U.S. Sales and Profits Up in Harley 2Q Report

July 19, 2011
Bryan Harley
Bryan Harley
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Harley-Davidson’s Second Quarter profits easily beat Wall Street projections, fueled by the increase in U.S. bike demand. U.S. retail sales of new motorcycles grew 7.5 percent to 53,599, the first increase in domestic sales since the fourth quarter of 2006. Internationally, sales rose at a more modest 5.6 percent.
 
Harley-Davidson license plate
Harley-Davidson’s Second Quarter 2011 results look good. Domestic sales and profits are up, its financial services continue to post positive results and its shipment projections for 2011 have been raised.

The Motor Company reported income from continuing operations in the second-quarter of 2011 was up 36.8 percent to $190.6 million, or $0.81 per share, a major improvement over the $139.3 million, or $0.59 per share from continuing operations reported in the same quarter last year.

Harley-Davidson also announced it has raised its shipment forecast to between 228,000 and 235,000 new motorcycles worldwide, an 8 to 12 percent increase over 2010 levels. The company previously projected it would ship 215,000 to 228,000 motorcycles worldwide this year.

“While we are pleased by Harley-Davidson’s second-quarter results, including the strong jump at retail in the U.S., our focus remains squarely on sustaining this progress through the ongoing implementation of our business strategy,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc.

“Through the transformation to best-in-class manufacturing, product development and retail capabilities, we are positioning Harley-Davidson to be customer-led in all we do. Our employees, dealers and suppliers deserve tremendous credit for their dedication to making customers’ dreams a reality by delivering remarkable products and extraordinary customer experiences.”

Find out all the details in the “Harley-Davidson Reports Broad Performance Improvement in Second Quarter” press release:

Harley-Davidson, Inc. (NYSE: HOG) generated broad performance improvements in the second quarter of 2011, with strong earnings growth, increased shipments and growth in its dealers’ new motorcycle sales both in the U.S. and globally.

Income from continuing operations in the second-quarter 2011 rose 36.8 percent to $190.6 million, or $0.81 per share, compared to income of $139.3 million, or $0.59 per share from continuing operations in the year-ago quarter. Second-quarter 2011 earnings results were led by operating income from the Motorcycles and Related Products, which grew 39.2 percent to $219.8 million on higher shipment volume and operating margin improvement. Operating income from the Financial Services grew 34.9 percent, compared to the second quarter of 2010.

Retail sales of new Harley-Davidson motorcycles grew 7.5 percent in the U.S. and 5.6 percent worldwide in the second quarter.

The Company raised its shipment forecast for 2011 and now expects to ship between 228,000 and 235,000 new Harley-Davidson motorcycles to dealers and distributors worldwide, an increase of 8 percent to 12 percent compared to 2010 shipments.

For the first six months of 2011, Harley-Davidson income from continuing operations was up 48.9 percent compared to the year-ago period to $309.8 million, or $1.31 per share.

“Harley-Davidson continues to make great progress as we transform our business and take our iconic brand to the many roads of the world,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc.

“While we are pleased by Harley-Davidson’s second-quarter results, including the strong jump at retail in the U.S., our focus remains squarely on sustaining this progress through the ongoing implementation of our business strategy.
“Through the transformation to best-in-class manufacturing, product development and retail capabilities, we are positioning Harley-Davidson to be customer-led in all we do. Our employees, dealers and suppliers deserve tremendous credit for their dedication to making customers’ dreams a reality by delivering remarkable products and extraordinary customer experiences,” Wandell said.

“We also believe the continued improvement in our results in the face of ongoing consumer and economic uncertainty speaks to the power of the Harley-Davidson brand globally,” Wandell said.

Retail Harley-Davidson Motorcycle Sales
On a worldwide basis, second-quarter retail Harley-Davidson new motorcycle sales grew 5.6 percent compared to last year’s second quarter. Dealers sold 53,599 new Harley-Davidson motorcycles in the U.S., a 7.5 percent increase compared to last year’s second quarter and the first year-over-year quarterly rise in U.S. Harley-Davidson new motorcycles sales since the fourth quarter of 2006. Retail sales of 29,797 new motorcycles in international markets in the second quarter marked an increase of 2.4 percent compared to the year-ago period. Industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 4.2 percent in the second quarter of 2011 compared to the year-ago period.

Through six months, worldwide retail sales of new Harley-Davidson motorcycles increased 4.8 percent to 132,991 units compared to the prior-year period. U.S. retail sales of new Harley-Davidson motorcycles increased 4.4 percent to 85,290 units for the first half of the year compared to the year-ago period. In international markets, retail sales of new Harley-Davidson motorcycles increased 5.6 percent to 47,701 units for the first six months of 2011 compared to 2010. Through six months, industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 3.8 percent, compared to the year-ago period.

Harley-Davidson Motorcycles and Related Products Segment Financial Results
Second-Quarter Segment Results: Revenue from Harley-Davidson Motorcycles during the second quarter of 2011 of $1.01 billion was up 20.9 percent compared to the year-ago period. The Company shipped 66,815 Harley-Davidson motorcycles to dealers and distributors worldwide during the quarter, compared to shipments of 59,046 motorcycles in the second quarter of 2010.

Revenue from Motorcycle Parts and Accessories (P&A) totaled $255.4 million during the quarter, up 10.2 percent, and revenue from General Merchandise, which includes MotorClothes Apparel and Accessories, was $72.9 million, up 8.2 percent compared to the year-ago period.

Gross margin was 35.0 percent in the second quarter, flat to the year-ago period. Second-quarter operating margin was 16.4 percent, compared to 13.9 percent in the second quarter of 2010.

Six-Month Segment Results: Through the first six months of 2011, the Company shipped 120,642 new Harley-Davidson motorcycles to dealers and distributors, a 7.0 percent increase compared to last year’s 112,720 units for the period. Revenue from Harley-Davidson Motorcycles through six months was $1.84 billion, a 12.1 percent increase compared to the year-ago period. Six-month P&A revenue was $419.7 million, a 10.2 percent increase from the first half of 2010. General Merchandise revenue was $135.5 million, a 1.4 percent increase compared to the same period in 2010. Gross margin through six months was 34.1 percent and operating margin was 14.4 percent, compared to 35.7 percent and 13.1 percent respectively in last year’s first half.

Financial Services Segment
The Financial Services segment recorded operating income of $82.0 million in the second quarter, compared to operating income of $60.8 million in the year-ago quarter. The increase in year-over-year operating income was largely the result of continued improvement in credit performance. Through six months, operating income from financial services was $150.0 million, compared to operating income of $87.5 million in the first half of 2010.

Guidance
The Company raised shipment guidance for 2011 and now expects to ship 228,000 to 235,000 Harley-Davidson motorcycles to dealers and distributors worldwide, compared to guidance provided April 19, 2011 of 215,000 to 228,000 motorcycles. In the third quarter of 2011, the Company expects to ship 60,000 to 65,000 motorcycles. For all of 2010, the Company shipped 210,494 motorcycles.

The change in shipment guidance reflects ongoing efforts to manage supply in line with demand following strong second-quarter retail sales, as well as the Company’s increased confidence in its ability to minimize the impact of potential supply chain interruptions resulting from the March earthquake in Japan.

Harley-Davidson now expects gross margin to be between 34.0 percent and 35.0 percent for the full year, versus the prior estimate of 33.5 percent to 35.0 percent. The Company continues to expect full-year capital expenditures of between $210 million and $230 million, which includes $70 million to $85 million to support restructuring activities.
 
Restructuring Update
Harley-Davidson has reduced the cost estimates for restructuring activities and now expects all previously announced company-wide restructuring activities to result in one-time charges of $490 million to $505 million, including 2011 charges of $80 million to $90 million. The Company continues to expect to realize savings on a cumulative basis in 2011 of $210 million to $230 million from restructuring activities initiated since early 2009, and annual ongoing savings of $305 million to $325 million when the restructuring is fully implemented. Through the first six months of 2011, the Company incurred restructuring charges of $36.6 million, including $13.6 million in the second quarter.

Income Tax Rate
Through six months, the Company’s effective tax rate was 34.8 percent, compared to 36.4 percent in the year-ago period. The 2010 effective tax rate through the second quarter was negatively impacted by the healthcare reform legislation offset by a favorable settlement of an IRS audit. In 2011, the Company expects its full-year effective tax rate from continuing operations to be approximately 35.0 percent.

Cash Flow
Cash and marketable securities totaled $1.22 billion as of June 26, 2011, compared to $1.50 billion at the end of last year’s second quarter. During the first six months of 2011, Harley-Davidson generated $473.0 million of cash from operating activities, which included a $200.0 million contribution to company pension plans. In the first half of 2010, the Company generated $726.0 million of cash from operating activities. Capital expenditures were $69.3 million for the six months ended in June 2011.

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