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Harley-Davidson Down $55 Mil in 2009

Friday, January 22, 2010
Year-end Harley-Davidson 2009 financial results show The Motor Company with a 55.1 million net loss. Fourth quarter results pushed the yearly total into the red, with a Q4 net loss of $218.7 million. Contributing to the loss are restructuring costs, including the discontinuation of Buell Motorcycles, as well as losses from MV Agusta, which H-D is trying to sell. Harley-Davidson Financial Services (HDFS) also posted an operating loss of $118 million for 2009.
Harley Davidson Motorcycles
Harley-Davidson released fourth quarter and 2009 year-end results, with The Motor Company posting a $55 million loss.

CEO Keith Wandell said of the total figures in the company’s 2009 report: “Our full-year 2009 results were affected by the difficult economy, as well as the planned actions we took that resulted in restructuring charges of $224 million. We believe these actions are critical to restoring greater profitability and long-term growth to Harley-Davidson. We are confident we have made the right decisions for our future, and we are executing our strategy with focused intensity.”

2009 Harley-Davidson Sales

H-D sales were down for the year and quarter, but not down as much as its heavyweight competitors. Harley’s Q4 motorcycle sales decreased 27.9% in the US (21.4% worldwide), with H-D claiming industry-wide sales of US heavyweight motorcycles (651cc+) were down 20.9%. The 2009 year-end H-D sales total fell 25.8% in the US (22.7% worldwide), with the industry-wide heavyweight sales claims down 36.7% for 2009.

Shipments & Revenue Dropped

Harley-Davidson shipped 223,023 motorcycles in 2009, down 26.5% from the 303,474 units in 2008. Q4 posted an even more dramatic year-over-year drop, with the 35,938 shipments down 53.1%. The plan going forward for 2010 predicts even lower shipments, with expectations of 201,000 to 212,000 H-Ds produced.

The drop in shipments showed a corresponding drop in net revenue. H-D motorcycles generated $3.17 billion in 2009, compared to $4.24 billion in 2008 – down 25%. Q4 net revenue from motorcycles of $552 million fell 45.6% from 2008. Compared to the year prior, Parts and Accessories revenue for 2009 dropped 10.7%, with General Merchandise a similar 10.1%.

HDFS

The Harley-Davidson Financial Services (HDFS) segment actually performed better in the 2009 Q4 than 2008, losing $7.1 million this year compared to $24.9 million last year. For the entire year, however, HDFS lost $118 million compared to making $82.8 million in ’08. While posting losses, H-D notes that by raising $1.76 billion it “expects to meet its 2010 anticipated funding requirements.” HDFS viability is critical, as it finances more than half of the loans for H-D purchases.

Restructuring Costs and Benefits

The 2009 report expects $175 to $195 million will be spent in 2010 on restructuring costs. The total cost of restructuring is expected to reach $430 to 460 million and extend into 2012. Once completed H-D claims the moves will save $240 to $260 million annually. The more immediate savings anticipated for 2010 are $135 to $155 million.

Buell Motorcycles and MV Agusta

Buell Motorcycles generated a $3.96 million net revenue loss, though year-to-date H-D numbers show net revenue of $123 million from 13,199 motorcycles shipped. As for MV Agusta, for the first three quarters of 2009, H-D reported Buell and MV Agusta numbers together in its quarterly statement. The 2009 year-end reports the Italian brand will be “presented as a discontinued operation for all periods.” With H-D stating a loss of $125.8 million in 2009 from “discontinued operations.”

2009 Results below Courtesy of Harley-Davidson

HARLEY-DAVIDSON REPORTS 2009 RESULTS
Full-Year Company Revenue, Profits Decrease from Continuing Operations
Fourth Quarter Loss Reflects Previously Announced Reduction in Motorcycle Shipments and Restructuring Activities
Company’s Efforts in 2010 Remain Focused on Extending Harley-Davidson Brand, Continuous Improvement and Strengthening Core Business


MILWAUKEE, January 22, 2010 -- Harley-Davidson, Inc. (NYSE:HOG) reported full-year 2009 revenue of $4.29 billion and income of $70.6 million, or $0.30 per share, from continuing operations. In the fourth quarter, the Company reported revenue of $764.5 million and a loss of $147.2 million, or $0.63 per share, from continuing operations. Affecting fourth-quarter results were a previously announced 53.1 percent reduction in Harley-Davidson® motorcycle shipments from the year-ago period and $167.1 million in restructuring and Buell® product line exit costs.

Including MV Agusta discontinued operations, the Company reported a full-year net loss of $55.1 million, or $0.24 per share, and a fourth-quarter net loss of $218.7 million, or $0.94 per share.

“Our full-year 2009 results were affected by the difficult economy, as well as the planned actions we took that resulted in restructuring charges of $224 million. We believe these actions are critical to restoring greater profitability and long-term growth to Harley-Davidson,” said Keith Wandell, Harley-Davidson, Inc. President and Chief Executive Officer. “We are confident we have made the right decisions for our future, and we are executing our strategy with focused intensity.”
 
Full-Year and Fourth-Quarter Results

For the full-year from continuing operations: revenue was $4.29 billion in 2009 compared to $5.58 billion in 2008, a 23.1 percent decrease; income was $70.6 million in 2009 compared to $684.2 million in 2008, a decrease of 89.7 percent; and earnings per share decreased 89.7 percent to $0.30 in 2009, compared to $2.92 in 2008. Full-year results from continuing operations primarily reflect the effects of lower motorcycle shipments, restructuring and Buell product line exit costs, and non-cash charges related to Harley-Davidson Financial Services.

In the fourth-quarter of 2009, the Company reported revenue of $764.5 million compared to $1.28 billion in the year-ago quarter, a 40.2 percent decrease, and a loss of $147.2 million, or $0.63 per share, compared to income of $91.9 million, or $0.40 per share in 2008, from continuing operations.

2010 Guidance

For 2010, the Company expects to ship 201,000 to 212,000 Harley-Davidson motorcycles to dealers and distributors worldwide, a reduction of five to ten percent from 2009. “We believe 2010 will continue to be a challenging year,” Wandell noted. In the first quarter of 2010, Harley-Davidson expects to ship 52,000 to 57,000 motorcycles. Gross margin is expected to be between 32.0 percent and 33.5 percent for the full year. The Company expects full-year capital expenditures of between $235 million and $255 million, including $95 million to $110 million to support restructuring activities.

“Delivering Results Through Focus” Strategy

During the fourth quarter, the Company moved forward with the execution of its business strategy, unveiled in October 2009, to deliver results by focusing on Harley-Davidson products and experiences, global expansion, demographic outreach and commitment to core customers. Additionally, the Company will continue to expand its initiative to enhance profitability through continuous improvement in manufacturing, product development and business operations.
“Focusing our investment behind the uniquely strong Harley-Davidson brand provides the most attractive path to sustained, long-term growth,” Wandell said. “We also expect to achieve substantial gains in the efficiency of our operations through continuous improvement.”

Motorcycles and Related Products Segment

Fourth Quarter. Revenue from Harley-Davidson motorcycles during the fourth quarter of 2009 was $552.0 million, down 45.6 percent compared to the year-ago period. The Company shipped 35,938 Harley-Davidson motorcycles to dealers and distributors worldwide, down 53.1 percent from the fourth quarter of 2008 but in line with previous guidance of 35,000 to 40,000 units. Revenue from Parts and Accessories totaled $144.6 million during the quarter, down 4.9 percent, and revenue from General Merchandise, which includes MotorClothes® apparel, was $66.8 million during the quarter, down 3.2 percent compared to the year-ago period.

Gross margin percent was down during the quarter from the year-ago period, primarily as a result of fixed costs being spread over fewer units and the impact of exiting the Buell product line. Operating loss was $221.8 million compared to an operating income of $162.2 million in the fourth quarter of 2008. Operating margin was negatively affected by lower gross margin and restructuring charges incurred during the quarter.

Full-Year. For the full year 2009, revenue from Harley-Davidson motorcycles was $3.17 billion compared to $4.24 billion in 2008 on shipments of 223,023 Harley-Davidson motorcycles, compared to 303,479 motorcycles in 2008. Revenue from Parts and Accessories totaled $767.3 million in 2009, down 10.7 percent, and revenue from General Merchandise was $282.2 million, down 10.1 percent compared to 2008.

Full-year 2009 gross margin was 32.3 percent compared to 34.6 percent in 2008, and operating margin was 7.3 percent compared to 17.5 percent in 2008.

Retail Motorcycle Sales. During the fourth quarter, retail sales of Harley-Davidson motorcycles decreased 21.4 percent worldwide, 27.9 percent in the U.S. and 10.3 percent in international markets, compared to the prior-year quarter. Industry-wide U.S. retail heavyweight (651cc+) motorcycle sales declined 20.9 percent during the quarter, compared to the year-ago period.

For the full year 2009 compared to 2008, retail sales of Harley-Davidson motorcycles decreased 22.7 percent worldwide, 25.8 percent in the U.S. and 15.4 percent in international markets. Industry-wide U.S. retail heavyweight motorcycle sales declined 36.7 percent in 2009, compared to 2008.

Financial Services Segment

Harley-Davidson Financial Services (HDFS) recorded an operating loss of $7.1 million for the fourth quarter of 2009, compared to an operating loss of $24.9 million in the fourth quarter of 2008. Key drivers of reduced operating loss versus the year-ago quarter include a decrease in impairments on retained securitization interests and a decrease in fair value writedowns on held-for-sale receivables, partially offset by an increase in the provision for retail loan losses.
For the full year 2009, HDFS reported an operating loss of $118.0 million, compared to operating income of $82.8 million in 2008.

HDFS continued to access the capital markets during the quarter, raising $1.76 billion through the unsecured debt and term asset-backed securitization markets. Through its 2009 funding actions, HDFS expects to meet its 2010 anticipated funding requirements.

Restructuring

The Company now expects previously announced restructuring activities that began in 2009 to result in total one-time charges of $430 million to $460 million into 2012, including charges of $175 million to $195 million in 2010. The Company continues to anticipate annual ongoing total savings from restructuring of approximately $240 million to $260 million upon completion of all announced restructuring activities, including savings of approximately $135 million to $155 million anticipated in 2010.

In December, Harley-Davidson announced that, as a result of the ratification of a new seven-year labor agreement at its York, Pa. motorcycle production operations, the Company is restructuring those facilities to focus on the core operations of motorcycle assembly, metal fabrication and paint. “When the restructuring is completed, we will have completely changed the face of how we build motorcycles in York and we expect significantly greater manufacturing flexibility and significant annual cost savings from a more efficient operation. It is a tribute to our employees at York that they understood we could not continue on the course we were on, and they worked with us to find a better way,” said Wandell.
During the fourth quarter, the Company made the decision to consolidate its vehicle test facilities from three locations, in Alabama, Arizona and Florida, into one location in Arizona.

Income Tax Rate

The Company’s full-year effective tax rate from continuing operations was 60.5 percent compared to 35.8 percent from the prior year. The increase was due primarily to the previously reported one-time charge for the Wisconsin tax law change and the non-deductible goodwill write-off for Harley-Davidson Financial Services, as well as the impact of reduced earnings. In 2010, the Company expects its full-year effective tax rate to be approximately 36.5 percent from continuing operations.

Cash Flow

Cash and marketable securities totaled $1.67 billion as of Dec. 31, 2009, compared to $568.9 million at year end 2008. Cash provided by operating activities for continuing operations was $609.0 million and capital expenditures were $116.7 million in 2009. In the fourth quarter, Harley-Davidson Motor Company made a $215 million contribution to fund Company pension plans.

Discontinued Operations

The Company continues to move forward with the sale of MV Agusta and is in the process of identifying potential buyers, following Harley-Davidson’s decision in the fourth quarter of 2009 to divest the subsidiary. MV Agusta is now presented as a discontinued operation for all periods. For the full year of 2009, Harley-Davidson, Inc. incurred a $125.8 million loss from discontinued operations, or a loss of $0.54 per share, comprised of operating losses as well as a fair value adjustment.

Company Background

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Harley-Davidson Financial Services (HDFS), Buell Motorcycle Company (Buell), and MV Agusta.
 
Forward-Looking Statements

The Company intends that certain matters discussed in this release are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company “believes,” “anticipates,” “expects,” “plans,” or “estimates” or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this release are only made as of the date of this release, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company’s ability to meet the targets and expectations noted depends upon, among other factors, the Company's ability to (i) execute its strategy and successfully exit certain product lines and divest certain company assets, (ii) effectively execute the Company’s restructuring plans within expected costs and timing, (iii) successfully achieve with our labor unions flexible and cost-effective agreements to accomplish restructuring goals and long-term competitiveness, (iv) manage the risks that our independent dealers may have difficulty obtaining capital, and adjusting to the recession and slowdown in consumer demand, (v) manage supply chain issues, (vi) anticipate the level of consumer confidence in the economy, (vii) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, (viii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS’ loan portfolio, (ix) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (x) manage production capacity and production changes, (xi) provide products, services and experiences that are successful in the marketplace, (xii) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xiii) sell all of its motorcycles and related products and services to its independent dealers, (xiv) continue to develop the capabilities of its distributor and dealer network, (xv) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xvi) adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xvii) adjust to healthcare inflation, pension reform and tax changes, (xviii) retain and attract talented employees, (xix) detect any issues with our motorcycles or manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation, and (xx) implement and manage enterprise-wide information technology solutions and secure data contained in those systems.

In addition, the Company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the Company has disclosed in documents previously filed with the Securities and Exchange Commission. Many of these risk factors are impacted by the current turbulent capital, credit and retail markets and our ability to adjust to the recession.

The Company’s ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the Company’s independent dealers to sell its motorcycles and related products and services to retail customers. The Company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the Company. In addition, the Company’s independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.

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Comments
pissedoff -buyahonda  May 18, 2010 02:09 PM
Laid off from Harley after 30 years. Watched all the bad financial decisions and creative accounting Harley has done and now the employees are paying for it. The people making these bad decisions still have their jobs and high salaries. Will never buy anything with Harley on it ever again and neither will my relatives or friends.
Pride Hanke -X-TECH  March 3, 2010 07:12 PM
I saw harleys decline 4 years ago when a pair of rubber hand grips went for $90.00. I havent steped into a real h-d dealership since. harleys exspert wisdom is still evedent with gittin rid of the buell line.Shame on harley and down with them. I will never support the bar and shield again.
Robert -Harleyluvr  February 21, 2010 07:58 AM
Sorry that I can't go along with all the negative. True, I'm one of those yuppies that came back to riding years later. But, I've had three different models in the last decade and never had a problem with any. Call the bikes low tech or whatever. My Heritage is one dream ride. It was love at first site.
Kurt -Bike Rider  January 28, 2010 09:02 PM
I've ridden a few bikes in my day, but none is more fun to me than the Harley Crossbones. All motorcycles have a personality, and this one is a gem. This bike is fun, fun, fun and relieves my stress better than a shrink.
Got stress? Rent one!
GO -IDENTITY CRISIS  January 25, 2010 04:09 PM
I started riding Harleys when they were'nt cool. Back when the car next to you at the stop light flipped the switch on his electric door locks. We rode to be different in the 60's, 70;s and early 80;s. Now everybody puts on all their leather jackets, chaps, head wraps,and Harley crap to be different. HA HA. Most people own a Harley for one reason. An IDENTITY! It has been good for the Harley business. If you want to be different and still ride American, look at a VICTORY. Number one rated bike with JD POWER & ASSOC. for 5 years in a row. Beat that one.
Mojave -industry slump  January 24, 2010 07:56 PM
You guys might want to take a closer look at the sales slump industry wide...HD actually remained profitible longer into the recesion than many companies that have a higher tech product line...
No Way Harley -H-D  January 23, 2010 04:11 PM
Don't worry - H-D can fall back on there belt buckle, wall clock and ash tray sales. That is where all there R&D money goes because it sure isn't spent designing new motorcycles.
Dunk -Fail  January 23, 2010 02:44 PM
Harley just kept going with their eyes closed, opened just long enough to dump Buell. Like a bad hung over reaction to feeling crappy, then rolled over and went back to sleep. I guess they are in step with their client base. I just don't get that company. Maybe a free pirate sword with every bike will get people back in the stores.
Tom -Serves them right  January 23, 2010 01:06 PM
Agreed, killing of Buell made me not care anymore. For all I care they can go all the way down to bankruptcy. I'm also under the impression that they lost way more than any other big motorcycle manufacturer.

So what does it tell us. Old antiquated design and tech, company too slow and not agile enough to quickly respond to changing markets... If that's true, it doesn't look to well for when consumers will REALLY start to get tired of the same old 'new' bikes. They lost touch with reality all together.

How will they ever be flexible enough to change their lineup into new bikes when all the old middle aged babyboomers have bought their last classic Harley before giving up motorcycling. I don't know anyone under the age of 35-40 even remotely interested in Harleys, but maybe it's different in the USA. Even so, the second hand market is flooded with low mileage harleys, so even if I wanted one, i'd pick one up for cheap, since a weekend bike like this can not be a daily drive for me, so don't want to spend to much on it anyway.

They only bike worth buying as a European was Buell. And harley with Buell had everything, from all-road (ulysses) to sportbikes and sexy roadster nakeds the way we like them so much. In that respect Buell+harley = triumph, since triumph also covers all the bases with desirable and unique bikes.

Way to go harley, to reduce your appeal even more. Now you only have two kind of bikes left: boulevard cruisers and low power, overpriced tourers.

Interesting to see this unfold, I hope they take it as a sign to change their game, mix it up a little. Sadly I don't think they will. But as always, the market rules. The V-Rod introduction was the only time in the last ten years I truly got incredibly excited about a Harley.
mcguire -sewer rat  January 23, 2010 06:32 AM
You are right about the job situation its as bad as I have seen. I am wondering why there isn't a street oriented 4 wheeler. I bet it would sell as it would attract a lot of people that normally would not even consider a motorcycle. Stretched out wheelbase, wide street tires. You could even use the 650 twins concept. Just an idea.
Oznay -lack of profit  January 23, 2010 05:40 AM
Gonna have to step up t-shirt sales...
Tim B -Awesome!  January 22, 2010 11:10 PM
This news makes me so happy. Ever since Harley decided to kill Buell I've become anti-HD. That was a mistake and I can't wait until they have to lie in the bed that they made.

And I'm anti-Union so I'm happy to see bad news come their way. If only those people were smart enough to realize they're part of the problem and not part of the solution. Greed, and Karma, are a bitch, aren't they?

Harley, you can only rehash the Sportster so many times before people will get sick of it. Eventually, even the H-D faithful won't buy into all the iterations of the Sportsters. Oh wait, most "real" H-D guys think Sportsters are for women anyway. It's funny how their sportiest bike is thought to be for girls. That's the H-D mentality and since I'm not one of the sheep I guess I'll never understand it.

2wheelLuv - Haha! Tomorrow's prices for yesterday's technology. Now that sums up H-D and it's true. They should think about using that for a "truth-in-advertisting" campaign!
2wheelLuv -$$$  January 22, 2010 10:33 PM
Thats what happens when you charge tomorrow's prices for yesterday's technology.
Dr. Blob -Bad and getting worse  January 22, 2010 04:59 PM
Dis be change we can believe in!
GB -hard times for anyone.  January 22, 2010 03:59 PM
any fun toys are gonna be the last thing people buy today. feel sorry for people who lost their jobs cuz there ain't crap out there.