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Wednesday 30 January 2019


Domestic US Harley Sales Lowest Since 1998

No doubt in an effort to distract attention from a disappointing 2018 full year and final quarter, one that saw the company undershoot its 4Q and original 2018 forecasts, Harley-Davidson sought to focus on the limited positives, the value it says it is continuing to return to shareholders and the “milestones” it says it has already met in pursuit of its ‘More Roads’ strategy document when reporting their 4Q and 2018 FY (January 29th, 2019).

In reality, the headline news was of worldwide retail sales of Harley-Davidson units down by -6.1% (228,051 units), the lowest since 2010 (the only year that has been lower since 2001), with 4Q at -6.7% (39,311 units).
International retail sales were flat for the year at +0.4% (95,183 units) and have been essentially flat for five years, but with domestic 2018 retail sales down to 132,868 units (-10.2%), their lowest since 1998, international sales were 41.74% of the total (as Harley continues to pursue a 50/50 international/domestic sales split).
In other news, President and CEO Matt Levatich has now confirmed that, as widely trailed, production of models for Europe and selected other international markets (such as China and the ASEAN markets) will be based out of the new Thailand plant that came on stream in 3Q 2018 (capacity expansion is already underway there).
Levatich said that “in 2018 we delivered value to our shareholders through improved earnings and cash from operations. The challenges we experienced during the year reinforced the commitment we have for our ‘More Roads to Harley-Davidson’ accelerated plan for growth. Our plan addresses the challenges of today and the opportunities we see for growth ahead, and we are energized by the momentum we are building. New and different people, riders and non-riders, are taking notice of Harley-Davidson and the thrill of riding.”

On a full-year basis, the U.S. 601+cc industry was down 8.7 percent and Harley-Davidson held market share of 49.7 percent. Harley-Davidson’s full-year Europe market share was up 0.5 percentage points to 10.3 percent.
Revenue from the Motorcycles segment was down in the fourth quarter, but up for the full year compared to 2017. Operating margin as a percent of revenue decreased in the quarter due to restructuring charges, incremental tariffs and higher recall costs. Motorcycles and Related Products segment (Motorcycles segment) revenue grew +1.1 percent compared to 2017.
On a full-year basis, earnings per share (EPS) was up year-over-year on positive revenue growth. The company says it “achieved all stated 2018 milestones associated with its ‘More Roads to Harley-Davidson’ accelerated plan for growth.”
Full-year 2018 GAAP diluted EPS was $3.19, up +5.6 percent; year-ago GAAP diluted EPS was $3.02. Excluding restructuring plan costs (including manufacturing optimization) and the impact of incremental tariffs, 2018 diluted EPS was $3.78. Full-year 2018 net income was $531.5 million on consolidated revenue of $5.72 billion versus net income of $521.8 million on consolidated revenue of $5.65 billion in 2017.
However, fourth quarter 2018 GAAP diluted EPS was $0.00; year-ago GAAP diluted EPS was $0.05. Excluding restructuring plan costs (including manufacturing optimization) and the impact of incremental tariffs, fourth quarter 2018 diluted EPS was $0.17. Fourth quarter 2018 net income was only $0.5 million on consolidated revenue of $1.15 billion versus net income of $8.3 million on consolidated revenue of $1.23 billion in 2017.
Despite the growing pressure on margins and net profitability during the year, Harley-Davidson repurchased $382 million of shares and paid dividends totaling $1.48 per share, up +1.4 percent versus the prior year.
Cash from operations was up over $200 million, or +20 percent, compared to 2017. The Financial Services segment finished the year with record earnings of $291.2 million, up 5.8 percent.
In its ongoing drive to further improve its manufacturing operations and cost structure, in the first quarter of 2018 the company commenced its multi-year manufacturing optimization initiative anchored by the consolidation of its U.S. motorcycle assembly operations into its plant in York, Pa. In the fourth quarter of 2018, costs related to the manufacturing optimization were $19.1 million, with full year at $102.4 million. The company expects to incur an additional $50 million to $60 million of operating expense in 2019, which is lower than its most recent expectations. The company now expects total capital investment of approximately $65 million through 2019, a decrease of $10 million from previous expectations, and continues to expect ongoing annual cash savings of $65 million to $75 million after 2020.
During the quarter, Harley-Davidson says it continued to make progress on the initiatives included in its ‘More Roads’ accelerated plan for growth to build the next generation of riders globally. Leveraging core strengths in the business, brand and dealer network, the company is investing in opportunities that inspire increased ridership sooner and deliver sustainable growth for the future. Harley-Davidson’s ‘More Roads’ plan supports the company’s strategy and 2027 objectives to build two million new riders in the U.S., grow international business to 50 percent of annual volume, launch 100 new high impact motorcycles and do so profitably and sustainably.
“During 2018 we met or exceeded all of the ‘More Roads’ plan milestones we set out to achieve. In the U.S., we finished the year with 52,000 more Harley-Davidson riders than one year ago. The groundwork for an exciting future is being built in real time, and that’s clear for riders today and Harley-Davidson riders of tomorrow. We are igniting a cultural movement for motorcycling,” said Levatich.
Through 2022, the ‘More Roads’ strategy aims to deliver on key goals, including new products (keep current riders engaged and inspire a new generation of Harley-Davidson riders); broader access (meet customers where they are and how they want to engage with a multi-channel retail experience); stronger dealers (drive a performance framework to improve dealer financial strength and the Harley-Davidson customer experience).
The company believes its accelerated plan will drive revenue growth and expand operating margins and expects to fund strategic opportunities while maintaining its current investment and return profile and capital allocation strategy.