Harley-Davidson's third quarter 2019 results have been released, and the headline news is that Harley's retail motorcycle sales may be starting to show some signs of recovery - or at least a slowing of the deterioration.
It was thought that a decent March might have suggested such a rally, but the Q2 numbers didn't continue the trend seen towards the end of Q1. However, for the three months to the end of September 2019, Harley unit sales may, just may, finally be headed in a better direction.
Domestic US retail motorcycle sales were down by -3.60% in Q3 at 34,903 units in a 601 cc+ market that Harley says was down by -1.7%, with domestic US retail sales down by -5.60% for the nine months at 105,756 units. In Europe (EMEA) sales were -6.0% for the quarter (10,483 units) and -6.0% for the nine-month period (36,899 units).
There was strong Q3 growth in Asia Pacific (+8.7%/8,078 units) and Canada (+4.4%/2,560 units). Latin America was -3.10%/2,498 units, meaning that total international sales were +2.70% for Q3 at 23,619 units, which has improved 2019 YTD international sales to a decline of -3.90% (73,763 units). This has taken Harley's worldwide total sales to 58,522 units (-1.2%) for Q3 and 179,519 units (-4.90%) for the YTD.
Harley-Davidson's third quarter U.S. market share was 49.8 percent; their year-to-date European market share was 8.9 percent through September.
Revenue from the Motorcycles and Related Products (Motorcycles) segment was down in the third quarter behind lower shipments. Operating income decreased primarily due to lower revenues and increased tariff costs, partially offset by savings realized from the company's manufacturing optimization initiative.
For the full year 2019, the company says it continues to expect motorcycle shipments to be approximately 212,000 to 217,000, with some 38,500 to 43,500 to ship in Q4.
Motorcycles segment operating margin as a percent of revenue is expected to be approximately six to seven percent, with Financial Services segment operating income expected to be down year-over-year.
During the quarter, the company says it "delivered earnings per share and Motorcycles segment operating margin ahead of expectations. The company was encouraged by global retail sales results driven by its actions and a tempered U.S. industry rate of decline.
"We are driving stability in our business and bringing data insights and intensified consumer focus to guide our efforts to build committed riders and meet our near and long-term objectives," said Matt Levatich, President and Chief Executive Officer of Harley-Davidson. "We'll continue to fuel all aspects of the riding experience and add new solutions to fully develop, engage and retain riders through their journey, starting with the very first spark of interest," said Levatich.
Harley says that during the quarter it delivered GAAP diluted EPS of $0.55 ($0.68 for the year-ago period), repurchased $112.5 million of shares, paid dividends of $0.375 per share and improved their worldwide year-over-year retail sales rate.
Excluding restructuring plan costs and the impact of recent EU and China tariffs, adjusted third quarter 2019 diluted EPS was $0.70 compared to $0.82 in the third quarter of 2018. Third quarter 2019 net income was $86.6 million on consolidated revenue of $1.27 billion versus net income of $113.9 million on consolidated revenue of $1.32 billion in 2018.
Harley is also pointing to the launch of its new model year 2020 motorcycles, including Low Rider S, CVO Tri Glide and LiveWire; introduced the IRONe electric-powered two-wheelers for kids; realized significant savings from its manufacturing optimization initiative; progressed its 'More Roads to Harley-Davidson' accelerated plan for growth and activated 'Amplify Brand' as a "fourth 'More Roads' growth catalyst to build committed riders".
The company says it also "advanced its brand amplification efforts and developed capabilities to invigorate the Harley-Davidson experience and build committed riders.
"During the quarter, Harley-Davidson sharpened its U.S. and international objectives through 2027 to better align with its expanded efforts to build committed riders.
"Harley-Davidson's strategic objectives through 2027 are: expand to four million total Harley-Davidson riders in the U.S., grow international business to 50 percent of annual HDMC revenue, launch 100 new high-impact motorcycles, and do so profitably and sustainably.
"'More Roads to Harley-Davidson' is the company's accelerated plan for growth that drives the company's strategy to deliver sustainable growth and build the next generation of riders from 2018 through 2022. The company is focusing investment and building new capabilities to invigorate the Harley-Davidson brand to spark passion that deepens rider commitment. To reflect this, 'Amplify Brand' was added as a growth catalyst in the 'More Roads' plan and will bolster the other growth catalysts of New Products, Broader Access and Stronger Dealers.
"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 third quarter, Harley-Davidson continued to advance its 'More Roads' plan initiatives by realizing improvements in retail sales, service revenue and website visits for dealers participating in Harley-Davidson performance consulting; strengthened its leadership in the electrification of motorcycles; launched high impact new models and added significant technology to its class-leading model year 2020 motorcycles to inspire new and existing riders; announced the presenting partnership with 2020 Hella Mega music experience tour."
In terms of manufacturing optimization, Harley says it realized total savings of $16.7 million and incurred costs of $10.0 million in the third quarter. Since the first quarter of 2018, the company closed its wheel manufacturing facility in Australia and consolidated its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. The company continues to expect 2019 full year costs of $40 million to $50 million, 2019 full year savings of $25 million to $30 million and ongoing annual cash savings of $65 million to $75 million after 2020. Financial Services segment third quarter operating income of $72.9 million was down -13.0 percent.
Cash and marketable securities were $862.4 million at the end of the third quarter of 2019, compared to $937.0 million in 2018. Through September, Harley-Davidson generated $848.6 million of cash from operating activities in 2019 compared to $1.12 billion in 2018. The company paid a cash dividend of $0.375 per share in the third quarter, and a cumulative total of $1.125 per share for the first nine months of 2019. On a discretionary basis, Harley-Davidson repurchased 3.3 million shares of its common stock during the quarter for $112.5 million. During the quarter, there were approximately 156.9 million weighted-average diluted common shares outstanding.