RUSHMORE bikes lead to positive Q3 for Harley-Davidson

With the release of its 2014 RUSHMORE models, Harley-Davidson had a big third quarter at retail.

U.S. retail sales were up 20.1 percent in Q3, while worldwide sales rose 15.5 percent. This increase was attributed largely to the new RUSHMORE models, which Harley-Davidson president and CEO Keith Wandell said contributed to the largest year-over-year new model sales increase in 20 years.

“The 2014 model year rollout was the biggest launch in company history,” Wandell said during the third quarter conference call.

The RUSHMORE models moved well across all of the company’s customer demographics. Total Harley-Davidson units shipped in Q3 rose 2.3 percent year-over-year to 54,025. Revenue in the motorcycle segment, including P&A and general merchandise, increased 8.4 percent to $1.2 billion.

Overall, the company’s revenue was up 7.5 percent to $1.34 billion; net income grew 21.4 percent to $162.7 million, while EPS rose 23.7 percent to $0.73.

“Harley-Davidson had a great third quarter. We had strong financial performance,” Wandell said.

The following is the third quarter news release from Harley-Davidson:

Harley-Davidson, Inc. (NYSE: HOG) earnings and dealer new motorcycle sales rose sharply in the third quarter of 2013, compared to the year-ago period.

Diluted earnings per share increased 23.7% to $0.73, primarily on strong operating results in the motorcycles segment, including higher motorcycle shipments and gains in plant operating efficiencies, compared to the year-ago period. Third-quarter net income was $162.7 million on consolidated revenue of $1.34 billion, compared to net income of $134.0 million on consolidated revenue of $1.25 billion in the year-ago period.

Worldwide retail sales of new Harley-Davidson motorcycles increased 15.5% in the quarter, including a 20.1% increase in the U.S., compared to last year’s third quarter.

Through nine months, Harley-Davidson net income was $658.6 million on consolidated revenue of $4.71 billion, compared to net income of $553.3 million on consolidated revenue of $4.41 billion in the year-ago period. Nine-month 2013 diluted earnings per share were $2.93, up 22.1% compared to $2.40 in the year-ago period.

“Harley-Davidson had a great third quarter, with strong financial performance and retail sales growth,” said Keith Wandell, Chairman, President and Chief Executive Officer of Harley-Davidson, Inc.

“Rider response to the 2014 motorcycles we introduced August 18 was extremely positive. In fact, initial retail sales of the new Project Rushmore motorcycles sparked the largest year-over-year new model year sales increase in two decades. We also capped our year-long 110th Anniversary celebration in late August when throngs of riders joined us in Milwaukee from around the world for a huge three-day party like only Harley-Davidson can throw.

“Everyone at Harley-Davidson is proud of our accomplishments and results so far this year, as we continue to see the benefits of our manufacturing, product development and retail strategies. Our employees, dealers and suppliers come to work every day with a relentless focus on providing our customers a great experience,” Wandell said.

Retail Harley-Davidson Motorcycle Sales

Dealers worldwide sold 70,517 new Harley-Davidson motorcycles in the third quarter of 2013, compared to 61,053 motorcycles in the year-ago quarter. In the U.S., dealers sold 48,529 new Harley-Davidson motorcycles in the quarter, up 20.1%, compared to sales of 40,402 motorcycles in the year-ago period. In international markets, dealers sold 21,988 new Harley-Davidson motorcycles during the third quarter, up 6.5% compared to 20,651 motorcycles in the year-ago period, with unit sales up 10.0% in the Asia Pacific region, 1.6% in the EMEA region, 15.6% in the Latin America region, and 7.0% in Canada.

Retail sales were driven by strong double-digit growth in the sale of touring motorcycles following the third-quarter launch of the Company’s Project Rushmore line of revamped motorcycles.

Through nine months, dealers sold 214,964 new Harley-Davidson motorcycles worldwide, compared to 206,444 motorcycles in the year-ago period, with retail unit sales up 4.1% in the U.S., 11.3% in the Asia Pacific region, 20.1% in the Latin America region and 3.7% in Canada, and down 2.2% in the EMEA region, compared to the first nine months of 2012.

Harley-Davidson Motorcycles and Related Products Segment Results

Third-Quarter Results: Operating income from motorcycles and related products grew 21.2% to $175.5 million in the third quarter of 2013, compared to operating income of $144.8 million in the year-ago period. Operating income in the quarter benefited from higher motorcycle shipments, higher gross margin and lower restructuring expense, compared to the prior-year period.

Revenue from motorcycles grew 10.7% to $857.0 million, compared to revenue of $774.0 million in the year-ago period. The Company shipped 54,025 motorcycles to dealers and distributors worldwide during the quarter, in line with shipment guidance and a 2.3% increase compared to shipments of 52,793 motorcycles in the year-ago period.

Revenue from motorcycle parts and accessories was $250.2 million during the quarter, up 7.0%, and revenue from general merchandise, which includes MotorClothes® apparel and accessories, was $66.1 million, down 12.6%, compared to the year-ago period.

Gross margin was 35.3% in the third quarter of 2013, compared to 34.7% in the third quarter of 2012. Third-quarter operating margin from motorcycles and related products was 14.9%, compared to operating margin of 13.3% in last year’s third quarter.

Nine-Month Results: Through nine months the Company shipped 213,853 motorcycles to dealers and distributors worldwide, a 6.6% increase compared to the year-ago period. Nine-month revenue from motorcycles grew 9.8% to $3.29 billion, revenue from parts and accessories increased 0.8% to $703.8 million and revenue from general merchandise decreased 2.4% to $220.0 million, compared to the first nine months of 2012. Gross margin through nine months was 36.4% and operating margin was 19.2%, compared to 35.6% and 16.8% respectively in the year-ago period.

Financial Services Segment Results

Operating income from financial services was $76.1 million in the third quarter of 2013, a 5.1% increase compared to operating income of $72.4 million in last year’s third quarter. Financial services results reflect higher net interest income. Through nine months, operating income from financial services was $221.8 million, compared to operating income of $221.7 million through nine months in 2012.

Guidance

Harley-Davidson continues to expect to ship 259,000 to 264,000 motorcycles to dealers and distributors worldwide in 2013. The Company continues to expect full-year 2013 gross margin of 35.25% to 36.25%.  The Company also continues to expect capital expenditures of $200 million to $220 million in 2013.

Restructuring

In the third quarter, the Company incurred restructuring charges of $0.6 million. Harley-Davidson continues to expect restructuring activities initiated since 2009 to result in one-time overall costs of approximately $485 million, including approximately $3 million in 2013. The Company continues to expect savings of approximately $305 million in 2013 from restructuring activities initiated since 2009, rising to annual ongoing savings of approximately $320 million beginning in 2014.

Income Tax Rate

Through nine months, the Company’s effective tax rate was 34.3%, compared to 35.3% in the year-ago period.  The lower effective tax rate in the first nine months of 2013 was primarily driven by the retroactive reinstatement of the Research and Development Tax Credit and a third-quarter adjustment to the valuation allowance on deferred tax assets.  The Company now expects its full-year 2013 effective tax rate will be approximately 34.7%.

Cash Flow

Cash and marketable securities totaled $1.15 billion at the end of the third quarter, compared to $1.93 billion at the end of last year’s third quarter. During the first nine months of 2013, Harley-Davidson generated $825.1 million of cash from operating activities, compared to $712.5 million in the year-ago period. On a discretionary basis, the Company repurchased 1.6 million shares of Harley-Davidson, Inc. common stock during the third quarter of 2013 at a cost of $92.8 million. In the third quarter, there were 223.5 million diluted weighted average common shares of Harley-Davidson stock outstanding, compared to 228.0 million shares in the year-ago period. At the end of the third quarter of 2013, there were 11.0 million shares remaining on board-approved share repurchase authorizations.