"Our performance in Q4 and the full year was in line with our expectations and indicative of increased business stability driven by the tremendous efforts of our employees and dealers," said Matt Levatich, president and chief executive officer of Harley-Davidson. "In 2019, we took important steps toward returning to significant growth in 2021 — including launching LiveWire, our first electric motorcycle, optimizing our global dealer network and expanding our international footprint.”
Those were Levatich’s comments as Harley-Davidson released its fourth quarter and full-year 2019 results. Fourth quarter earnings per share (EPS) was up year-over-year and overall performance in the quarter and full-year was in line with company expectations. The company advanced its More Roads to Harley-Davidson plan and is on-track to realize its expectation of significant growth in 2021.
2019 Highlights and Results
- Delivered fourth quarter GAAP diluted EPS of $0.09; up year-over-year
- Advanced More Roads plan, on-track for significant 2021 growth
- Increased focus on rider commitment; in the U.S., 527,000 riders joined in 2019, up year-over-year
- Tempered worldwide year-over-year retail sales rate of decline
- Completed steps to mitigate the majority of recent EU and China tariff impacts in 2020
- Completed key milestones of the manufacturing optimization initiative and exceeded expected full-year savings
- Repurchased $286.7 million of shares; increased dividends 1.4 percent versus prior year to $1.50 per share
- Fourth quarter 2019 GAAP diluted EPS was $0.09. Year-ago GAAP diluted EPS was $0.00. Excluding restructuring plan costs and the impact of recent EU and China tariffs, adjusted fourth quarter 2019 diluted EPS was $0.20 compared to $0.17 in the fourth quarter of 2018. Fourth quarter 2019 net income was $13.5 million on consolidated revenue of $1.07 billion versus net income of $0.5 million on consolidated revenue of $1.15 billion in the fourth quarter of 2018.
Full-year 2019 GAAP diluted EPS was $2.68. Year-ago GAAP diluted EPS was $3.19. Excluding restructuring plan costs and the impact of recent EU and China tariffs, adjusted 2019 diluted EPS was $3.36 compared to $3.78 in 2018. Full-year 2019 net income was $423.6 million on consolidated revenue of $5.36 billion versus net income of $531.5 million on consolidated revenue of $5.72 billion in 2018.
Strategy to Build Riders; Accelerated plan for growth
Harley-Davidson's strategy to build the next generation of Harley-Davidson riders globally is supported by these strategic objectives from 2017 through 2027: expand to 4 million total Harley-Davidson riders in the U.S., grow international business to 50 percent of annual Harley-Davidson Motor Company (HDMC) revenue, launch 100 new high impact motorcycles, deliver superior return on invested capital for HDMC (S&P 500 top 25%) and grow its business without growing its environmental impact.
More Roads to Harley-Davidson is the company's accelerated plan for growth that aims to deliver sustainable growth and build committed 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. The company's More Roads plan leverages and integrates new products, broader access, stronger dealers and amplifying the brand as catalysts to ignite and sustain momentum and deliver growth.
The company plans to maintain its targeted investment and return profile and capital allocation strategy, while it funds strategic opportunities expected to drive significant revenue growth and expand operating margin starting in 2021.
In 2019, Harley-Davidson continued to advance its More Roads plan initiatives, including:
- Asserted its leadership in the electrification of motorcycles with the launch of LiveWire, the company's first electric motorcycle, and IRONe, an electric-powered two-wheeler for kids
- Launched new high impact models and delivered significant technology to its class-leading model year 2020 motorcycles to inspire new and existing riders
- Commissioned Thailand manufacturing facility and established a China distribution center, increasing customer access with more competitive prices
- Improved and expanded global ecommerce and digital capabilities
- Advanced good-to-great dealers — meeting its customer experience and sales conversion targets
- Honed and accelerated efforts to amplify brand and build committed riders; more riders joined Harley-Davidson in the U.S. in 2019 compared to 2018 and the total pool of Harley-Davidson riders in the U.S. grew to 3.1 million in 20191
"We see 2020 as the pivotal year in the transformation of Harley-Davidson. This year we will broaden the reach of our brand and build more committed riders as we enter new and growing segments in motorcycling and eBicycles; more and easier access to two-wheeled freedom on a Harley is well underway," said Levatich.
Harley-Davidson exceeded full-year expected savings from its manufacturing optimization initiative, realizing savings of $32.2 million, ahead of its estimate of $25 million to $30 million and incurred costs of $43.0 million in 2019. Aiming to further improve its manufacturing operations and cost structure, the company initiated efforts in the first quarter of 2018 including closing its wheel manufacturing facility in Australia and consolidating its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. The company continues to expect annual ongoing cash savings of $65 million to $75 million starting in 2021.
U.S. retail sales rate declines continued to temper. The year-over-year retail sales rate of decline in the fourth quarter was the lowest in 12 quarters and the full-year retail sales rate of decline was the lowest since 2016. Fourth quarter 601+cc U.S. market share was up 1.0 percentage points, to 50.4 percent and full-year market share was 49.1 percent, down slightly versus 2018.
International retail sales were up slightly in the fourth quarter behind continued growth in emerging markets. Full-year international retail sales finished down 3.0 percent. Harley-Davidson's full-year 601+cc Europe market share was 8.9 percent.
Motorcycles and Related Products Segment Results
Revenue from the Motorcycles and Related Products (Motorcycles) segment was down in the fourth quarter and on a full-year basis. Full-year operating income decreased primarily due to lower revenues and increased tariff costs, partially offset by lower SG&A and restructuring expense.
Financial Services Segment Results
Financial Services segment full-year operating income of $266.0 million was down 8.6 percent.
Cash and marketable securities were $833.9 million at the end of the year, compared to $1.21 billion at the end of 2018. Harley-Davidson generated $868.3 million of cash from operating activities in 2019 compared to $1.21 billion in 2018. The company paid a cash dividend of $0.375 per share in the fourth quarter, and a cumulative total of $1.50 per share on a full-year basis. On a discretionary basis, Harley-Davidson repurchased 2.2 million shares of its common stock during the quarter for $78.7 million, and 8.2 million shares for $286.7 million on a full-year basis. During the quarter, there were 154.9 million weighted-average diluted common shares outstanding. At the end of the quarter, 8.2 million shares remained on a board-approved share repurchase authorization.
Harley-Davidson's full-year effective tax rate was 24.0 percent.
For the full-year 2020, the company expects the following:
- Motorcycles segment revenue of approximately $4.53 to $4.66 billion. In the first quarter, the company expects Motorcycles segment revenue of approximately 1.09 to 1.17 billion
- Motorcycles segment operating margin as a percent of revenue of approximately 7 to 8 percent
- Financial Services segment operating income approximately flat year-over-year
- Effective tax rate of approximately 24 to 25 percent
- Capital expenditures of approximately $215 million to $235 million