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Harley-Davidson Q1 North America retail sales decline 5% in Q1

Harley-Davidson, Inc. today reported first quarter 2022 results, which showed a slight decline in retail sales at dealerships compared to the year-ago period.

First Quarter 2022 Highlights and Results

Harley-Davidson, Inc. Consolidated Financial Results 

 $ in millions (except EPS)1st quarter
Operating Income$289$346(16%)
Net Income$223$259(14%)
GAAP Diluted EPS$1.45$1.68(14%)

HDMC revenue growth of 6% driven by global motorcycle pricing and growth across Parts & Accessories and Apparel

HDMC Operating Income margin of 15.6%, which was down 2.9 points versus last year; global pricing was able to offset cost inflation, but margin was negatively impacted by lower shipments due to the ongoing semi-conductor shortage

HDFS Operating Income decline of -27 percent driven by the significant loss reserve release in 2021 and the normalization of losses in 2022 in-line with expectations

GAAP diluted EPS of $1.45; repurchased $248 million of shares (or 6.2 million shares) on a discretionary basis in Q1

Company reaffirms its full-year 2022 outlook

Merger transaction between LiveWire and AEA-Bridges Impact Corporation on track to close in mid-2022

First Quarter 2022 Results

Consolidated revenue was up 5 percent in the first quarter versus Q1 2021 driven primarily by HDMC revenue growth of 6 percent. Operating income decline of 16 percent is a result of higher supply chain inflation, production challenges due to semi-conductor availability and HDFS losses returning to normalized levels following record lows in 2021.

HDMC Results: Motorcycles and Related Products

 $ in millions1st quarter
Motorcycle Shipments (thousands)54.854.80%
   Parts & Accessories$166$15011%
Gross Margin31.3%34.1%(2.8) pts.
Operating Income$203$228(11%)
Operating Margin15.6%18.5%(2.9) pts.

HDMC Revenue was up 6 percent during the first quarter primarily driven by favorable pricing and growth in P&A (+11 percent) and Apparel (+2 percent).

First quarter gross margin was down 2.8 percentage points compared to Q1 prior year.  Global pricing contributed approximately 4 points of margin benefit and largely offset the cost inflation; however, gross margin was also negatively impacted by unfavorable motorcycle mix due to the inability to produce to demand given the semi-conductor challenges.  First quarter operating margin was down 2.9 percentage points compared to Q1 prior year, due to negative mix and higher operating expenses for LiveWire.

Harley-Davidson Retail Motorcycle Sales

 Motorcycles (thousands) 1st quarter
North America31.332.8(5%)
Asia Pacific 6.75.816%
Latin America0.80.713%
Worldwide Total45.244.22%

Global retail motorcycle sales in the first quarter were up 2 percent versus prior year, driven by growth in EMEA and Asia Pacific. North America retail performance (down 5%) was adversely impacted by production shortages, which resulted in significantly lower dealer inventories.

HDFS Results: Financial Services

 $ in millions1st quarter
Operating Income$86$119(27%)

HDFS’ operating income decline of $32 million versus Q1 2021 was driven by an unfavorable comparison to the prior year quarter, which included a significant decrease in the allowance for credit losses. In Q1 2022, retail credit losses begin to normalize to historical levels resulting in a higher provision for credit losses, partially offset by lower interest expense.  Total quarter ending finance receivables was $6.8B, which is +1% versus prior year.

Other Results

Harley-Davidson generated $139 million of cash from operating activities during Q1 2022. Cash and cash equivalents were $1.4 billion at the end of the first quarter, down $927 million compared to the end of the prior year first quarter as the company continues to normalize cash balances back towards historical levels.

Tax Rate – The company’s first quarter effective tax rate was 23 percent.

Dividends – The company paid cash dividends of $0.1575 per share in Q1 2022.

2022 Outlook

For the full year 2022, the Company reaffirms its initial guidance and continues to expect:

HDMC revenue growth of 5 to 10%

HDMC operating income margin of 11 to 12%

HDFS operating income to decline by 20 to 25%

Capital investments of $190 million to $220 million

The outlook assumes that logistics and manufacturing moderately improve in the back-half the year as we get beyond the peak levels of inflation experienced in 2021 and the semi-conductor supply stabilizes; the company now expects raw material inflation to continue through the balance of the fiscal year.

The company’s cash allocation priorities are to fund growth through The Hardwire initiatives, pay dividends, and execute discretionary share repurchases.

Update on LiveWire Transaction

On December 13, 2021, Harley-Davidson and AEA-Bridges Impact Corp. (“ABIC”) (NYSE: IMPX), a special purpose acquisition company with a dedicated sustainability focus, sponsored by executives of AEA Investors and Bridges Fund Management, announced a definitive business combination agreement under which ABIC will combine with LiveWire, Harley-Davidson’s electric motorcycle division, to create a new publicly traded company. Its common stock is expected to be listed on the New York Stock Exchange under the symbol “LVW”.

The transaction is on track to close in mid-2022 and is subject to the approval of ABIC shareholders and other customary closing conditions.

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