Harley-Davidson is adamant that its 1Q 2019 performance was "better than expected," stating that "company actions resulted in earnings per share and retail sales finishing stronger than expected during the [first] quarter" and that "the company's 'More Roads to Harley-Davidson' accelerated plan for growth continued to progress and deliver results."
In a quarter that saw them announce the acquisition of kids E-bike maker 'StaCyc', add a President for the Harley-Davidson brand to the senior management team, and "broaden reach" with the $19k Electra Glide Standard, the company kept shareholders placated with diluted EPS of $0.80 per share that was "ahead of company expectations" (cash dividend for the quarter is up to $0.375 from $0.37 in the year-ago quarter - a +1.4% dividend increase), the repurchase of $52.6 million of shares and with domestic U.S. retail motorcycle sales "only" down by -4.16% (38,797 units) in a 601cc+ domestic U.S. market that was down by -4.74% (for a modestly increased 51.1% market share).
Harley-Davidson worldwide retail sales decreased -3.8%; international retail sales were down -3.3%. The drop in domestic U.S. retail sales was said to be "driven by continued weak industry sales" with "first quarter worldwide retail sales impacted by the limited availability of Street motorcycles due to the recall announced in January."
Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc says that "we are acting with agility and discipline to take full advantage of rapidly evolving global markets. Harley-Davidson's U.S. market share growth and retail sales performance in the first quarter are further evidence of the effects we are having as we continue to implement and dial-in our More Roads efforts.
"We are driven by our unparalleled rider focus and deep analytics that are guiding our efforts today and into the future. We, along with our dealers, are determined to lead and stimulate global industry growth."
'agility and discipline'
Harley-Davidson's strategic objectives through 2027 are 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, doing so profitably and sustainably, and delivering exciting products in existing and new spaces, broader access to Harley-Davidson and an optimized customer experience through an even stronger dealer network."
Harley continues to believe that it can do all this while maintaining its "current investment and return profile and capital allocation strategy," self-funding its strategic plans with the "new opportunities expected to drive revenue growth and expand operating margin through 2022."
"In the short eight months since we announced our More Roads plan, we continue to accelerate our progress to build the next generation of Harley-Davidson riders," said Levatich. "During the first quarter we intensified our march by investing in our future and adding capabilities that we're confident will inspire riders today and for generations to come."
The company says that it "increased its reach and impact in the first quarter" with 278,000 "new riders" joining Harley-Davidson in 2018 in the U.S. "This group is the most diverse across age, ethnicity and gender in all of the years Harley-Davidson has tracked this data, expanded access to new customers in part with the launch of the new Electra Glide Standard, increased marketing support, reaching more consumers sooner and driving action such as increased traffic to H-D.com, brand awareness, trial and sales," with media spend up by nearly +90%.
The company started supplying motorcycles to ASEAN (Association of Southeast Asian Nations) emerging markets from its Thailand operations in late 2018. "The tariff mitigation realized by this strategy allowed more competitive pricing and helped drive a Q1 retail sales increase of 126 percent in these markets."
In the first quarter of 2018 the company commenced its multi-year manufacturing optimization initiative anchored by the consolidation of its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa.
While the U.S. 601+ cc industry was down -4.7%, resulting in a first quarter U.S. market share up by +0.6 pts to 51.1%, in Europe H-D market share is said to have been down by -1.6% (to 8.8%) in a market that was up by +19.42% at 111,317 new motorcycles registered in Europe in the first three months of 2019.
Revenue from motorcycles and related products was down by -12.34% at $1,195.6m; gross profit was down by -26.67% at $347.4m; operating income was way down at $167.1m (-29.31%), with operating income from motorcycles and related products down massively against the year ago quarter by -37.29% at $108.3m "behind lower shipments."
Cash and marketable securities were $759.6 million at the end of the first quarter 2019, compared to $753.5 million in 2018, with $32.7 million of cash generated from operating activities in the first quarter of 2019 compared to $191.6 million in 2018.
For the full year 2019, the company continues to expect motorcycle shipments to be approximately 217,000 to 222,000 motorcycles; 65,500 to 70,500 in 2Q. Motorcycles segment operating margin as a percent of revenue is expected to be approximately 8.0 to 9.0 percent, with capital expenditures of $225 million to $245 million, including approximately $20 million to support manufacturing optimization.
Financial Services segment operating income is expected to be down year-over-year; HDFS retail loan performance (30+ day delinquencies) were 3.73% in 1Q 2019 - the highest/worst since 1Q 2011 with annualized loss experience also higher than for much of the time since 2010.