Harley-Davidson recently reported fourth quarter and full-year 2018 results. On a full-year basis, earnings per share (EPS) was up year-over-year on positive revenue growth. The company achieved all stated 2018 milestones associated with its More Roads to Harley-Davidson accelerated plan for growth.
- More Roads accelerated plan for growth unveiled; all 2018 milestones achieved
- Diluted EPS up 5.6 percent over prior year
- Record Financial Services segment operating income
- Cash from operations up over $200 million or 20 percent compared to 2017
- Building new riders - over 52,000 more Harley-Davidson riders added in the U.S.
- Motorcycles and Related Products segment (Motorcycles segment) revenue growth of 1.1 percent compared to 2017
- International retail sales up year-over-year behind strong emerging market growth
- Manufacturing optimization remains on track; 2018 costs lower than originally expected
- Repurchased $382 million of shares; paid dividends totaling $1.48 per share, up 1.4 percent versus prior year
Full-year 2018 GAAP diluted EPS was $3.19, up 5.6 percent. Year ago GAAP diluted EPS was $3.02. Excluding restructuring plan costs (including manufacturing optimization) and the impact of incremental tariffs, 2018 diluted EPS was $3.78. Full-year 2018 net income was $531.5 million on consolidated revenue of $5.72 billion versus net income of $521.8 million on consolidated revenue of $5.65 billion in 2017.
Fourth quarter 2018 GAAP diluted EPS was $0.00. Year ago GAAP diluted EPS was $0.05. Excluding restructuring plan costs (including manufacturing optimization) and the impact of incremental tariffs, fourth quarter 2018 diluted EPS was $0.17. Fourth quarter 2018 net income was $0.5 millionon consolidated revenue of $1.15 billion versus net income of $8.3 million on consolidated revenue of $1.23 billion in 2017.
Harley-Davidson international retail motorcycle sales for the full-year finished slightly ahead of 2017. U.S. retail sales fell 10.2 percent behind ongoing declines in the U.S. motorcycle industry. Worldwide retail sales decreased 6.1 percent in 2018.
"In 2018 we delivered value to our shareholders through improved earnings and cash from operations. The challenges we experienced during the year reinforced the commitment we have for our More Roads to Harley-Davidson accelerated plan for growth," said Matt Levatich, president and chief executive officer, Harley-Davidson, Inc. "Our plan addresses the challenges of today and the opportunities we see for growth ahead, and we are energized by the momentum we are building. New and different people, riders and non-riders, are taking notice of Harley-Davidson and the thrill of riding."
During the quarter, Harley-Davidson continued to make progress on the initiatives included in its More Roads to Harley-Davidson accelerated plan for growth to build the next generation of riders globally. Leveraging core strengths in the business, brand and dealer network, the company is investing in opportunities that inspire increased ridership sooner and deliver sustainable growth for the future. Harley-Davidson's More Roads plan supports the company's strategy and 2027 objectives to: build 2 million new riders in the U.S., grow international business to 50 percent of annual volume, launch 100 new high impact motorcycles and do so profitably and sustainably.
Through 2022, the company's More Roads to Harley-Davidson plan will deliver:
- New products – Keep current riders engaged and inspire a new generation of Harley-Davidson riders
- Broader access – Meet customers where they are and how they want to engage with a multi-channel retail experience
- Stronger dealers – Drive a performance framework to improve dealer financial strength and the Harley-Davidson customer experience
The company believes its accelerated plan will drive revenue growth and expand operating margins. The company expects to fund strategic opportunities while maintaining its current investment and return profile and capital allocation strategy.
"During 2018 we met or exceeded all of the More Roads plan milestones we set out to achieve. In the U.S., we finished the year with 52,000 more Harley-Davidson riders than one year ago. The groundwork for an exciting future is being built in real time, and that's clear for riders today and Harley-Davidson riders of tomorrow. We are igniting a cultural movement for motorcycling," said Levatich.
As Harley-Davidson continues to build the next generation of riders globally, the company increased its reach and impact through the fourth quarter and delivered a wide range of results including the following highlights:
Harley-Davidson Riding Academy
- Motorcycle sales to Riding Academy graduates up behind stronger conversion rate
LiveWire debuted at the EICMA show in Milan
- Thousands of global leads captured, positive social media conversation
- Instagram video was 2nd most commented on video ever on H-D's Instagram
- News coverage spanned tech, innovation, motorcycle and lifestyle
- Created 17,000 opportunities for customers to trade-up to a new motorcycle under the Freedom Promise program
Influencer and Entertainment Integrations
- Increased total estimated media value over 80 percent compared to 2017
- Delivered 3X number of product placements in movies and television including substantial placements in "A Star is Born" and "Mayans" TV series
To further improve its manufacturing operations and cost structure, in the first quarter of 2018 the company commenced its multi-year manufacturing optimization initiative anchored by the consolidation of its U.S. motorcycle assembly operations into its plant in York, Pa. In the fourth quarter of 2018, costs related to the manufacturing optimization were $19.1 million with full year at $102.4 million. The company expects to incur an additional $50 million to $60 million of operating expense in 2019 which is lower than its most recent expectations. The company now expects total capital investment of approximately $65 million through 2019, a decrease of $10 million from previous expectations, and continues to expect ongoing annual cash savings of $65 million to $75 million after 2020.
|Harley-Davidson Retail Motorcycle Sales|
On a full-year basis, the U.S. 601+cc industry was down 8.7 percent and Harley-Davidson held market share of 49.7 percent. Harley-Davidson's full-year Europe market share was up 0.5 percentage points to 10.3 percent.
|Motorcycles and Related Products Segment Results|
|$ in thousands||4th Quarter||Full-Year|
|Motorcycle Shipments (vehicles)||43,489||47,198||(7.9)%||228,665||241,498||(5.3)%|
|Parts & Accessories||$142,168||$167,170||(15.0)%||$754,663||$800,702||(5.7)%|
|Gross Margin||27.6%||30.6%||(3.0) pts.||32.5%||33.4%||(0.9) pts.|
|Operating Margin||(6.2)%||3.4%||(9.6) pts.||8.5%||12.3%||(3.8) pts.|
Revenue from the Motorcycles segment was down in the fourth quarter, but up for the full-year compared to 2017. Operating margin as a percent of revenue decreased in the quarter due to restructuring charges, incremental tariffs and higher recall costs.
|Financial Services Segment Results|
|$ in thousands||4th Quarter||Full-Year|
Financial Services segment finished the year with record earnings of $291.2 million, up 5.8 percent.
Income Tax Rate
For full-year 2018, Harley-Davidson's effective tax rate was 22.6 percent compared to 39.6 percent in 2017. The decreased tax rate was primarily due to the favorable impact of the 2017 Tax Cuts and Jobs Act.
Cash and marketable securities were $1.21 billion at the end of 2018, compared to $687.5 million in 2017. Harley-Davidson generated $1.21 billion of cash from operating activities in 2018 compared to $1.01 billion in 2017. The company paid a cash dividend of $0.37 per share for the fourth quarter, and $1.48 per share on a full-year basis. On a discretionary basis, Harley-Davidson repurchased 4.9 million shares of its common stock during the fourth quarter for $194.2 million. During the quarter, there were approximately 163.0 million weighted-average diluted common shares outstanding. At the end of 2018, 16.4 million shares remained on board-approved share repurchase authorizations.
For the full-year 2019, the company expects the following:
- Motorcycle shipments to be approximately 217,000 to 222,000 motorcycles. In the first quarter, the company expects to ship approximately 53,000 to 58,000 motorcycles
- Motorcycles segment operating margin as a percent of revenue to be approximately 8.0 to 9.0 percent
- Financial Services segment operating income to be down year-over-year
- Effective tax rate of approximately 24.0 to 25.0 percent
- Capital expenditures of $225 million to $245 million including approximately $20 million to support manufacturing optimization