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Zeitz: Harley-Davidson delivers ‘solid’ Q3 results

Harley-Davidson, Inc. today reported third quarter 2021 results, with North America retail sales showing 2% growth compared to Q3 2020.

“Harley-Davidson delivered a solid third quarter and we have seen many of our Hardwire strategic initiatives perform well, providing encouraging initial proof points of our five-year strategy,” said Jochen Zeitz, chairman, president and CEO, Harley-Davidson. “Our teams continue to work to mitigate the impact of the ongoing supply chain challenges that our sector faces, however our performance underlines that we are on course to deliver our long-term Hardwire strategy.”

Jochen Zeitz
Harley-Davidson chairman, president and CEO Jochen Zeitz. Photo by Daniel N Johnson

Third Quarter 2021 Highlights and Results

  • GAAP diluted EPS of $1.05, up $0.27 over Q3 2020
  • Total HDI revenue grew 17 percent behind increased shipments and favorable motorcycle unit mix
  • Motorcycles and Related Products (Motorcycles) segment operating margin was 8.4 percent, which was 3.6 percentage points better than Q3 2020; driven by unit mix, pricing and reduced restructuring expense offsetting the cost increases across the supply chain and the impact of EU tariffs
  • Financial Services segment operating income growth of $15 million over Q3 2020 driven by lower interest expense
  • Launched Sportster S, the all-new Sportster motorcycle built on the Revolution Max platform

Third Quarter 2021 Results

Harley-Davidson, Inc. Consolidated Financial Results nm – not meaningful
 $ in millions (except EPS)3rd quarter9 months
20212020Change20212020Change
Revenue$1,365$1,16617%$4,320$3,32930%
Net Income$163$12036%$628$98nm
GAAP Diluted EPS$1.05$0.7835%$4.06$0.64nm
Adjusted Diluted EPS$1.18$1.0512%$4.29$1.19nm

Q3 consolidated revenue was up 17 percent versus Q3 2020 driven by growth in the Motorcycles segment thanks to stronger unit sales and a favorable unit mix. Total net income growth of 36 percent was driven by growth across both the Motorcycles and the Financial Services segments.

Motorcycles and Related Products Segment Resultsnm – not meaningful
 $ in millions3rd quarter9 months
20212020Change20212020Change
Motorcycle Shipments (thousands)47.943.012%159.4124.328%
Revenue$1,161$96420%$3,724$2,73336%
   Motorcycles$886$68429%$2,932$2,03044%
   Parts & Accessories$205$210(3)%$577$51312%
   General Merchandise$49$490%$155$13614%
Gross Margin26.7%29.8%(3.1) pts.30.6%26.1%4.4 pts.
Operating Income$98$47109%$511$10nm
Operating Margin8.4%4.8%3.6 pts.13.7%0.4%13.3 pts.

Revenue from the Motorcycles segment was up significantly during the third quarter of 2021 primarily driven by a 12 percent increase in wholesale shipments, favorable motorcycle unit mix and pricing. Parts & Accessories third quarter revenue was down slightly while General Merchandise was flat to Q3 2020 as both businesses faced strong prior year Q3 comparisons as dealers reopened after pandemic-related closures.

Third quarter gross margin was down 3 percentage points to Q3 prior year as a margin benefit attributed from stronger volume, profitable mix and pricing was more than offset by the negative cost headwinds across the supply chain and higher EU tariffs (2.5 percentage point impact). Q3 operating margin finished up versus prior year as the company’s comparison period included heavier Rewire restructuring charges.

Harley-Davidson Retail Motorcycle Sales
 Motorcycles (thousands) 3rd quarter9 months
20212020Change20212020Change
North America33.933.22%114.892.025%
EMEA9.411.2(16)%24.629.9(18)%
Asia Pacific 6.57.6(15)%18.320.3(10)%
Latin America1.01.8(41)%2.64.8(45)%
Worldwide Total50.853.8(6)%160.3147.09%

Global retail motorcycle sales in the third quarter (down 6 percent to prior year) were impacted by the strategic decisions made as part of the Rewire strategy, including the exit of unprofitable product segments and markets, as well as, macro supply chain challenges, including slower shipping times to the international markets.

Q3 North America retail performance was up over last year, offset by declines across international markets.

Financial Services Segment Results
 $ in millions3rd quarter9 months
20212020Change20212020Change
Revenue$205$2022%$596$596(0)%
Operating Income$107$9117%$320$119169%

Financial Services segment operating income was up over prior year in the third quarter, primarily driven by lower interest expense.

Other Results
Harley-Davidson generated $926 million of cash from operating activities year-to-date in 2021. Cash and cash equivalents were $2.1 billion at the end of the third quarter, down $1.5 billion to the end of Q3 2020 as the company has brought down cash balances.

Tax Rate – The company’s year-to-date effective tax rate was 23 percent.

Dividends – The company paid cash dividends of $0.15 per share in Q3 2021.

Outlook
For the full-year 2021, the company now expects:

  • Financial Services segment operating income growth of 95 to 105 percent, an increase from the previously communicated range of 75 to 85 percent.
  • Capital expenditures of $135 million to $150 million, a decrease from the previously communicated range of $190 million to $225 million.

Additionally, full-year 2021 Motorcycles segment guidance remains unchanged relative to prior guidance. The company continues to expect:

  • Motorcycles segment revenue growth to be 30 to 35 percent.
  • GAAP Motorcycles segment operating income margin of 6 to 8 percent given the EU’s decision to keep the current tariff at 31 percent while tariff negotiations occur.

Cash allocation priorities remain to first fund growth through The Hardwire initiatives, then to pay dividends, and the company may also choose to execute discretionary share repurchases.

Harley-Davidson, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
         
  Three months ended Nine months ended
  September 26, September 27, September 26, September 27,
  2021 2020 2021 2020
         
Motorcycles and Related Products revenue $    1,160,618 $        964,029 $     3,724,225 $     2,733,091
Gross profit 310,425 287,233 1,137,961 713,781
Selling, administrative and engineering expense 212,243 196,912 626,211 618,912
Restructuring expense 517 43,581 731 84,586
  Operating income from Motorcycles and Related Products 97,665 46,740 511,019 10,283
         
Financial Services revenue 204,692 201,655 595,650 596,064
Financial Services expense 98,047 110,177 275,487 475,771
Financial Services restructuring expense 98 334 436 1,278
  Operating income from Financial Services 106,547 91,144 319,727 119,015
         
Operating income 204,212 137,884 830,746 129,298
Non-operating expense, net (6,723) (4,956) (17,053) (19,759)
Income before income taxes 197,489 132,928 813,693 109,539
Provision for income taxes 34,516 12,710 185,236 11,843
Net income $       162,973 $        120,218 $        628,457 $           97,696
         
Earnings per share:        
  Basic $              1.06 $               0.78 $               4.09 $               0.64
  Diluted $              1.05 $               0.78 $               4.06 $               0.64
         
Weighted-average shares:        
  Basic 153,863 153,252 153,700 153,153
  Diluted 155,117 153,915 154,903 153,790
         
Cash dividends per share: $              0.15 $               0.02 $               0.45 $               0.42
Harley-Davidson, Inc.
Reconciliation of GAAP Amounts to Non-GAAP Amounts
(In thousands, except per share amounts) 
(Unaudited)
         
  Three months ended Nine months ended
  September 26, September 27, September 26, September 27,
  2021 2020 2021 2020
Net income excluding restructuring plan costs and the impact of EU tariffs        
Net income (GAAP) $       162,973 $        120,218 $        628,457 $           97,696
Restructuring plan costs 615 43,915 1,167 85,864
Impact of EU tariffs 25,562 1,825 44,281 17,732
Tax effect of adjustments(a) (5,563) (4,091) (10,126) (19,333)
Adjustments net of tax 20,614 41,649 35,322 84,263
Adjusted net income (non-GAAP) $       183,587 $        161,867 $        663,779 $        181,959
         
Diluted EPS excluding restructuring plan costs and the impact of EU tariffs        
Diluted EPS (GAAP) $              1.05 $               0.78 $               4.06 $               0.64
Adjustments net of tax, per share 0.13 0.27 0.23 0.55
Adjusted diluted EPS (non-GAAP) $              1.18 $               1.05 $               4.29 $               1.19
         
(a) The income tax effect has been computed using the estimated income tax rate for these adjustments    
Harley-Davidson, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
         
    (Unaudited)   (Unaudited)
    September 26, December 31, September 27,
    2021 2020 2020
ASSETS        
Current assets:        
    Cash and cash equivalents   $     2,061,303 $     3,257,203 $     3,560,950
    Accounts receivable, net   282,627 143,082 232,845
    Finance receivables, net   1,540,822 1,509,539 1,701,478
    Inventories, net   475,314 523,497 322,375
    Restricted cash   153,873 131,642 160,155
    Other current assets   194,481 280,470 178,931
    4,708,420 5,845,433 6,156,734
         
Finance receivables, net   5,322,436 4,933,469 5,142,014
Other long-term assets   1,168,948 1,231,699 1,233,527
    $   11,199,804 $   12,010,601 $   12,532,275
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
    Accounts payable and accrued liabilities   $        982,068 $        848,118 $        850,385
    Short-term deposits   92,626 79,965 29,999
    Short-term debt   749,620 1,014,274 1,227,763
    Current portion of long-term debt, net   1,605,798 2,039,597 2,109,284
    3,430,112 3,981,954 4,217,431
         
Long-term debt, net   4,876,292 5,932,933 6,171,676
Other long-term liabilities   559,506 372,929 373,270
         
Shareholders’ equity   2,333,894 1,722,785 1,769,898
    $   11,199,804 $   12,010,601 $   12,532,275
Harley-Davidson, Inc.
Condensed Consolidated Statements of Cash Flows
 (In thousands)
(Unaudited)
         
      Nine months ended
      September 26,  September 27, 
      2021 2020
         
Net cash provided by operating activities     $        925,551 $     1,135,068
         
Cash flows from investing activities:        
  Capital expenditures     (61,476) (92,295)
  Finance receivables, net     (476,556) (143,093)
  Other investing activities     2,485 334
Net cash used by investing activities     (535,547) (235,054)
         
Cash flows from financing activities:        
  Proceeds from issuance of medium-term notes      1,396,602
  Repayments of medium-term notes     (1,400,000) (1,400,000)
  Proceeds from securitization debt     1,169,910 2,064,450
  Repayments of securitization debt     (1,013,820) (735,885)
  Net (decrease) increase in unsecured commercial paper     (261,978) 509,978
  Net increase in credit facilitites      150,000
  Borrowings of asset-backed commercial paper     27,406 225,187
  Repayments of asset-backed commercial paper     (206,671) (236,846)
  Net increase in deposits     210,144 29,992
  Dividends paid     (69,316) (65,002)
  Repurchase of common stock     (11,545) (7,895)
  Issuance of common stock under employee stock option plans     4,324 96
Net cash (used) provided by financing activities     (1,551,546) 1,930,677
         
Effect of exchange rate changes on cash, cash equivalents and restricted cash    (11,050) 6,071
        
Net (decrease) increase in cash, cash equivalents and restricted cash    $    (1,172,592) $     2,836,762
         
Cash, cash equivalents and restricted cash:        
Cash, cash equivalents and restricted cash, beginning of period     $     3,409,168 $        905,366
Net (decrease) increase in cash, cash equivalents and restricted cash     (1,172,592) 2,836,762
Cash, cash equivalents and restricted cash, end of period     $     2,236,576 $     3,742,128
         
Reconciliation of cash, cash equivalents and restricted cash on the Consolidated balance sheets to the Consolidated statements of cash flows:      
  Cash and cash equivalents     $     2,061,303 $     3,560,950
  Restricted cash     153,873 160,155
  Restricted cash included in Other long-term assets     21,400 21,023
  Cash, cash equivalents and restricted cash per the Consolidated statements of cash flows   $     2,236,576 $     3,742,128
Motorcycles and Related Products Revenue and Motorcycle Shipment Data
(Unaudited)
         
  Three months ended Nine months ended
  September 26, September 27, September 26, September 27,
  2021 2020 2021 2020
MOTORCYCLES AND RELATED PRODUCTS REVENUE (in thousands)        
  Motorcycles $       885,626 $        684,344 $     2,931,669 $     2,030,447
  Parts & accessories 204,506 209,808 577,035 513,201
  General merchandise 49,424 49,356 155,378 136,321
  Licensing 8,481 8,894 22,865 21,826
  Other 12,581 11,627 37,278 31,296
  $    1,160,618 $        964,029 $     3,724,225 $     2,733,091
         
U.S. MOTORCYCLE SHIPMENTS 27,919 25,284 104,190 69,359
         
WORLDWIDE MOTORCYCLE SHIPMENTS        
    Grand American Touring(a) 21,988 17,230 79,485 52,656
    Cruiser(b) 16,531 14,775 52,117 42,660
    Adventure Touring 4,507  8,555 
    Sportster®/ Street 4,915 10,978 19,262 29,009
  47,941 42,983 159,419 124,325
         
(a)Includes CVOTMand Trike        
(b)Includes Softail® and LiveWire®        
Motorcycles and Related Products Gross Profit
(Unaudited)
         
The estimated impact of significant factors affecting the comparability of gross profit from 2020 to 2021 were as follows (in millions):
 
  Three months
ended
   Nine months
ended
  
         
2020 gross profit $               287   $                714  
Volume 32   203  
Price and sales incentives, net of related costs 15   39  
Foreign currency exchange rates and hedging 8   33  
Shipment mix 44   169  
Raw material prices (25)   (46)  
Manufacturing and other costs (51)   26  
  23   424  
2021 gross profit $               310   $             1,138  
Financial Services – Finance Receivables Allowance for Credit Losses
(Unaudited)
         
  Three months ended Nine months ended
  September 26, September 27, September 26, September 27,
  2021 2020 2021 2020
Balance, beginning of period $       358,811 $        411,015 $        390,936 $        198,581
Cumulative effect of change in accounting(a)    100,604
Provision for credit losses 11,208 7,835 4,935 178,433
Charge-offs, net of recoveries (14,185) (10,148) (40,037) (68,916)
Balance, end of period $       355,834 $        408,702 $        355,834 $        408,702
         
(a)On January 1, 2020, the Company adopted ASU 2016-13 and increased the allowance for loan loss through Retained Earnings, net of income taxes, to establish an allowance that represents expected lifetime credit losses on the finance receivable portfolios at date of adoption.
Worldwide Retail Sales of Harley-Davidson Motorcycles(a)
(Unaudited)
         
  Three months ended Nine months ended
  September 30, September 30, September 30, September 30,
  2021 2020 2021 2020
         
United States 31,699 31,304 107,421 86,376
Canada 2,158 1,915 7,403 5,668
Total North America 33,857 33,219 114,824 92,044
EMEA 9,389 11,184 24,580 29,878
Asia Pacific 6,484 7,631 18,263 20,271
Latin America 1,048 1,768 2,620 4,760
      Total worldwide retail sales 50,778 53,802 160,287 146,953
         
(a)Data source for retail sales figures shown above is new sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning new retail sales, and the company does not regularly verify the information that its dealers supply. This information is subject to revision.

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