2010 H-D 1st Quarter Results Beat Expectations

Tuesday, April 20, 2010

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Harley-Davidson released its 2010 First Quarter results today.

Boosted by Harley-Davidson’s Financial Services return to profitability, motorcycle retail sales that declined less than expected, and rising stock shares, Harley-Davidson released its 2010 First Quarter results with optimism today. The Motor Company’s first-quarter 2010 income from continuing operations was reported at $68.7 million, or $0.29 per share, which exceeded analysts’ projections of $0.22 per share. The three quarter slump of H-D’s Financial Services was broken by a reported first quarter operating income of $26.7 million, an increase of $15.5 million compared to the same quarter results from 2009. The improvement was said to be driven by improved credit performance in the retail motorcycle loan portfolio and by a lower cost of funds. And backed by the announcement of its first quarter results, Harley stocks jumped this morning with a $2.58 gain to $35.35, a rise of 7.9%.

“We are encouraged by our progress in the first quarter,” said Keith Wandell, President and Chief Executive Officer of Harley-Davidson, Inc. “We are seeing directional improvement in our dealers’ retail motorcycle sales as we enter the key selling season. At the same time, given the global economic uncertainty that still exists, we believe conditions will remain challenging throughout this year, and we will continue to factor that into how we manage the business.

“Our entire team is moving with great purpose and speed as we implement our go-forward business strategy, with its focus on global growth through market and demographic outreach, commitment to core customers, and developing motorcycles that inspire and fulfill dreams. We also continue to be intensely focused on continuous improvement, looking at all opportunities to drive cost-competitiveness and efficiency throughout our operations,” Wandell said in H-D’s official press release.

But worldwide retail sales of new Harley-Davidson motorcycles continued to decline and were down 18.2 % compared to the first quarter of 2009. The domestic market was hit the hardest, as sales sagged by 24.3% in comparison to the same time-frame last year, but international sales only dipped 2.8%. In accordance to these numbers, Harley-Davidson reported that six US dealerships closed their doors in the first quarter while five dealerships opened in its most promising new market, India. Mexico is also a burgeoning market with four new stores slated to open soon in the country.

But not all is rosy with The Motor Company. It still faces an uphill struggle. Its first quarter profits fell almost 72%, it still faces an aging customer base and competition from its rivals is stiffer than ever.

Harley-Davidson Reports First Quarter 2010 Results

Harley-Davidson, Inc. (NYSE: HOG) reported first-quarter 2010 income from continuing operations of $68.7 million, or $0.29 per share. First quarter earnings included operating income from Financial Services of $26.7 million, marking a return to profitability for the Company’s Harley-Davidson Financial Services (HDFS) subsidiary. Revenue from Motorcycles and Related Products was $1.04 billion in the first quarter.

Worldwide retail sales of new Harley-Davidson motorcycles declined 18.2 percent in the quarter compared to the first quarter of 2009, an improvement in the rate of decline from the prior three quarters. In the U.S., retail Harley-Davidson motorcycle sales were down 24.3 percent and in international markets, retail sales declined 2.8 percent, compared to last year’s first quarter.

Harley-Davidson Motorcycles and Related Products Segment
Revenue from Harley-Davidson motorcycles during the first quarter of 2010 of $808.8 million was down 20.0 percent compared to the year-ago period. In line with guidance, the Company shipped 53,674 Harley-Davidson motorcycles to dealers and distributors worldwide during the quarter, compared to shipments of 74,670 motorcycles in the first quarter of 2009.

Revenue from Parts and Accessories totaled $149.1 million during the quarter, down 12.1 percent, and revenue from General Merchandise, which includes MotorClothes apparel, was $66.3 million, down 11.9 percent compared to the year-ago period.

Gross margin was 36.6 percent in the first quarter, compared to 37.1 percent in the year-ago period. First-quarter operating margin decreased to 12.2 percent from 18.1 percent in the first quarter of 2009, driven by higher restructuring costs and the impact of lower revenue in the first quarter of 2010 compared to the year-ago period.

Motorcycle Retail Sales Data
During the first quarter of 2010, worldwide dealer retail sales of new Harley-Davidson motorcycles decreased 18.2 percent compared to the prior-year quarter. In the U.S., retail sales of new Harley-Davidson motorcycles declined 24.3 percent for the quarter and industry-wide heavyweight motorcycle (651cc-plus) retail unit sales declined 21.4 percent.
International retail sales of new Harley-Davidson motorcycles decreased 2.8 percent during the quarter, compared to the year-ago period, after double-digit declines in each of the prior four quarters. In the first quarter of 2010, the Europe region was up 1.2 percent, Canada was up 1.5 percent, the Asia Pacific region was down 9.8 percent and the Latin America region was down 7.8 percent, compared to the year-ago period.

Guidance
The Company reiterated its expectation to ship 201,000 to 212,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2010, a reduction of five to ten percent from 2009. In the second quarter of 2010, the Company expects to ship 55,000 to 60,000 Harley-Davidson motorcycles. The Company continues to expect gross margin to be between 32.0 percent and 33.5 percent for the full year. The Company also continues to expect full-year capital expenditures of between $235 million and $255 million, including $95 million to $110 million to support restructuring activities.

Financial Services Segment
First-quarter operating income from Financial Services was $26.7 million, an increase of $15.5 million compared to the year-ago quarter. The return to profitability for HDFS after three consecutive quarters of operating losses was primarily driven by improved credit performance in the retail motorcycle loan portfolio and by a lower cost of funds.

Restructuring Update
Previously announced restructuring activities that began in 2009 are proceeding on schedule and on budget. The Company continues to expect those activities 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. In 2010, the Company continues to expect savings of $135 million to $155 million from previously announced restructuring activities, increasing to expected annual ongoing savings of approximately $240 million to $260 million upon completion of the restructuring.

“During the first quarter, we implemented the new labor agreement at our York facility and are on track with our restructuring of York for best-in-class production capability. I have been impressed by the efforts of our York employees to move forward together with this important transformation,” said Wandell.

Income Tax Rate
The Company’s first quarter effective income tax rate from continuing operations was 47.2 percent compared to 45.4 percent in the same quarter last year. The rate increase was generally due to the tax impact of the recently enacted federal healthcare reform legislation and the expiration of the federal research and development tax credit, partially offset by the non-recurrence of a one-time tax charge related to a change in Wisconsin tax law in the first quarter of 2009. Relative to the tax impact of healthcare reform, the Company incurred a one-time tax charge of $13.3 million in the first quarter of 2010 associated with the taxation of Medicare Part D retiree prescription drug reimbursements. The Company now expects its 2010 full-year effective tax rate from continuing operations to be approximately 40.5 percent.

Cash Flow
Cash and marketable securities totaled $1.48 billion as of March 28, 2010, compared to $884.6 million at the end of last year’s first quarter. Cash provided by operating activities of continuing operations was $200.8 million and capital expenditures were $14.6 million during the first quarter of 2010.

Discontinued Operations
The Company is in discussions with potential buyers regarding its previously announced intention to sell MV Agusta. For the first quarter of 2010, Harley-Davidson, Inc. incurred a $35.4 million loss from discontinued operations, comprised of operating losses as well as a fair value adjustment of $28.6 million net of taxes. Including discontinued operations, the Company reported earnings per share of $0.14.

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Comments

Dyno Don -Sorry Hitch October 29, 2010 09:51 AM
Suzuki Japan motorcycle production for January through Sept 2010 is 95,436 motorcycles according to the Japanese Motorcycle Industry. That's a far cry from the "Millions" that you claim they sell.
The only place they sell any real volume is from Suzuki India which mainly manufactures Scooters and under 150cc entry level bikes. You can't compare these with heavy weight class machines from any manufacturer.

Donny -DENILE!!!! August 22, 2010 05:14 AM
Harley davidson is headed to be the next indian motorcycles 30,000 starting price ordered direct from the factory and 5 people own one.The Suzuki Hayabusa motorcycle is the an icon,buell motorcycles was starting to build great full sized street fighters and sport bikes,what the hell has harley davidson built in 50 years.I hear a lot of (DENILE)about harley davidson blaming the stock market to gen x and y to aliens,but no body blames harley for there lack of vision and not waking up to the fact it ( 2010)!!!!!,NOT 1950!!!!,harley davidson model for rebuilding should be triumph motorcycles,but halrey davidson is to stupid to change in my opinion,oh!!,they will try to change when the company is a pile of ash.(PS)There final nail in there coffin was killing buell.

Craig -mm May 7, 2010 10:20 AM
Could we get a picture of Milwalkie mice on this site so that we can see what a biker mike looks like

GB -Hope harley survives April 26, 2010 10:09 AM
I know it will but as a Victory rider I'd hate to see them go under. Then everyone would want a Victory and I like being one of the few. damn I'd hate it if I became one of the mindless sheep like milwaukee mike.

milwaukee mike -HD sells sofas?? April 26, 2010 10:03 AM
I gots to go get me one of dem!!!

Mitch -WTF! April 25, 2010 08:38 PM
I guess I'll have to take back what I said earlier about Harley improving the retail value of their bikes. They just raised there prices on all 09 & 10 models by hundreds or thousands of $$$. It makes you wonder what the heck is going on in Milwaukee.

EAB -One more consideration April 23, 2010 05:40 AM
I think it can be said that Harley's core business, at it's best, is not going to pay the bills. Think about it. Yamaha, Suzuki, and Honda are not only building other types of motorcycles, but also other items like cars and generators. Victory is Polaris, and they have amortized their engineers, sales, and marketing by making Polaris stuff as well as Victory. Harley sells the non motorcycle stuff because that's where the money is. They make more $$ off of a Harley Davidson sofa than they do a motorcycle, that's for sure. One more thing. I think that not properly marketing Buell and shutting it down might go down in history as one of the worst business decisions of all time. I was waiting with checbook in hand for a standard version of the 1125, and I know a helluva lot of other people were as well. Bad, bad move HD. Real bad!!

carter -stupid idiots April 22, 2010 10:14 PM
ok , there is one thing i know and that is how they formed this black hole to destroy their buisness.afewyearsagomy town had a dealer in the center of the town everyone knew where it was and was a big log house that was just fine , they got a lot of buisness.,but now they moved from that location to all the way on the other side of the town,beside the interstate and is still complicated just to get there.and for what a two story oversized dealor.now its like a wallmart with harly themed items like lamps,toys,and outher usless stuff.i just need a bike , jacket and maybe a wallet.but this is stupid.im 17 and i loved the buell sportbikes . but they have been pourpously put out of buisness by h.d . so then they could "focus more on our own brand".h-d dosent need focous on there brand because people now are focoused on sportbikes .from the ages of 16 - 40 they all want sport bikes and above that is were harley riders are .and that is why harley is stupid.

Watcher -Harley rebound???? April 22, 2010 08:01 AM
To a Harley dealer selling a motorcycle takes the back seat to selling the aftermarket crap. If you ever go into a Harley dealer you will note that over 75% of the floor area is devoted to the aftermarket Harley branded junk. I honestly feel that HD really only cares about the aftermarket sale and that is why there bikes are so outdated. Take the Crossbones for example. Here is a so called "new model". It weighs in at around 800lbs, has a 63 hp motor, a single disk brake up front with a single piston and the same in the rear. This bike is dangerous on any road except a city street at maybe max speed of 45mph. Harley could care less because if you bike this piece of crap bike they are almost 100% guaranteed that the sucker will spend another 3 or 4 thousand dollars on Harley aftermarket crap like a screaming beagle kit or something. Those days are disappearing fast as today's motorcycle buyer demands modern technology, not just a name. Also, Harley dealers ignore the sportster and V-rod as the Harley crowd will not buy them and consider them a girls bike. Harley will have to have multiple record years just to start paying back the HDFS loan of 650 million that was mentioned earlier.

EAB -Not Anti-Harley April 22, 2010 04:03 AM
I am not Anti Harley, let's get that straight, and I don't agree with some of the posts. I do think there is a market for the bikes they make. But from the dealerships to the manufacturer, they are focusing only on the air cooled 2 valve twin market, which is there, but it's not nearly as big long term as Harley thinks. Harley was exclusive because they were small, small dealerships and supply. Imagine GM only selling Corvettes, and limiting supply then in a period of 5 years making Corvettes for anyone that wants one, and NOTHING ELSE. Not successful. So if they want to focus on premium cruisers, that would work when the dealership down the street was a small humble 4 bike showroom. But now, and this is the truth, within an hour of my house there are four dealerships and all are brand new two story megastores. For one type of bike? Really? Good luck with that.

Mike -rebound April 22, 2010 03:51 AM
Glad to hear some good news because good news for companies like HD is good news for America.

Hitch -Desmolicious April 21, 2010 09:45 PM
“Seeing they didn't import any street bikes for 2010”? Well seeing as how Suzuki still sells several million bikes world wide per year and Harley is going to only sell a couple hundred thousand bikes for 2010, I would say Suzuki is doing okay. I think the last time Suzuki only sold a couple hundred thousand bikes a year was back in the 1950s. Globally, Suzuki sells more GSXRs in one year than Harley sells total of all its models in one year. Besides, no matter what happens to the Japanese OEMs Harley will still have their unfixable problems and issues. How many bikes will Buell sell next year? LOL.

John P -Harley Needs Help April 21, 2010 03:43 PM
The interest only on there loan to bail out HDFS is 8 million a month or over $265,000 per day. Harley used HDFS to prop up there sagging sales in 2008 and 2009 by lending anyone who walked in the door money to buy a new Harley. Now they are shooting themselves in the foot again by guaranteeing a new buyer there purchase price back as a trade-in on another new Harley. Dealers will be giving these people new price for there used bike. Someone has to eat this stupid move and I doubt it will be the dealer. Harley better get there head out of the sand and get into the real world it they want to survive. Right now there are too many models. Of course Harley really only makes one bike - the rest are just made up from the parts room and given an oddball name like Fat Bob or Fat Boy or Crossbones. Someone better tell HD that stupid names do not sell motorcycles. Modern technology does. A 800 lb bike with a single disk brake up front and a 60 hp motor is a little behind the times - no wonder buyers are looking elsewhere. Harley's are hugely overpriced for what you get and people are starting to realize that. Dealers only want to sell you an add-on or clothes. The only half way modern bike Harley makes is the V-Rod and then the only modern thing about it is the Porsche designed motor. That motor should be in all there bikes and the old air cooled motor should be in a museum.

Cliff -Who's telling the truth here? April 21, 2010 08:01 AM
Funny, I just read another article talking about how H-D's sales slumped 71% in the 1st quarter. So... they're excited that it didn't slump 80%? Is that it?

EAB -Harleys dilema April 21, 2010 07:29 AM
In the late 90's, when one went to a Harley Davidson Dealership, more times than not it was a well established dealership in an old building that stuck with the company through the hard times in the 70's and 80's. The ONLY bike on site, if there was one, was an 883. If you wanted anything else, you had to order it, pay cash, and wait 9 months to a year. The other option was to buy an HD used, but if it was any less than 5 years old, you were going to pay MORE than the new price for it. It was ok though, because it usually had accessories on it and the bike was the same exact machine as the one you could order; no improvements. Since 2001, Harley has changed their dealerships. They are now dedicated big box stores, not the mom and pop places. The product is improved annually, with new improvements like chassis, engine controls, and the like. A good example is the new big tourers with rerouted exhaust and all new chassis. Finally, they build more of them. What this has done is driven down the value of the new machines as well as crushed the value of the old, and now, obsolete machines. I think that Harley thought they would be able to maintain the value of their product because they were "The Motor Company" but what they have done instead is turned themselves from a premier, exclusive, expensive company to just another motorcycle manufacturer. Whether in the long run they know what they need to do or not is yet to be determined. Personally, I think they are in big big trouble. For every traditionalist that would curse a "Vrod powered Electra-Glide" there are five people that would purchase one. The 2011 Mustang is getting as much power out of their V-6 as the 2010 has in it's V-8. If Harley made the Mustang, it would be well marketed but would have an underpowered throttle body injected V-8. Many would prefer it, but many more would not. What I am saying is Harley has, with production capacity and retail outlets, made themselves a mainstream company. Unfortunately, motorcyclists (not bikers) that know product are aware that Harley does not make a mainstream product. I still believe that regardless of appearance, if Harley wants to make a go of it, they have to beat the competition in the performance categories and an air cooled 2 valve boat anchor with parts and accessories from 30 years ago won't do it. I think they need to see what Triumph is doing; manufacturing bleeding edge technologically sound products right next to the Scrambler and Thunderbird. Now does Harley get this? Well, they scuttled Buell and are selling MV Augusta, so my guess is "no."

Not Impressed -Not True April 21, 2010 07:14 AM
What a bunch of Hog Wash. Harley Davidson is broke so why don't they just admit it instead of hiding behind a bunch of phony numbers.

Skip -Not Real # April 21, 2010 07:11 AM
HD still owes Warren Buffet 650 million dollars at 15% interest. This was to cover there financial services division. They were giving bike loans to any pirate that walked in the door. That was the only way HD could keep the sales numbers up and keep the stock holders happy. I’ll bet most of the stock holders do not know about the 125 million loss on Buell that could have been covered by BBP. Harley is buried in bad debt and poor sales. There is no way they can design and build a new modern and up to date motorcycle without a major influx of new cash. The only way that could happen is a total buyout. The company could be bought and then fire the entire management and cut the current line of bikes by 80 or 90%. Put the V-Rod motor in the current cruiser line-up. I know the Harley crowd would hate this because the V-Rod motor does not sound “cool” with straight pipes. But lets face it – the straight pipes and loud exhaust days are numbered with many cities enacting a noise ordinance. My city has a new noise ordinance and the Harley crowd is crying foul. They think it is there right to ride and show off with loud exhaust. Harley can’t expect to sell motorcycles on the sound of the motor. Those days are gone. Harley needs a new V4 motor as the current air cooled twin is so out of date it is ridiculous. A 70 hp motor to power a 900 lb bike? get serious. Harley needs help to survive and stupid marketing with stupid bike names like Fat Bob and CrossBones will not sell an outdated, overweight and underpowered motorcycle.

Mike in WV -American bikes doing well April 21, 2010 06:13 AM
It's good HD "beat expectations" for the first quarter of 2010. But they aren't the only American made bike company to show an increase. Victory Motorcycles had an 83% increase over the first quarter of 2009. That's what happens when you combine a good growth strategy with innovation and great design.

c -how's suzuki doin? April 20, 2010 04:37 PM
Leadin the superbike world championship, thats how their doin!

unonymous -restructuring, restructuring, restructuring April 20, 2010 04:21 PM
notice how many times they mentioned "restructuring"? a good portion of this release translates out to read: "we laid off a bunch of people and profited from it."

F.U. Harley.

milwaukee mike -HD beats expectations April 20, 2010 03:11 PM
The boys in Milwaukee know what buyers want ant how to make a buck doing so. Continual improvement, while staying with traditional looks and good values.

How's suzuki doing?

Mitch -Good Job April 20, 2010 02:32 PM
Good write up Bryan. I think if H-D plays their cards right this financial crisis could be the best thing to happen to them in the long run. It's already forced them to price some of their models more competitively. Who knows maybe if sales get dire enough they will decide to divert funding from their multi-million dollar exhaust sound lab and invest in an advanced engine R&D lab here in the states. One can only hope.

Desmolicious -How's Suzuki doing? April 20, 2010 01:49 PM
Seeing they didn't import any street bikes for 2010?

McNicker -Expectations April 20, 2010 01:43 PM
“2010 H-D 1st Quarter Results Beat Expectations” This is one of the oldest tricks used. Set the bar low, at a level you know you can at least meet, and if by chance you exceed it talk about how you beat expectations. The trick is old because it works every time, so don’t fix what isn’t broken. Talk about spin!!! Sales are down 18.2% world wide and domestic sales (were Harley sells the VAST majority of its bikes) down 24.3%. And this is in comparison to an awful year (2009). Most places I’ve worked at would either be out of business by now or looking for some heads to send rolling. But…they did beat expectations. They only beat expectations because Harley did some cute accounting “adjustments” to “augment” the HDFS profitability. But hey, sales are only down 25% so now I should run out and buy some HD stock. Oh, and some new dealers are opening in India to offset the ones closing in USA…Nicccceee.