Harley-Davidson, Inc. (NYSE: HOG) third-quarter 2015 diluted earnings per share were $0.69 compared to EPS of $0.69 in the year-ago period. Third-quarter net income was $140.3 million on consolidated revenue of $1.32 billion compared to net income of $150.1 million on consolidated revenue of $1.30 billion in the year-ago period.
Dealer new motorcycle sales were down 1.4 percent worldwide for the third quarter compared to the year-ago period, with sales down 2.5 percent in the U.S. and up 0.9 percent internationally.
“We expect a heightened competitive environment to continue for the foreseeable future, and now is the time for us to dial things up with significant additional investments in marketing and product development,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. “We have a strong plan, built on our incredible foundation, to further assert Harley-Davidson’s substantial market leadership and accelerate growth. We have great confidence in our plans to drive demand and grow our reach and impact with customers globally.”
The company intends to fund the increased demand-driving actions by reallocating existing spending. Harley-Davidson expects to incur one-time expenses of approximately $30 million to $35 million in the fourth quarter of 2015, primarily for employee separation and reorganization costs related to this reallocation.
“In the short term, because the third quarter did not unfold as we expected, we are lowering full-year shipment guidance. Our ongoing commitment to manage supply in line with demand and maintain the premium nature of the brand remains a top priority for Harley-Davidson,” said Levatich.
Company Highlights Four Focus Areas for Increased Investment
In 2016, Harley-Davidson will increase its investment in customer-facing marketing by approximately 65 percent above 2015 levels. The company also plans to increase its investment in new product development by approximately 35 percent from 2015 levels. These changes represent an approximate $70 million increase in investment to drive demand compared to 2015.
These investments will be focused in four primary areas:
• Increasing product and brand awareness
• Growing new ridership in the U.S.
• Increasing and enhancing brand access
• Accelerating the cadence and impact of new products
The company will provide additional information during its earnings conference call this morning, including details on the company’s five objectives:
— Lead in every market.
— Grow the sport of motorcycling in the U.S., in part by growing the number of U.S. core customers and growing the number of U.S. outreach customers at a faster rate.
— Grow U.S. retail sales and grow international retail sales at a faster rate. In support of this objective, the company has a target to grow its international dealer network by 150 to 200 new dealerships by 2020.
— Grow revenue and grow earnings faster than revenue through 2020.
— Outperform the S&P 500.
Retail Q3 Harley-Davidson Motorcycle Sales
Dealers worldwide sold 72,178 new Harley-Davidson motorcycles in the third quarter of 2015 compared to 73,217 motorcycles in the year-ago quarter. In the U.S., dealers sold 48,918 new Harley-Davidson motorcycles in the quarter compared to sales of 50,167 motorcycles in the year-ago period.
In international markets, dealers sold 23,260 new Harley-Davidson motorcycles during the third quarter compared to 23,050 motorcycles in the year-ago period, with sales up 5.1 percent in the Asia Pacific region and 2.4 percent in the EMEA region, and down 11.5 percent in the Latin America region and 1.7 percent in Canada.
Harley-Davidson Q3 Motorcycles and Related Products Segment Results
Operating income from motorcycles and related products (the “motorcycles segment”) was $143.1 million during the quarter compared to operating income of $146.3 million in the year-ago period.
Third-quarter revenue from motorcycles was $812.4 million compared to revenue of $815.4 million in the year-ago period. The company shipped 53,472 motorcycles to dealers and distributors worldwide during the quarter compared to shipments of 50,670 motorcycles in the year-ago period.
Revenue from motorcycle parts and accessories was $252.2 million during the quarter compared to revenue of $239.7 million in the year-ago period. Revenue from general merchandise, which includes MotorClothes apparel and accessories, was $69.0 million compared to revenue of $69.3 million in the year-ago period.
Gross margin was 34.6 percent in the third quarter of 2015 compared to 34.9 percent in the third quarter of 2014. Third-quarter operating margin for the motorcycles segment was 12.5 percent compared to operating margin of 12.9 percent in last year’s third quarter.
Through nine months, Harley-Davidson 2015 net income was $710.0 million on consolidated revenue of $4.81 billion compared to nine-month 2014 net income of $770.1 million on consolidated revenue of $5.03 billion. Nine-month 2015 diluted earnings per share were $3.41 compared to EPS of $3.52 in the year-ago period.
Year-to-date in 2015, dealers sold 217,770 new Harley-Davidson motorcycles worldwide compared to 220,850 motorcycles in the year-ago period, with retail unit sales up 6.9 percent in the Asia Pacific region and down 1.3 percent in the U.S., 5.1 percent in the EMEA region, 5.1 percent in the Latin America region and 3.9 percent in Canada compared to the year-ago period.
Through nine months, the company shipped 218,233 motorcycles to dealers and distributors worldwide compared to shipments of 223,569 motorcycles through nine months last year. Nine-month revenue from motorcycles was down 6.2 percent to $3.38 billion, revenue from parts and accessories decreased 2.3 percent to $692.9 million and revenue from general merchandise increased 1.5 percent to $213.0 million compared to the first nine months of 2014. Gross margin through nine months was 37.9 percent, and operating margin was 20.2 percent compared to 37.7 percent and 21.3 percent respectively in the year-ago period.
Financial Services Segment Results
Operating income from financial services was $72.8 million in the third quarter of 2015 compared to operating income of $77.8 million in last year’s third quarter. Third-quarter financial services results reflect the impact of a growing loan portfolio with higher provision for credit losses, partially offset by favorable net interest margin. Through nine months, operating income from financial services was $219.3 million compared to operating income of $215.4 million through nine months of 2014.
Income Tax Rate
Through nine months, the company’s effective income tax rate was 34.8 percent compared to 34.9 percent in the year-ago period. The company now expects its full-year 2015 effective tax rate to be approximately 35.0 percent, down from previous guidance of 35.5 percent.
Cash and marketable securities totaled $1.42 billion at the end of the third quarter compared to $1.04 billion at the end of last year’s third quarter. During the first nine months of 2015, Harley-Davidson generated cash from operating activities of $1.02 billion compared to $966.9 million in the year-ago period. On a discretionary basis, the company repurchased 9.4 million shares of Harley-Davidson, Inc. common stock during the third quarter of 2015 for $536.0 million. In the third quarter of 2015, there were approximately 204.6 million weighted-average diluted common shares outstanding, compared to approximately 216.9 million shares in the year-ago quarter. At the end of the third quarter of 2015, 21.6 million shares remained on board-approved share-repurchase authorizations.
Harley-Davidson is revising its full-year guidance for motorcycle shipments, reflecting its commitment to managing supply in line with demand and now expects to ship 265,000 to 270,000 motorcycles to dealers and distributors worldwide in 2015, which is approximately flat to down 2 percent from 2014. The company had most recently provided full-year shipment guidance of 276,000 to 281,000 motorcycles. In the fourth quarter, the company expects to ship 47,000 to 52,000 motorcycles compared to 47,157 motorcycles shipped in the year-ago period. The company now expects full-year 2015 operating margin of approximately 16 percent to 17 percent for the motorcycles segment, compared to prior guidance of 18 percent to 19 percent for full-year operating margin. The company continues to expect 2015 capital expenditures for Harley-Davidson, Inc. of $240 million to $260 million.