Harley 2019 - "full-year retail sales decline lowest since 2016; Q4 601+ cc U.S. market share +1.0% at 50.4%"In addressing investors and financial analysts at the end of January 2020, the prevailing message coming from Harley-Davidson CEO Matt Levatich and CFO John Olin in reaction to another woeful year in 2019 appears to have been along the lines that at least the rate of decline is declining.
Pointing to some signs for optimism, in the fourth quarter of 2019, with domestic U.S. retail market share being up against a down market by +1.0% (despite H-D retail sales being off by -5.2% at 125,960 motorcycles in 2019), the first cracks have started to appear in the customarily good natured and supportive responses Levatich and Olin receive when fronting up to analysts in the company's announcement Q&A webcast and phone-in.
Notably, and in a possible sign of struggles to come, Morgan Stanley questioned how Harley can explain why its sales can have been so soft for so long in a strong and growing economy and whether it will look favorably at any offers to buy the business if one [or more] materializes a year from now.
'Q4 international retail sales up slightly'
While the interjection lacked consideration of market context, it, and other less direct challenges, nonetheless suggest that it won't be long before the sharks start circling closer as the scent of blood propagates.
"Tempered worldwide year-over-year retail sales rate of decline" was the form of words used by Harley in the announcement press release text; "in line with our expectations" and "indicative of increased business stability" was how Matt Levatich is said to have characterized Harley's Q4 performance.
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| Harley-Davidson CEO Matt Levatich has date-stamped when the first financial results of the much vaunted strategic plan will be seen when quoted as saying that "in 2019, we took important steps toward returning to significant growth in 2021." |
Maybe anticipating that 'More Roads' will run out of road a year from now if there hasn't been demonstrable progress, Levatich date-stamped when the first financial results of the much vaunted strategic plan will be seen when quoted as saying that "in 2019, we took important steps toward returning to significant growth in 2021 – including launching LiveWire, our first electric motorcycle, optimizing our global dealer network and expanding our international footprint."
Going further, Harley's press release stated that in advancing its 'More Roads' plan further, in 2019 the company was now on track for "significant" 2021 growth, pointing to "increased focus on rider commitment" in the U.S. where "527,000 riders joined in 2019, up year-over-year" and completion of "steps to mitigate the majority of recent EU and China tariff impacts in 2020," completion of "key milestones of the manufacturing optimization initiative" and "exceeding expected full-year savings."
As the company continues to add to its cruiser and touring offer with a series of mid-cycle new models and to its P&A revenue opportunity with a new crate motor, the focus, for now, remains on "Strategy to build riders" and the "Accelerated plan for growth."
"Harley-Davidson's strategy to build the next generation of Harley-Davidson riders globally is supported by these strategic objectives from 2017 through 2027: expand to four million total Harley-Davidson riders in the U.S., grow international business to 50 percent of annual Harley-Davidson Motor Company (HDMC) revenue, launch 100 new high impact motorcycles, deliver superior return on invested capital for HDMC (S&P 500 top 25%) and grow its business without growing its environmental impact.
"More Roads to Harley-Davidson is the company's accelerated plan for growth that aims to deliver sustainable growth and build committed 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. The company's 'More Roads' plan leverages and integrates new products, broader access, stronger dealers and amplifying the brand as a catalyst to ignite and sustain momentum and deliver growth.
"The company plans to maintain its targeted investment and return profile and capital allocation strategy, while it [self] funds strategic opportunities expected to drive significant revenue growth and expand operating margin starting in 2021."
The company says that it "continued to advance its More Roads plan initiatives" by asserting its "leadership in the electrification of motorcycles with the launch of LiveWire, the company's first electric motorcycle, and IRONe, an electric-powered two-wheeler for kids."
'the total pool of Harley riders in the U.S. grew to 3.1 million in 2019'
Launching "new high impact models" and delivering "significant technology to its class-leading model year 2020 motorcycles to inspire new and existing riders", commissioning its Thailand manufacturing facility and establishing a China distribution center - "increasing customer access with more competitive prices" and unveiling "improved and expanded global ecommerce and digital capabilities" while advancing "good-to-great dealers – meeting customer experience and sales conversion targets."
Despite the limited time span for the new and now former first ever Global Brand President to have an impact, Harley states that it "honed and accelerated efforts to amplify brand and build committed riders" with more riders joining Harley-Davidson in the U.S. in 2019 compared to 2018 and the total pool of Harley-Davidson riders in the U.S. growing to 3.1 million in 2019.
"We see 2020 as the pivotal year in the transformation of Harley-Davidson. This year we will broaden the reach of our brand and build more committed riders as we enter new and growing segments in motorcycling and eBicycles; more and easier access to two-wheeled freedom on a Harley is well underway," said Levatich.
In further financial reporting Harley said it "exceeded full-year expected savings from manufacturing optimization initiatives, realizing savings of $32.2 million, ahead of an estimate of $25 million to $30 million and incurred costs of $43.0 million in 2019.
"Aiming to further improve its manufacturing operations and cost structure, the company initiated efforts in the first quarter of 2018 including closing its wheel manufacturing facility in Australia and consolidating its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. The company continues to expect annual ongoing cash savings of $65 million to $75 million starting in 2021."
In addition to pointing to the +1.0% market share growth in Q4, Harley says the year-over-year retail sales rate of decline in the fourth quarter was the lowest in 12 quarters and the full-year retail sales rate of decline was the lowest since 2016. Its domestic U.S. Q4 market share was 50.4% and full-year market share was 49.1% - "down slightly versus 2018."
"International retail sales were up slightly in the fourth quarter behind continued growth in emerging markets. Full-year international retail sales finished down -3.0%, full-year 601+ cc Europe market share was 8.9%.
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| "Rumored to be likely to start shipping in November 2020" |
"Revenue from the Motorcycles and Related Products (Motorcycles) segment was down in the fourth quarter and on a full-year basis. Full-year operating income decreased primarily due to lower revenues and increased tariff costs, partially offset by lower SG&A and restructuring expense. Financial Services segment full-year operating income of $266.0 million was down 8.6 percent.
Cash and marketable securities were $833.9 million at the end of the year, compared to $1.21 billion at the end of 2018. Harley-Davidson generated $868.3 million of cash from operating activities in 2019 compared to $1.21 billion in 2018.
The company paid a cash dividend of $0.375 per share in the fourth quarter, and a cumulative total of $1.50 per share on a full-year basis. On a discretionary basis, Harley-Davidson repurchased 2.2 million shares of its common stock during the quarter for $78.7 million, and 8.2 million shares for $286.7 million on a full-year basis. During the quarter, there were 154.9 million weighted-average diluted common shares outstanding. At the end of the quarter, 8.2 million shares remained on a board-approved share repurchase authorization.
For the full year 2020, the company says it expects Motorcycles segment revenue of approximately $4.53 to $4.66 billion. In the first quarter, the company expects Motorcycles segment revenue of approximately $1.09 to $1.17 billion and Motorcycles segment operating margin as a percent of revenue of approximately 7 to 8 percent, with Capital expenditures of approximately $215 million to $235 million and approximately flat year-over-year Financial Services segment operating income.