Harley-Davidson, Inc. on Tuesday reported third quarter 2019 results. During the quarter, the company delivered earnings per share and Motorcycles segment operating margin ahead of expectations. The company was encouraged by global retail sales results driven by its actions and tempered U.S. industry rate of decline.
The company also advanced its brand amplification efforts and developed capabilities to invigorate the Harley-Davidson experience and build committed riders.
Third Quarter 2019 Highlights
- Delivered GAAP diluted EPS of $0.55
- Repurchased $112.5 million of shares; paid dividends of $0.375 per share
- Improved worldwide year-over-year retail sales rate
- Launched new model year 2020 motorcycles, including Low Rider® S, CVO™ Tri Glide® and LiveWire™ – the company's first electric motorcycle
- Introduced the Harley-Davidson IRONe™ electric-powered two-wheelers for kids
- Realized significant savings from manufacturing optimization initiative
- Progressed More Roads to Harley-Davidson accelerated plan for growth
- Activated Amplify Brand as fourth More Roads growth catalyst to build committed riders
Third quarter 2019 GAAP diluted EPS was $0.55. Year-ago GAAP diluted EPS was $0.68. Excluding restructuring plan costs and the impact of recent EU and China tariffs, adjusted third quarter 2019 diluted EPS was $0.70 compared to $0.82 in the third quarter of 2018. Third quarter 2019 net income was $86.6 million on consolidated revenue of $1.27 billion versus net income of $113.9 million on consolidated revenue of $1.32 billion in 2018.
Harley-Davidson international retail sales were up 2.7 percent. The U.S. retail unit sales rate of decline tempered compared to recent quarters and was down 3.6 percent. Unit sales were 34,903 in Q3 2019 vs. 36,200 in Q3 2018.
"We are driving stability in our business and bringing data insights and intensified consumer focus to guide our efforts to build committed riders and meet our near and long-term objectives," said Matt Levatich, president and chief executive officer of Harley-Davidson. "We'll continue to fuel all aspects of the riding experience and add new solutions to fully develop, engage and retain riders through their journey, starting with the very first spark of interest" said Levatich.
Strategy to Build the Next Generation of Riders
Building committed riders
During the quarter, Harley-Davidson sharpened its U.S. and international objectives through 2027 to better align with its expanded efforts to build committed riders.
Harley-Davidson's strategic objectives through 2027 are: expand to 4 million total Harley-Davidson riders in the U.S., grow international business to 50 percent of annual HDMC revenue, launch 100 new high impact motorcycles and do so profitably and sustainably.
Accelerated plan for growth
More Roads to Harley-Davidson is the company's accelerated plan for growth that drives the company's strategy to deliver sustainable growth and build the next generation of riders from 2018 through 2022. The company is focusing investment and building new capabilities to invigorate the Harley-Davidson brand to spark passion that deepens rider commitment. To reflect this, Amplify Brand was added as a growth catalyst in the More Roads plan and will bolster the other growth catalysts of New Products, Broader Access and Stronger Dealers.
The company plans to maintain its investment and return profile and capital allocation strategy, while it funds strategic opportunities expected to drive revenue growth and expand operating margin, through 2022.
During the third quarter, Harley-Davidson continued to advance its More Roads plan initiatives:
Realized improvements in retail sales, service revenue and website visits for dealers participating in Harley-Davidson performance consulting
Strengthened its leadership in the electrification of motorcycles
Launched high impact new models and added significant technology to its class-leading model year 2020 motorcycles to inspire new and existing riders
Announced the presenting partnership with 2020 Hella Mega music experience tour
Harley-Davidson realized total savings of $16.7 million and incurred costs of $10.0 million in the third quarter from its manufacturing optimization initiative, which was designed to further improve manufacturing operations and cost structure. Since the first quarter of 2018, the company closed its wheel manufacturing facility in Australia and consolidated its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. The company continues to expect 2019 full year costs of $40 million to $50 million, 2019 full year savings of $25 million to $30 million and ongoing annual cash savings of $65 million to $75 million after 2020.
The U.S. 601+cc industry was down 1.7 percent in the third quarter compared to the same period in 2018. Harley-Davidson's third quarter U.S. market share was 49.8 percent. Harley-Davidson's year-to-date Europe market share was 8.9 percent through September.
Revenue from the Motorcycles and Related Products (Motorcycles) segment was down in the third quarter behind lower shipments. Operating income decreased primarily due to lower revenues and increased tariff costs, partially offset by savings realized from the company's manufacturing optimization initiative.
Financial Services segment third quarter operating income of $72.9 million was down 13.0 percent.
Cash and marketable securities were $862.4 million at the end of the third quarter of 2019, compared to $937.0 million in 2018. Through September, Harley-Davidson generated $848.6 million of cash from operating activities in 2019 compared to $1.12 billion in 2018. The company paid a cash dividend of $0.375 per share in the third quarter, and a cumulative total of $1.125 per share for the first nine months of 2019. On a discretionary basis, Harley-Davidson repurchased 3.3 million shares of its common stock during the quarter for $112.5 million. During the quarter, there were approximately 156.9 million weighted-average diluted common shares outstanding. At the end of the quarter, 10.4 million shares remained on a board-approved share repurchase authorization.
Harley-Davidson's year-to-date effective tax rate was 24.6 percent.
For the full year 2019, the company continues to expect:
- Motorcycle shipments to be approximately 212,000 to 217,000. In the fourth quarter, the company expects to ship approximately 38,500 to 43,500 motorcycles
- Motorcycles segment operating margin as a percent of revenue to be approximately 6 to 7 percent
- Financial Services segment operating income to be down year-over-year
- Effective tax rate of approximately 24 to 25 percent
Additionally, the company now expects:
- Capital expenditures of $205 million to $225 million (including approximately $20 million to support manufacturing optimization); $20 million less than prior quarter guidance