topbanner ad

Tuesday 7 February 2023


Harley Completes Second Year of Hardwire Strategic Plan with "Strong Q4"

Harley-Davidson says it shipped 34,000 units in Q4, +18% on the year-ago period, and 193,500 units in FY2022, +3% on the 2022 full year.

In motorcycle retail terms, Harley says North America was down by -12% for 2022 at 117,100 units,  -1% in EMEA at 30,500 units and +12% in Asia Pacific at 27,900 units - Japan was Harley's 'Star Market' in terms of international sales in 2022.

Electric motorcycle shipments were up by 30% for the full year at 597 units from 461 in 2021, but following the LiveWire flotation, and contrary to over trend of Harley unit sales, only 69 units were sold in the final quarter of 2022 (-63% from 186 units in Q4/2021).

Commenting on Harley's Q4 and 2022 full year financial results (in early February 2023), Chairman and CEO Jochen Zeitz said: "As we conclude the second year of the Hardwire, Harley-Davidson delivered a strong finish to the year, with solid execution of our strategic pillars.

"Since 1903, Harley-Davidson has pioneered American motorcycle design, technology and performance - this year we'll be marking our 120th Anniversary with a year-long celebration at locations across the globe and our biggest event ever in our hometown, Milwaukee. 

"We are excited about what is going to be an unforgettable milestone for the company, celebrating the history, culture and community of Harley-Davidson with our riders, families and fans, reaching new customers and bringing more people to the brand."

Wall Street appeared to agree with Zeitz' view of the results, leaping to $51.33 at the end of the week of release, from $44.77 at the start of that week.

Counterintuitively, LiveWire shares are staging somewhat of a comeback, having been launched at $8.25 on September 27, sos3, and briefly flirting with the dizzy heights of $9.63 before dropping as low as $4.20 by the end of December. They had been rallying through January and closed at $6.70 following release of the results.

However, the underlying news is a lot more nuanced. Harley is now deeply into basing the definition of its financial success on making more per unit (and they are doing that well to be fair), rather than necessarily trying to "oversell the brand" as Zeitz and his acolytes would see it.

Furthermore, regardless of what Harley may say, the LiveWire flotation ('SPAC') is a drain on resources.

Harley's full-year bullet-point highlights cite a diluted EPS of $4.96, up 18% versus the prior year. It says it grew the combined revenue of HDMC and LiveWire by 9% behind higher wholesale shipments and improved global pricing realization, achieving 12% combined operating margin for HDMC and LiveWire - an increase of three points versus prior year "as pricing and productivity offset cost inflation."

HDFS operating income finished down 23% and in-line with expectations as loss rates normalized throughout the year, and Harley says it completed the aforesaid carve-out and stand-up of LiveWire as a separate public company.

In fourth quarter terms, Harley delivered diluted EPS of $0.28 - up 100% versus prior year; grew HDMC global motorcycle shipments by 18% vs prior year as production levels rebounded from the Q2 production shutdown; achieved HDMC revenue growth of 14% behind unit growth and global pricing; though HDFS operating income declined 32% due primarily to expected loss rate normalization.

For the full year 2023, Harley says it expects HDMC revenue growth of 4 to 7% and operating income margin of 14.1 to 14.6%; HDFS operating income decline of 20 to 25%; LiveWire motorcycle wholesale units 750–2,000 [bearing in mind that the forecast was to be doing 100,000 units in 2025) and operating income loss of $115 to $125m. Harley expects 2023 capital investments of $225 to $250m.

LiveWire Group, Inc. ("LiveWire Group") became a separate public company trading on the New York Stock Exchange (Ticker: LVWR) on September 27, 2022. Following the close, Harley-Davidson has an equity interest in LiveWire Group of approximately 89.4% [as opposed to a stated expectation of 70%] "and will continue to consolidate LiveWire Group results with adjustments for non-controlling shareholder interests. Consolidated net income attributable to Harley-Davidson, Inc. and EPS calculations will now reflect these adjustments.

In what may or may not turn out to have a slab of 'Smoke and Mirrors' driving it, the report re-organization reported in the fall has meant that, beginning with the fourth quarter of 2022, new business segment reporting "will now include Harley-Davidson Motor Company (HDMC) - the entity that is accountable for the design, manufacturing, marketing and sales of Harley-Davidson motorcycles and related products; Harley-Davidson Financial Services (HDFS): Group that provides motorcycle and related products financing and insurance products and services for our dealers and retail customers; LiveWire: Group - accountable for the design, marketing and sales of LiveWire electric motorcycles, including related products such as STACYC electric balance bikes."

Prior period HDMC segment results have been updated to exclude LiveWire results. In addition, the consolidated results will continue to be reflected by Harley-Davidson, Inc. (HDI) - the corporate entity for the overall company under which HDMC, HDFS and LiveWire operate.

If we here are reading that correctly, then HDMC is still holding the costs of actually producing electric units.

As stated, consolidated revenue was up 12% in the fourth quarter, with growth across HDMC and HDFS, and up 8% for the full year behind wholesale unit growth and global pricing actions.

Harley says that consolidated operating income in the fourth quarter includes an improvement in HDMC operating losses ($50 million lower) in the seasonally smaller quarter and reflects a 32% decline in HDFS operating income, driven by the combination of loss rate normalization and a higher cost of funding.

Consolidated operating income for the full year was driven by significant operating income improvement at HDMC, planned operating losses at the new LiveWire segment, and a 23% decline in HDFS operating income as loss rates normalized.