Net Income and Consolidated Revenue Down in Harley 4Q 2015 Financial Report

Bryan Harley | January 28, 2016

Harley-Davidson Inc. released results from the final financial quarter of 2015 today as well as full-year totals. Sales were slow for the period, reflected in the 43% drop in net income in the fourth quarter of 2015. Net income was $42.2 million, or 22 cents-per-share in the final quarter of 2015, compared to $74.5 million or 35 cents-per-share in 2014.

Consolidated revenue was down as well, 2015’s total of $1.18 billion below the $1.20 billion mark set last year.

For the quarter, motorcycle sales were down 3.4% domestically (26,044 to 26,957 in 2014) but only fractionally down worldwide at 0.6% (46,857 to 47,149). Retail motorcycle sales on the whole were down 1.3% for the year with 264,627 units sold in 2015 compared to 267,999 in 2014.

Harley-Davidson

Harley-Davidson said it expects to ship 269,000 to 274,000 motorcycles in 2016, an increase of about 1 percent to 3 percent from last year from the projected 265,000 to 270,000 shipments in 2015. Shipment totals for 2015 were first projected to be in the 282,000 to 287,000 range before scaling back due to competitors cutting prices domestically and a strong dollar hurting sales internationally. Harley reported it anticipates shipping 78,000 to 83,000 motorcycles in the first quarter of 2016, compared to 79,589 motorcycles in the year-ago period.

Harley reiterated its intentions to increase spending in marketing by about 65% and boosting its investment in product development by 35% in 2016.

Here’s Harley-Davidson’s new release on the final quarter of 2015 and full-year results.

Harley-Davidson, Inc. (NYSE:HOG) full-year 2015 diluted earnings per share decreased 4.9 percent to $3.69 compared to diluted EPS of $3.88 in 2014. Net income was $752.2 million on consolidated revenue of $6.0 billion compared to full-year 2014 net income of $844.6 million on consolidated revenue of $6.23 billion. In the fourth quarter of 2015, diluted EPS was $0.22 compared to $0.35 in the prior year period. Fourth quarter net income was $42.2 million on consolidated revenue of $1.18 billion compared to net income of $74.5 million on consolidated revenue of $1.20 billion in the year-ago period.

“We are focused, with strength and resolve, on growing demand and building on our substantial market leadership position,” said Matt Levatich, President and Chief Executive Officer, Harley-Davidson, Inc. “Although we expect the macro-economic environment to remain challenging, we are confident we’ll continue to lead with our powerful brand – not simply because of our substantial strengths but through our increased demand driving investments and our incredibly talented and passionate employees and dealers.”

Throughout 2015, Harley-Davidson retail motorcycle sales were adversely affected by heightened competitive pressures including those arising from shifts in world currencies.

In October, the company unveiled plans to increase its customer-facing marketing investment, starting in 2016, by approximately 65 percent over 2015 levels, and to increase its investment in new product development by approximately 35 percent from 2015. These changes represent an approximate $70 million increase in investments to drive demand compared to 2015. The increased investments are focused in four areas: increasing product and brand awareness; growing new ridership in the U.S.; increasing and enhancing brand access; and accelerating the cadence and impact of new products.

Retail Harley-Davidson Motorcycle Sales

 

4th Quarter Full Year
2015 2014 Change 2015 2014 Change
Americas Region
   U.S. 26,044 26,957 (3.4)% 168,240 171,079 (1.7)%
   Latin America 3,082 3,130 (1.5)% 11,173 11,652 (4.1)%
   Canada 1,255 1,118 12.3% 9,669 9,871 (2.0)%
Europe, Middle East, Africa (EMEA) Region 7,689 7,823 (1.7)% 43,287 45,323 (4.5)%
Asia Pacific Region 8,787 8,121 8.2% 32,258 30,074 7.3%
Worldwide Total 46,857 47,149 (0.6)% 264,627 267,999 (1.3)%

Retail Motorcycle Sales Highlights: In the fourth quarter, Harley-Davidson’s U.S. market share was 51.4 percent in the 601cc-plus category, flat compared to the year ago period.

“Our U.S. market share stabilized as we began to ramp up marketing investment, and as we lapped the initial impact of heightened competitiveness and price discounting that began late in the fourth quarter of 2014,” said Levatich.

Retail Harley-Davidson motorcycle sales in Canada grew 12.3 percent in the quarter, following the company’s move to direct distribution in the market. The Asia Pacific region had its best year ever for dealer sales of new Harley-Davidson motorcycles. For the full year, Harley-Davidson was number one in market share in the 601cc-plus segment in the U.S., Canada, Australia, India and Japan.

Motorcycles and Related Products Segment Results
$ in thousands 4th Quarter Full Year
2015 2014 Change 2015 2014 Change
Motorcycle Shipments(vehicles) 48,149 47,157 2.1% 266,382 270,726 -1.6%
Revenue
   Motorcycles $751,383 $784,535 -4.2% $4,127,739 $4,385,863 -5.9%
   Parts & Accessories $169,707 $165,581 2.5% $862,645 $875,019 -1.4%
   General Merchandise $79,356 $75,044 5.7% $292,310 $284,826 2.6%
Gross Margin Percent 31.9% 30.5% 1.4 pts 36.8% 36.4% 0.4 pts
Operating Income $6,368 $35,885 -82.3% $875,490 $1,003,147 -12.7%
Operating Margin Percent 0.6% 3.5% -2.9 pts 16.5% 18.0% -1.5 pts

Segment Results Key Drivers: During the fourth quarter, revenue from motorcycles and related products was down versus the prior year on unfavorable mix and currency exchange, partially offset by the benefit of higher shipments. The decrease in operating income for the quarter was primarily driven by higher SG&A spending, partially offset by a strong gross margin percent.

Financial Services Segment Results
$ in thousands 4th Quarter Full Year
2015 2014 Change 2015 2014 Change
Revenue $173,565 $169,007 2.7% $686,658 $660,827 3.9%
Operating Income $60,857 $62,448 -2.5% $280,205 $277,836 0.9%

Segment Results Key Drivers: Financial services operating income fell slightly in the fourth quarter of 2015 compared to the year-ago period on a higher provision for retail credit loan losses, largely offset by strong net interest income.

Guidance
Harley-Davidson expects to ship 269,000 to 274,000 motorcycles in 2016, an approximate 1 percent to 3 percent increase from 2015 shipments. In the first quarter of 2016, the company expects to ship 78,000 to 83,000 motorcycles compared to 79,589 motorcycles shipped in the year-ago period. The company expects full-year 2016 operating margin of approximately 16 to 17 percent for the Motorcycles segment. The company expects 2016 capital expenditures for Harley-Davidson, Inc. of $255 million to $275 million.

Income Tax Rate
For the full year 2015, Harley-Davidson’s effective tax rate was 34.6 percent compared to 34.2 percent in 2014. The company expects its full-year 2016 effective tax rate will be approximately 34.5 percent.

Cash Flow
Cash and marketable securities totaled $767.4 million at year-end 2015 compared to $964.0 million at year-end 2014. In 2015, Harley-Davidson generated $1.10 billion of cash from operating activities compared to $1.15 billion in 2014. On a discretionary basis, the company repurchased 12.7 million shares of Harley-Davidson, Inc. common stock during the fourth quarter of 2015 at a cost of $642.4 million. For the full year 2015, Harley-Davidson repurchased 27.9 million shares of its common stock at a cost of $1.53 billion, partially funded by a $750 million debt issuance. In the fourth quarter of 2015, there were approximately 190.6 million weighted-average diluted Harley-Davidson common shares outstanding. At the end of 2015, 9.0 million shares remained on board-approved share repurchase authorizations.

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Bryan Harley

Cruiser Editor |Articles | Our resident road warrior has earned his stripes covering the rally circuit, from riding the Black Hills of Sturgis to cruising Main Street in Daytona Beach. Whether it’s chopped, bobbed, or bored, metric to ‘Merican, he rides ‘em all.

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