H-D "Delivers Strong Q4" and "Successfully Completes" Hardwire Strategic Plan Year One of Five
"Harley-Davidson delivered a strong finish to the year, in which we have seen proof points on all elements of our Hardwire Strategy," said Jochen Zeitz, Chairman, President and CEO, Harley-Davidson.
"Looking ahead, we are fully committed to achieving our long-term Hardwire Strategy, as the most desirable motorcycle brand and company in the world."
Global retail motorcycle sales in the fourth quarter were up two percent versus prior year, driven by a robust performance in North America, offset by declines across international markets. International results were the result of strategic decisions made as part of the Rewire and Hardwire Strategic Plan, including the exit of unprofitable product segments and markets, as well as macro supply chain challenges, including slower shipping times to the international markets.
The highlighted facts from the 2021 full year results include total revenue increased by +32% "behind increased shipments and favorable motorcycle unit mix"; 9.0% operating margin for the Motorcycles and Related Products segment ("HDMC" - ahead of 2020 and +2.7% ahead of 2019); record HDFS operating income ($415m/+112% over 2020 - driven by lower provision for credit losses and lower interest expense); full year diluted EPS of $4.19, up $4.18 vs. 2020.
In strategic terms, of course, the big news at the end of 2021 was the merger transaction announcement for LiveWire with AEA-Bridges Impact Corporation ("ABIC" - NYSE: IMPX).
ABIC is a 'SPAC' - a Special Purpose Acquisition Company created to allow the new joint venture business created for a stand-alone LiveWire operation that remains 74% owned by Harley to go to market bypassing the usual scrutiny, disclosure and due diligence of the conventional IPO route, and as an alternate to creating a direct listing.
ABIC will combine with LiveWire, Harley-Davidson's electric motorcycle division, to create a new publicly traded company. Its common stock is expected to be listed on the New York Stock Exchange under the symbol "LVW."
The transaction is expected to close in the first half of 2022 and is subject to the approval of ABIC shareholders and other customary closing conditions.
For Q4 2021, which Harley appears to be pointing to as offering important trend evidence, total revenue grew by +40% on higher units, profitable unit mix and pricing. It reports improved HDMC operating margin - "as Hardwire actions take effect" - and +24% growth ($18m) in HDFS operating income - "driven by lower interest expense. Diluted EPS was $0.14 versus a loss of $0.63 in Q4 2020.
For the full year 2022, Harley says it expects HDMC revenue growth of +5 to +10%, HDMC operating income margin of 11 to 12%; HDFS operating income to decline by -20 to -25% and capital investments of $190m to $220m - "the outlook assumes that supply chain challenges improve in the second half of the year.
"The company's cash allocation priorities are to fund growth through The Hardwire initiatives, pay dividends and execute discretionary share repurchases.
"Revenue from HDMC was up significantly during 2021 Q4, primarily driven by a +39% increase in wholesale shipments, favorable motorcycle unit mix resulting from our Hardwire actions and pricing in the U.S. market. Parts & Accessories fourth quarter revenue was up 13%, while General Merchandise was up +46% over Q4 2020, as both businesses were favorably impacted by increased wholesale shipments and refreshed product offerings.
2021 Q4 gross margin was down -2% compared to 2020 Q4, as stronger units and pricing were offset by negative cost headwinds across the supply chain and higher additional EU tariffs (1.3% impact). Q4 operating margin was improved versus prior year due to lower operating expenses and heavier restructuring charges in the prior Q4.
Harley-Davidson generated $976m of cash from operating activities in 2021. Cash and cash equivalents were $1.9bn at the end of 2021, down $1.4bn from the end of 2020 as the company has normalized cash balances.
The company's 2021 effective tax rate was 21 percent, which was favorably impacted by several discrete income tax benefits recorded in the year.