Harley-Davidson, Inc. (NYSE: HOG) second-quarter 2015 diluted earnings per share were $1.44 compared to EPS of $1.62 in the year-ago period. Second-quarter net income was $299.8 million on consolidated revenue of $1.82 billion compared to net income of $354.2 million on consolidated revenue of $2.00 billion in the year-ago period. Second-quarter results are in line with company expectations following Harley-Davidson’s decision in April to lower motorcycle shipments from initial projections for 2015 in light of currency-driven competitive pressures in the U.S. and the company’s commitment to manage supply in line with demand.
Dealer new motorcycle sales were down 1.4 percent worldwide for the second quarter compared to the year-ago period, but gained momentum as the quarter progressed.
“In the face of a tough competitive environment, driven mostly by currency and greater competitive activity, we are leveraging our many strengths and meeting the challenge head on,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. “Our actions during the quarter have had a positive impact. We are encouraged by the momentum at retail as the quarter progressed, both in the U.S. and internationally.”
“We are confident in the strength of our business and the strategies we have in place to maintain our industry leadership and grow our business over the long term,” said Levatich. “Our singular focus on the customer through unrivaled products, unique experiences and our expanding dealer network is the bedrock we are building on to continue to grow our reach and impact with customers across the globe.”
Retail Harley-Davidson Motorcycle Sales
Dealers worldwide sold 88,931 new Harley-Davidson motorcycles in the second quarter of 2015 compared to 90,218 motorcycles in the year-ago quarter. In the U.S., dealers sold 57,790 new Harley-Davidson motorcycles in the quarter compared to sales of 58,225 motorcycles in the year-ago period.
In international markets, dealers sold 31,141 new Harley-Davidson motorcycles during the second quarter compared to 31,993 motorcycles in the year-ago period, with sales up 16.6 percent in the Asia Pacific region and down 8.9 percent in the EMEA region, 2.6 percent in the Latin America region and 9.9 percent in Canada.
Harley-Davidson Motorcycles and Related Products Segment Results
Operating income from motorcycles and related products (the “motorcycles segment”) decreased 19.6 percent to $380.6 million during the quarter compared to operating income of $473.3 million in the year-ago period. Operating income in the quarter was impacted primarily by lower motorcycle shipments and unfavorable foreign currency exchange.
Second-quarter revenue from motorcycles decreased 11.6 percent to $1.31 billion compared to revenue of $1.48 billion in the year-ago period. The company shipped 85,172 motorcycles to dealers and distributors worldwide during the quarter compared to shipments of 92,217 motorcycles in the year-ago period, in line with guidance.
Revenue from motorcycle parts and accessories was $256.8 million during the quarter, down 5.4 percent, and revenue from general merchandise, which includes MotorClothes apparel and accessories, was $77.5 million, up 1.5 percent compared to the year-ago period.
Gross margin was 39.2 percent in the second quarter of 2015 compared to 39.5 percent in the second quarter of 2014. Second-quarter operating margin for the motorcycles segment was 23.1 percent compared to operating margin of 25.8 percent in last year’s second quarter.
Through six months, Harley-Davidson 2015 net income was $569.7 million on consolidated revenue of $3.50 billion compared to six-month 2014 net income of $620.1 million on consolidated revenue of $3.73 billion. Six-month 2015 diluted earnings per share were $2.71, down 3.9 percent from EPS of $2.82 in the year-ago period.
Year-to-date in 2015, dealers sold 145,592 new Harley-Davidson motorcycles worldwide compared to 147,633 motorcycles in the year-ago period, with retail unit sales down 0.7 percent in the U.S., up 7.8 percent in the Asia Pacific region, and down 7.7 percent in the EMEA region, 1.2 percent in the Latin America region and 4.8 percent in Canada compared to the year-ago period.
Through six months, the company shipped 164,761 motorcycles to dealers and distributors worldwide, a 4.7 percent decrease compared to the year-ago period. Six-month revenue from motorcycles was down 8.0 percent to $2.56 billion, revenue from parts and accessories decreased 6.2 percent to $440.7 million and revenue from general merchandise increased 2.5 percent to $143.9 million compared to the first six months of 2014. Gross margin through six months was 39.1 percent, and operating margin was 23.0 percent compared to 38.6 percent and 24.1 percent respectively in the year-ago period.
Financial Services Segment Results
Operating income from financial services was $81.9 million in the second quarter of 2015, a 10.0 percent increase compared to operating income of $74.4 million in last year’s second quarter. Second-quarter financial services results reflect higher net interest income. Through six months, operating income from financial services was $146.6 million compared to operating income of $137.6 million through six months of 2014. The company previously indicated it expected operating income from financial services to be down modestly in 2015, but now expects operating income to be up modestly compared to the prior year.
Harley-Davidson continues to expect to ship 276,000 to 281,000 motorcycles to dealers and distributors worldwide in 2015, an approximate 2 percent to 4 percent increase from 2014. In the third quarter, the company expects to ship 54,000 to 59,000 motorcycles compared to 50,670 motorcycles shipped in the year-ago period. The company continues to expect full-year 2015 operating margin of approximately 18 percent to 19 percent for the motorcycles segment. The company also continues to expect 2015 capital expenditures for Harley-Davidson, Inc. of $240 million to $260 million.
As previously announced, the company anticipates closing on its transaction with its Canadian distributor on or about August 4, 2015, at which time the company will obtain the exclusive right to distribute the company’s products in Canada. The above guidance does not include the impact of the anticipated transaction, but as previously indicated, the company expects the financial impact of the pending transition to be dilutive to 2015 earnings per share by approximately $0.04, due to upfront transition costs.
Income Tax Rate
Through six months, the company’s effective income tax rate was 34.9 percent compared to 35.3 percent in the year-ago period. The company continues to expect its full-year 2015 effective tax rate to be approximately 35.5 percent.
Cash and marketable securities totaled $1.30 billion at the end of the second quarter compared to $1.06 billion at the end of last year’s second quarter. During the first six months of 2015, Harley-Davidson generated cash from operating activities of $613.9 million compared to $570.6 million in the year-ago period. On a discretionary basis, the company repurchased 2.8 million shares of Harley-Davidson, Inc. common stock during the second quarter of 2015 at a cost of $164.8 million. In the second quarter of 2015, there were approximately 208.6 million weighted-average diluted common shares outstanding, compared to approximately 219.2 million shares in the year-ago quarter.
On June 17, 2015, the company disclosed that its Board of Directors authorized the company to repurchase up to an additional 15.0 million shares of its common stock with no dollar limit. This repurchase authorization is in addition to the share repurchases that the Board authorized in February 2014, pursuant to which the company was authorized to repurchase up to 20.0 million shares of its common stock with no dollar limit. The company also disclosed it intends to incur long-term debt in the third quarter of 2015 in the amount of $750 million and to use the proceeds to repurchase common stock through the remainder of 2015. These repurchases will be in addition to already planned repurchases, which were expected to be in line with repurchases made in the second half of 2014. The company expects the combined effects of the additional indebtedness and share repurchases to be slightly accretive to earnings per share in 2015, with the full effect on earnings per share beginning in 2016.
At the end of the second quarter of 2015, 31.0 million shares remained on board-approved share-repurchase authorizations.