Harley-Davidson Q3 Results - "Simultaneously Not as Bad and Just as Bad as Expected"
Making his debut in the quarterly results hotseat, newly minted Harley President and CEO Artie Starrs fielded questions from analysts following release of a set of Q3 results that were simultaneously not as bad and just as bad as expected.
The noise surrounding the results has primarily been focussed on the first (theoretically) beneficial impacts of the deal that Harley did with KKR and Pimco to offload HDFS loan debt. Though that move (in return for a 9.8% combined equity in HDFS) reduces the capital requirements that HDFS has, it also reduces the long-term benefits that HDFS (and therefore parent company HDI) accrue from fully controlling their loan-book revenue.
A drill down into the details of the Q3 fiscals reveals some good news - namely that the decline in unit sales and reducing inventory levels are gradually heading towards a kind of balance with revenue, though not one that yet will provide a platform for growth. The ongoing bad news was that for a quarter that traditionally should be Harley's second strongest of the year, certainly in sales revenue if not also unit sales terms, it really didn't deliver.
Starrs is quoted as saying: "Our Q3 results demonstrate the positive impact of the HDFS transaction and reinforce the strategic value HDFS brings to Harley-Davidson's overall business model.
"While retail sales remain challenged, I'm truly energized by what I've experienced across the Company, in dealerships, and with the broader rider community. While there is a lot of work ahead of us, our success begins with our dealers - when they thrive, Harley-Davidson thrives.
"Going forward you can expect an intensified focus on the key drivers of sustainable growth: strong and profitable dealerships, growing the powerful connection riders have with our brand, locally relevant marketing, and capital-efficient growth."
There is a clue there. A clue that exposes just how weak the KKR/Pimco deal is. With most of the money being raised intended to be thrown at "shareholder value", the company still needs to be creative where the necessary capital resources to drive engineering and subsequent genuine growth is concerned. In this context "efficiency" looks a lot like stating that Harley is going to remain short of the capital resources it needs.
Commenting on the HDFS transaction, Jonathan Root, Chief Financial Officer and a man thought to have been a contender for the CEO job said: "The completion of the HDFS transaction with KKR and PIMCO marks a transformative milestone for Harley-Davidson. We are unlocking significant value while transforming Harley-Davidson Financial Services into a capital-light, de-risked business.
"This transaction releases over $1.2bn in discretionary cash and sets the foundation for higher returns and sustained growth. Importantly, Harley-Davidson retains full control and majority ownership of HDFS - ensuring no change for our dealers or customers, which we believe continues to drive long-term value creation."
'Highlights' of the third quarter 2025 results include:
- Global motorcycle retail sales down 6% versus the prior year
- HDMC revenue up 23% versus prior year
- Global motorcycle shipments increased 33% versus prior year
- HDMC operating income margin of 5.0%
- Global dealer inventories down 13%, compared to the end of Q3 2024, "as we continued to prioritize reducing global dealer inventory"
- New or increased 2025 implemented tariff costs of $27m in Q3 2025 (Harley says that it is now buying 75% of its domestic use components in the USA)
- Delivery of diluted EPS of $3.10
- HDFS operating income of $439m ("reflecting impact of HDFS transaction through end of Q3")
By way of an update on the HDFS Transaction, the company says that the Strategic Partnership with KKR and PIMCO "unlocks significant discretionary cash" and that the transaction includes three key elements:
1) Back Book Sale: Sale of approximately $6bn of existing HDFS loan receivables
2) Forward Flow Agreement: Sale of future HDFS loan originations
3) Sale of Equity Interests: Sale of a 9.8% common equity interest in HDFS to KKR and PIMCO
The deal is expected to unlock approximately $1.2 - $1.25bn in discretionary cash no later than the end of the first quarter of 2026 "as HDFS completes its debt reduction activities."
The deal was announced in July with headline ambition being to "transform HDFS into a capital-light, de-risked business model with HDFS expecting to continue to originate and service both new and existing retail loans."
In August, the sale of residual interests in securitized finance receivables of approximately $1.9bn (along with related debt of $1.7bn) was completed and October saw completed agreements for the Back Book Sale, Forward Flow Agreement, and Sale of Equity Interests.
The real news from the Q3 results came from the Investor and Analyst webcast Q&A though, with Artie Starrs outlining his priorities and plans.
There will be more on that in the Comment 'Op-ed' in the December edition of AMD, but it is noteworthy that he is reinforcing the well-received 'good-start' he made before, after and at the October Dealer Forum in Milwaukee in October by talking to, and, importantly, listening to as many different dealer perspectives and opinions as possible and placing their needs and interests up front and center where future strategy is concerned.
In terms of Q3 results detail, Global retail motorcycle sales were down 6% versus the prior year third quarter, "reflecting continued soft demand amid unfavorable consumer confidence, high relative interest rates, and inflation concerns."
North America retail performance was down 5%. International retail performance was down 9%, with EMEA weaker than the APAC region, and Latin America experiencing modest growth.
Consolidated revenue in the third quarter was up 17% versus prior year, driven primarily by a revenue increase of 23% at HDMC.
Consolidated operating income in the third quarter was up at $475m versus $106m in the prior year period, primarily driven by the HDFS transaction. At HDMC, operating income was down 2%. LiveWire segment operating loss improved by $8m, which was 30% lower than the prior year's loss.
Q3 HDMC Motorcycles revenue was up 34%, driven by global motorcycle shipments increasing 33% versus prior year. Parts & Accessories revenue was down 4% and Apparel revenue was up 1%.
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Harley released a first tranche of MY2026 details in early November, with additional 2026 models, including the limited-production Custom Vehicle Operation (CVO) collection, slated to be revealed as a Second Chapter on January 14, 2026. Meanwhile Chapter One highlights include these three Solo Seat Trim Package models with cast aluminum wheels and seen here in Dark Billiard Gray paint. The Solo Trim Package is available for the Heritage Classic (United States MRSP $19,999), Street Bob ($14,999), and the Street Glide ($24,999).
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Third quarter HDMC gross margin was down 3.7 points versus prior year, due to unfavorable operating leverage, the cost of new or increased tariffs implemented this year, and unfavorable foreign currency impacts. These factors were partially offset by the favorable impact of net pricing and mix. Third quarter operating income margin was down 1.3 points, while operating expense was $20m higher than a year ago.
LiveWire revenue for the third quarter increased by 16% versus prior year due to increased unit sales of electric motorcycles and electric bike units, partially offset by impacts from electric motorcycle pricing and incentives during the quarter. LiveWire's operating loss of $18m, $8m less than a year ago, was in line with our expectations.
In YTD terms HDI generated $417m of cash from operating activities, on an effective tax rate of 24%; paid cash dividends of $66m and repurchased $187m of shares (6.8m shares) on a discretionary basis. Cash and cash equivalents were $1.8bn at the end of the quarter.
Given that the global tariff and business outlook remains uncertain, especially for discretionary product purchases, the Company continues to withhold its full year HDMC 2025 financial outlook. For LiveWire, the Company is updating its previously issued guidance related to Operating Loss to $72-$77m. Its total net use of cash remains $50-$60m.
On October 4, HDI announced plans to enter into an Accelerated Share Repurchase (ASR) Agreement with Goldman Sachs to repurchase $200m of shares of the Company's common stock. This announcement is part of the previously announced plan to repurchase $1bn in shares by the end of 2026. The Company expects the transactions under the ASR agreement to be completed by no later than the first quarter of 2026.
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