Harley-Davidson, Inc. reported earnings per share of $0.59 for the third quarter of 2012, in line with Company expectations. Earnings were lower than the year-ago period due to a previously announced plan for lower third-quarter motorcycle shipments during the launch of an ERP production system at the company's largest assembly plant in York, Pa. For the full year 2012, Harley-Davidson continues to forecast a five-to seven-percent increase in motorcycle shipments compared to 2011.
Third-quarter income from continuing operations was $134.0 million on consolidated revenue of $1.25 billion, compared to income from continuing operations of $183.6 million, or $0.78 per share, on consolidated revenue of $1.40 billion in the year-ago quarter.
Through nine months, Harley-Davidson income from continuing operations increased 12.1 percent year-over-year to $553.3 million, or $2.40 per share, on consolidated revenue of $4.41 billion, compared to income from continuing operations of $493.4 million, or $2.09 per share, on consolidated revenue of $4.13 billion in the year-ago period.
"The third quarter marked a pivotal milestone in Harley-Davidson's transformation. With the launch of the ERP production system at York, a major piece of our restructuring work is behind us. We are now focused on optimizing the system and look forward to the start of seasonal surge production early next year," said Keith Wandell, chairman, president and CEO.
"From our market leadership in U.S. outreach segments to our global expansion to the effective launch of ERP at York, we continued to see the evidence of the successful execution of our strategic plan," Wandell said. "We believe Harley-Davidson is on track to deliver growth through our strategy, with investments in new markets, new products, and improved manufacturing and retail capabilities. Our entire team of employees, dealers and suppliers has done a great job of delivering on the many changes throughout the business that are important to Harley-Davidson's long-term success."
Retail Harley-Davidson Motorcycle Sales
Through nine months, retail sales of new Harley-Davidson motorcycles grew 6.0 percent overall, 6.2 percent in the U.S. and 5.4 percent internationally compared to the year-ago period.
In the third quarter, retail sales of new Harley-Davidson motorcycles decreased 1.3 percent worldwide compared to the prior-year period, with unit sales down 5.2 percent in the U.S. and up 7.6 percent in international markets.
"We believe our U.S. dealers' third-quarter new motorcycle sales were adversely affected by a limited availability of new motorcycles in July, August and early September resulting from the ERP implementation at York combined with the move of Harley-Davidson's annual new model launch to late August from late July. As U.S. dealer inventory returned to more appropriate levels and the new 2013 motorcycles became more available, retail sales responded positively and gained momentum as we exited the quarter," Wandell said.
"Harley-Davidson had a lot of exciting news for customers in the third quarter, with the launch of the 110th Anniversary year and Anniversary Edition motorcycles, and the rollout of our exciting full line of 2013 bikes. While we see great untapped opportunity at retail, we continue to temper our expectations in light of continued softness in the global economy.”
On a worldwide basis, dealers sold 61,053 new Harley-Davidson motorcycles in the third quarter of 2012 compared to 61,838 motorcycles sold in the year-ago period. Dealers sold 40,402 new Harley-Davidson motorcycles in the U.S. compared to sales of 42,640 units in last year's third quarter. In international markets, dealers sold 20,651 new Harley-Davidson motorcycles during the third quarter compared to sales of 19,198 units in the year-ago period. During the quarter, retail unit sales increased 32.3 percent in the Latin America region, 9.8 percent in the Asia Pacific region and 1.8 percent in the EMEA region and decreased 4.7 percent in North America (U.S. and Canada) compared to last year's third quarter.
Through nine months, dealers sold 206,444 new Harley-Davidson motorcycles worldwide, with retail unit sales up 47.5 percent in the Latin America region, 14.1 percent in the Asia Pacific region and 6.0 percent in North America and down 2.9 percent in the EMEA region compared to the year-ago period.
Industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 3.8 percent through nine months of 2012 compared to the prior-year period.
Harley-Davidson Motorcycles and Related Products Segment Results
Third-quarter operating income from motorcycles and related products was $144.8 million, a 19.9 percent decrease compared to operating income of $180.7 million in the year-ago period.
Revenue from motorcycles during the third quarter of 2012 of $774.0 million was down 16.1 percent compared to the year-ago period. The Company shipped 52,793 motorcycles to dealers and distributors worldwide during the quarter, down 14.5 percent and in line with prior guidance, compared to shipments of 61,745 motorcycles in the third quarter of 2011.
Revenue from motorcycle parts and accessories totaled $233.7 million during the quarter, down 0.8 percent, and revenue from general merchandise, which includes MotorClothes apparel and accessories, was $75.6 million, up 9.1 percent compared to the year-ago period.
Gross margin was 34.7 percent in the third quarter of 2012, compared to 33.7 percent in the third quarter of 2011. Third-quarter operating margin from motorcycles and related products was 13.3 percent, compared to operating margin of 14.7 percent in last year's third quarter.
Through the first nine months of 2012 the Company shipped 200,558 motorcycles to dealers and distributors, a 10.0 percent increase compared to the year-ago period. Through nine months, revenue from motorcycles grew 8.4 percent to $2.99 billion, revenue from parts and accessories grew 6.6 percent to $698.4 million and revenue from general merchandise grew 10.0 percent to $225.4 million, compared to the year-ago period. Gross margin through nine months was 35.6 percent and operating margin was 16.8 percent, compared to 34.0 percent and 14.5 percent respectively through nine months last year.
Financial Services Segment Results
Operating income from financial services was $72.4 million in the third quarter of 2012, compared to operating income of $62.0 million in last year's third quarter. Through nine months, operating income from financial services was $221.7 million, compared to operating income of $212.0 million in the year-ago period. Results for the third quarter and the first nine months of 2012 reflect continued improvement in credit performance year over year and lower interest expense. During the same periods in 2011, financial services results benefited from the release of significant credit loss reserves.
Harley-Davidson continues to expect to ship 245,000 to 250,000 motorcycles to dealers and distributors worldwide in 2012, a five-to seven-percent increase from 2011. In the fourth quarter of 2012, the Company expects to ship 44,500 to 49,500 motorcycles, a two-to twelve-percent decrease from the year-ago period. This is consistent with the Company's previously announced plans for lower shipments in the fourth quarter of 2012 related to the implementation of surge production at York in the first half of 2013. The Company believes surge production provides the flexibility to produce more motorcycles in the first half of 2013, closer to customer demand during the prime selling season. The Company continues to expect full-year 2012 gross margin of 34.75 percent to 35.75 percent. The Company also continues to expect capital expenditures of between $190 million and $210 million in 2012.
In the third quarter of 2012, the Company incurred restructuring charges of $9.2 million. The Company now expects to incur full-year 2012 restructuring costs of $35 million to $45 million, a reduction of $5 million from the range previously provided. Upon the anticipated completion of restructuring in 2013, Harley-Davidson continues to expect restructuring activities initiated since 2009 to result in one-time overall costs of $490 million to $510 million through 2013. The Company continues to expect cumulative savings of $275 million to $295 million in 2012 from restructuring activities initiated since 2009, rising to cumulative annual ongoing savings of $315 million to $335 million beginning in 2014.
Income Tax Rate
Through nine months, the Company's effective tax rate was 35.3 percent compared to 30.4 percent in the year-ago period. The 2011 effective tax rate was favorably impacted by a settlement of an IRS audit as well as a change in the Wisconsin income tax law associated with certain net operating losses. The Company continues to expect its full-year 2012 effective tax rate from continuing operations will be approximately 35.5 percent.
Cash and marketable securities totaled $1.93 billion at the end of the third quarter, compared to $1.61 billion at the end of last year's third quarter. During the first nine months of 2012, Harley-Davidson generated $712.5 million of cash provided by operating activities of continuing operations, compared to $901.6 million in the year-ago period. On a discretionary basis, the Company repurchased 1.9 million shares of Harley-Davidson, Inc. common stock during the third quarter of 2012 at a cost of $84.9 million. At the end of the quarter, there were approximately 225 million shares of Harley-Davidson common stock outstanding and 15.3 million shares remaining on board-approved share repurchase authorizations.