2022.

During the second quarter, Harley announced a collaboration with China's Qianjiang Motorcycle Company Limited [manufacturer of Benelli branded motorcycles and a subsidiary of Volvo owner Geely] to launch a smaller, more accessible Harley-Davidson motorcycle planned for China in 2020, with additional Asian markets to follow. This move is intended to expand access to the Harley-Davidson brand to more riders in Asia. During the second quarter, the company's efforts to increase access in emerging Asian markets, including through its Thailand manufacturing strategy, drove sales increases of +77% in its ASEAN (Association of Southeast Asian Nations) markets.
Harley-Davidson retail sales in China grew +27 percent in 2018 compared to 2017. The new motorcycle will be designed by Harley, but production, including the engine, will be at a Qianjiang facility in China. Despite the trend to larger engines in China, the 125 cc up to 400 cc displacement market sector that Harley's 338 cc model will sell into in China is said to be worth some 2m plus units a year.
Harley-Davidson says it has also strengthened its leadership in the electrification of motorcycling. Company and dealer preparations continued for the targeted September retail delivery of LiveWire, the company's first electric motorcycle. Harley-Davidson's commitment includes helping to enable a strong global charging network. Dealers are installing public DC fast charging stations and the company is working with global partners to support charging infrastructure development.
"There are more riders on Harleys in the U.S. than at any point in our history, and the number of young riders continues to grow.  The strength of the Harley-Davidson brand, and the bare knuckle grit of this company and our global dealers, will continue to be leveraged and sharpened to make riding matter to more people," said Levatich.
Key milestones of the company's multi-year manufacturing optimization initiative, designed to further improve its manufacturing operations and cost structure, were completed during the quarter. Starting in the first quarter of 2018 the company began work to close its wheel manufacturing facility in Australia and consolidate its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa.
Full year savings of $25m to $30m for 2019 and ongoing annual cash savings of $65m to $75m after 2020 are still expected. In the second quarter 2019, costs related to the manufacturing optimization were $14.4m. For the full year, the company now expects to incur $40m to $50m of operating expense for this initiative, $10m less than previously expected.
Revenue from the Motorcycles segment was down in the second quarter behind lower shipments. Operating income decreased primarily due to lower revenues and increased tariff costs, partially offset by lower SG&A costs. Financial Services segment second quarter operating income of $75.5m was down -6.2%.
Second quarter 2019 GAAP diluted EPS was $1.23. Year-ago GAAP diluted EPS was $1.45. Excluding restructuring plan costs and the impact of incremental tariffs, second quarter 2019 diluted EPS was $1.46 compared to $1.52 in the second quarter of 2018. Second quarter 2019 net income was $195.6m on consolidated revenue of $1.63 billion versus net income of $242.3m on consolidated revenue of $1.71bn in 2018.
On a discretionary basis, Harley-Davidson repurchased 1.2 million shares of its common stock during the quarter for $42.9m. During the quarter, there were approximately 159.4 million weighted-average diluted common shares outstanding. At the end of the quarter, 13.7 million shares remained on a board-approved share repurchase authorization.