H-D Q2 - Worldwide Retail Unit Sales -3%; $1bn of Massive Cash Pile Will Fund Fresh Share Repurchase Plan
Accompanying its Q2 Financial Performance news release, Harley-Davidson simultaneously announced a plan to repurchase $1bn of its shares through 2026.
In H1 2024, Harley spent some $200m to repurchase 5.5 million shares on a discretionary basis. The new plan is in addition to the existing Board authorizations. The company says it expects to fund the share repurchases "with cash flow from operations" and that "this plan replaces existing share repurchase plans and is in addition to the $875m in share repurchases since 2022, that the company has [already] completed, to return cash to its shareholders."
Its Q2 results report that the company generated $578m of cash from operating activities, paid dividends of $47m and, as of the end of the second quarter, was sitting on an extraordinary cash and cash equivalents pile of $1.8bn - especially extraordinary when judged against a market capitalization that is currently down to around $4.66bn.
The afternoon before the release of its Q2 numbers, the H-D share price had been trading at around $34.50. That is set against a 12-month high of approx. $44.00 in March 2024 and a 12-month low south of $26.00 in October 2023.
The initial response to the Q2 numbers was mixed. A steep initial spike in share price fell away quickly, leaving shares largely unchanged at the end of the trading day despite analyst response having been largely positive.
Harley-Davidson Inc. saw Q2 revenue of $1.619bn, up by 12% over the year ago, $1.349bn of that coming from motorcycle and related sales activities in HDMC (+13%), with HDFS bringing in $264m (+10%) and LiveWire $6m (-8%).
HDI generated operating income of $241m, up by +9%, Q2 diluted EPS of $1.63 at an HDMC operating income margin of 14.7%.
Second quarter global motorcycle shipments increased by 16%. Revenue was up 13%, driven by increased shipments and improved mix, partially offset by lower pricing and foreign exchange effects. Parts and Accessories revenue was down 10%. Apparel was down 4% as the prior year's period included a greater benefit from anniversary product apparel sales.
North America motorcycle retail unit performance was down 1% at 34,800 units, while retail sales of Touring and CVO motorcycles was up more than 12% in the U.S. Touring market share of 75% was up 5.3% in first half of the year.
Internationally, EMEA was also down by 1% at 8,000 units (driven by weakness in Central Europe), with Asia Pacific down by -16% (6,300 units), driven primarily by weakness in China, with Latin America flat at 800 units. Worldwide total retail sales for the quarter were 50,000 units, down by -3% from 51,500 for the year-ago quarter. HDFS operating income was up 21% on revenue up by 10%.
Chairman, CEO and President Jochen Zeitz is quoted as saying: "Despite a challenging market, we are pleased with our second quarter performance, in which we grew our U.S. market share in a declining market, with notable unit growth of more than 11% in the important core category of Touring. We continue to be focused on executing our Hardwire strategy, leveraging our innovation and product pipeline, while delivering on our cost productivity goals."
HDMC second quarter gross margin was down 2.7 points due to the impacts of pricing and sales incentives, higher manufacturing costs and adverse impacts from foreign exchange. These effects were partially offset by higher wholesale volumes and improved mix. Second quarter operating income margin was down 1.5 points, where operating expenses increased modestly.
Harley disclosed that its average Q2 dealer inventory is headed back towards the historic 79,000 figure seen between 2015 and 2019. Having been as low as 29,000 in 2022, it recovered to 46,000 units last year and is put at 68,000 units in Q2, 2024.
Its new unit 601+ cc Q2 market share in the United States was 36%, with YTD at 38%. Domestic U.S. Touring and Large Cruiser market shares were 73 and 72% respectively for Q2 and were both at 75% YTD.
Harley has now narrowed its full year guidance, with HDMC revenue now slated to be down 5 to 9% from the previous forecast of flat to down 9%. HDFS operating income is unchanged at flat to +5%. Its Livewire unit forecast remains in the 1,000 to 1,500-unit range, with the projected operating loss worsened by $10m to $115m.
The company says that it continues to expect capital investment of between $225 and $250m for the year.