In its 110th year Harley-Davidson’s stocks are rising and the future is looking bright, despite an imminent Indian attack.
During the GFC, Harley was in trouble like a lot of American automotive manufacturers.
Then, in October 2009, Harley made a smart decision to divest itself of MV Agusta at a considerable undisclosed loss just 15 months after surprisingly acquiring the Italian sportsbike manufacturer and in the same month Harley axed the Buell sportsbike line, devoting itself to what it does best – heavyweight cruisers.
This week Harley released its 2013 Second Quarter Financial Report which shows the Milwaukee motorcycle manufacturer posting a higher quarterly profit.
Obviously sticking to its core product has worked for the American motorcycle giant.
However, with Indian about to release a much-anticipated new model next weekend, Harley can’t stall.
The 2014 model range is being released next month and it wouldn’t surprise if there are a couple of new bikes that are as big a revolution as the water-cooled V-Rod.
Could it be a water-cooled full dresser, a 650 or 750cc bike, a street tracker, a scrambler or even an adventure model to tap into the fastest-growing sector in the American and Australian markets?
It appears Harley has the funds now to invest in new model streams.
Harley’s second-quarter net income rose to $271.7 million, or $1.21 a share, up from the $247.3 million, or $1.07 a share from a year ago.
The 9.9% increase in profits benefited from increased motorcycle sales and shipments and a restructuring benefit fueled by the decision last week to keep a wheel-making facility open in New Castalloy, Adelaide, instead of going through with the plan to move operations to China.
The decision saved Harley exit and layoff costs it had forecasted, resulting in a benefit of $5.3 million toward its restructuring measures.
Last year it incurred a restructuring expense of $6.2 million during the same quarter. Harley’s restructuring program is projected to end this year and afterwards reportedly will save the company $320 million a year.
In the second quarter Harley bike and related products revenue increased a modest 3.7% to $1.79 billion.
Sales were up 4.4% in the period in the US, helping to counter the 12.7% sales decrease in the first quarter.
Worldwide Harley sales for the quarter were also up across the board, with a 39% increase in the Latin American market leading the way fueled by sales in Brazil and Mexico. Harley also showed a 12% boost in the Asia-Pacific region which includes Australia where they recorded a 6.9% increase. There was also a 4% increase in Canada, and the European, Middle Eastern and African markets reportedly up by a single percentage point.
The company expects to ship between 259,000 to 264,000 motorcycles in 2013, up from last year’s total of 247,625 motorcycles.
For the benefit of those readers with financial acumen, here is the full 2013 Harley-Davidson Second Quarter Financial Report:
Harley-Davidson, Inc. (NYSE: HOG) second-quarter 2013 diluted earnings per share increased 13.1% on higher motorcycle shipments and continued gains in operating efficiencies, compared to the year-ago period.
Second-quarter net income was $271.7 million on consolidated revenue of $1.79 billion, compared to net income of $247.3 million on consolidated revenue of $1.73 billion in the year-ago period. Second-quarter 2013 diluted earnings per share were $1.21, compared to $1.07 in the year-ago quarter.
Through six months, Harley-Davidson net income was $495.9 million on consolidated revenue of $3.37 billion, compared to net income of $419.3 million on consolidated revenue of $3.16 billion in the year-ago period. Six-month 2013 diluted earnings per share were $2.20, compared to $1.81 in the year-ago period.
“Harley-Davidson again drove strong financial performance in the second quarter, reflecting the many improvements in operations we have made throughout the Company over the past few years as well as our brand strength globally,” said Keith Wandell, Chairman, President and Chief Executive Officer of Harley-Davidson, Inc. “Our employees, dealers and suppliers continue to do an outstanding job, working as one team and moving in one direction, to deliver a great experience for our customers,” Wandell said.
“During the second quarter, we completed our first year of seasonal surge production at York with great success. We also surpassed a milestone for international dealership growth. With the opening of a dealership in Salvador, Brazil on June 29th, we have added 104 dealerships outside the U.S. since late 2009, achieving our goal to add 100 to 150 international dealerships by the end of 2014,” Wandell said.
“Of course, all summer long we are celebrating our 110th anniversary with Harley-Davidson enthusiasts from around the world, including one of our biggest-ever international consumer events last month in Rome and the upcoming celebration in Milwaukee on Labor Day weekend. And less than a month from now, we will launch an exciting lineup of new 2014 motorcycles.” Wandell said.
Retail Harley-Davidson Motorcycle Sales
Dealers worldwide sold 90,193 new Harley-Davidson motorcycles in the second quarter of 2013, compared to 85,714 motorcycles in the year-ago quarter. In the U.S., dealers sold 58,241 new Harley-Davidson motorcycles in the quarter, up 4.4% compared to the year-ago period. In international markets, dealers sold 31,952 new Harley-Davidson motorcycles during the second quarter, compared to 29,953 motorcycles in the year-ago period, with unit sales up 12.3% in the Asia Pacific region, 1.0% in the EMEA region, 39.2% in the Latin America region, and 3.6% in Canada.
Through six months, dealers sold 144,447 new Harley-Davidson motorcycles worldwide, compared to 145,391 motorcycles in the year-ago period, with retail unit sales up 11.9% in the Asia Pacific region, 22.8% in the Latin America region and 2.4% in Canada, and down 2.7% in the U.S. and 3.6% in the EMEA region, compared to the first half of 2012. The Company believes first-half U.S. retail sales were adversely impacted by a prolonged and abnormally cool and wet spring in 2013, compared to an abnormally early and warm spring in 2012.
Harley-Davidson Motorcycles and Related Products Segment Results
Second-Quarter Results: Operating income from motorcycles and related products grew 15.5% to $357.7 million in the second quarter of 2013, compared to operating income of $309.6 million in the year-ago period. Operating income in the quarter benefited from higher motorcycle shipments as the Company continued the implementation of seasonal surge motorcycle production, higher gross margin and lower restructuring expense, compared to the prior-year period.
Revenue from motorcycles grew 4.2% to $1.27 billion, compared to revenue of $1.22 billion in the year-ago period. The Company shipped 84,606 motorcycles to dealers and distributors worldwide during the quarter, in line with shipment guidance and a 1.3% increase compared to shipments of 83,502 motorcycles in the year-ago period.
Revenue from motorcycle parts and accessories was $269.6 million during the quarter, up 1.5%, and revenue from general merchandise, which includes MotorClothes apparel and accessories, was $81.7 million, up 8.7%, compared to the year-ago period.
Gross margin was 36.9% in the second quarter of 2013, compared to 35.9% in the second quarter of 2012. Second-quarter operating margin from motorcycles and related products was 21.9%, compared to operating margin of 19.7% in last year’s second quarter.
Six-Month Results: Through six months the Company shipped 159,828 motorcycles to dealers and distributors worldwide, an 8.2% increase compared to the year-ago period. Six-month revenue from motorcycles grew 9.4% to $2.43 billion, revenue from parts and accessories decreased 2.4% to $453.6 million and revenue from general merchandise increased 2.7% to $153.8 million, compared to the first six months of 2012. Gross margin through six months was 36.8% and operating margin was 20.8%, compared to 35.9% and 18.2% respectively in the year-ago period.
Financial Services Segment Results
Operating income from financial services was $74.2 million in the second quarter of 2013, a 9.5% decrease compared to operating income of $82.0 million in last year’s second quarter, which benefited from the release of significant credit loss reserves. Financial services results also reflect higher net interest income on favorable cost of funds and lower operating expenses in the second quarter of 2013 compared to the prior-year period. Through six months, operating income from financial services was $145.7 million, compared to operating income of $149.3 million through six months in 2012.
Harley-Davidson continues to expect to ship 259,000 to 264,000 motorcycles to dealers and distributors worldwide in 2013. In the third quarter of 2013, the Company expects to ship 51,000 to 56,000 motorcycles, compared to shipments of 52,793 motorcycles in the year-ago period. The Company continues to expect full-year 2013 gross margin of 35.25% to 36.25%. The Company also continues to expect capital expenditures of $200 million to $220 million in 2013.
In the second quarter, the Company recorded a restructuring benefit related to its decision to maintain a scaled-back operation at its New Castalloy wheels facility rather than completely exit the operation. During the quarter, the Company reversed previously expensed exit costs, resulting in a benefit to restructuring of $5.3 million, compared to a restructuring expense of $6.2 million in the year-ago quarter. Upon the expected completion of restructuring in 2013, Harley-Davidson now expects restructuring activities initiated since 2009 to result in one-time overall costs of approximately $485 million, including approximately $3 million in 2013. The Company continues to expect savings of approximately $305 million in 2013 from restructuring activities initiated since 2009, rising to annual ongoing savings of approximately $320 million beginning in 2014.
Income Tax Rate
Through six months, the Company’s effective tax rate was 34.8%, compared to 35.3% in the year-ago period. The lower effective tax rate in the first half of 2013 was primarily driven by the retroactive reinstatement of the Research and Development Tax Credit with the enactment of the American Taxpayer Relief Act of 2012. The Company continues to expect its full-year 2013 effective tax rate to be approximately 34.8%.
Cash and marketable securities totaled $1.43 billion at the end of the second quarter, compared to $1.21 billion at the end of last year’s second quarter. During the first six months of 2013, Harley-Davidson generated $389.7 million of cash from operating activities, compared to $288.2 million in the year-ago period. On a discretionary basis, the Company repurchased 3.5 million shares of Harley-Davidson, Inc. common stock during the first half of 2013 at a cost of $186 million. At the end of the second quarter of 2013, there were 12.2 million shares remaining on board-approved share repurchase authorizations.