Harley-Davidson Dismal Financial Performance

TAKEAWAY: The Q4 2020 Harley-Davidson retail motorcycle sales in the U.S. — the company’s biggest market — fell for the 16th straight quarter!

FINANCIAL PERFORMANCE DETAILS: Yesterday, I posted that Harley-Davidson unveiled “The Hardwire” — a new 5-year strategic plan.  My snarky responses were largely based on what I viewed as the motor company ‘selling the news’ with a lack of granular detail or disclosure around a growth path forward. It was a brutal Q4’20 and full-year financial result. Followed by executive management’s murky 2021 outlook.  The street wasn’t happy and the result was a 17% drop in share price followed by another 2% today.

My blog post today will be on the fourth-quarter and full-year 2020 financial results with less commentary.

The Hardwire Highlights 

• The Hardwire includes investing in the Touring and heavyweight Cruiser segment, expanding into untapped segments of Adventure Touring and creating a new division dedicated to electric motorcycles.
• The motor company views Inclusive Stakeholder Management in the context of people, planet and profit, as all three are now embedded in the past and future success of the company.
• The motorcycle maker plans to give stock grants to its employees, inspired by a program devised by KKR & Co Inc. executive Pete Stavros.

Q4 2020 Highlights

• Reported fourth-quarter adjusted loss of 44 cents per share. A big miss and notable executive mismanagement of expectations as the street consensus estimate was for a profit at 24 cents.
• The revenue decreased by 32% at $725 million compared to previous year.
• The company suffered a net loss of $96 million compared to the previous year’s profit of $13 million.
• The loss per share was 0.63 and the adjusted loss per share was $0.44.
• Total revenues from the Motorcycle and Related products segment, which constitute the bulk of the firm’s overall revenues, plunged 39% year over year to $531 million in the reported quarter.
• For Q4’20, Harley-Davidson retailed 33,925 motorcycle units globally, down 14.1% year over year. The company’s retail motorcycle units sold in the U.S. slid 14.5% from the year-ago quarter to 17,274. Sales in the Middle East and Africa, Asia Pacific, Canada and Latin America declined 2.2%, 9.6%, 30.2% and 50.9%, respectively, from the year-ago period.
• Revenues for Parts & Accessories (P&A) were up 13.3% from the prior year to $146.4 million. However, revenues for General Merchandise (GM) — including Motor Clothes apparel and accessories — dropped 13% from the prior-year quarter to $49.7 million.
• The selling, general and administrative expenses (SG&A) increased to $276.4 million from the $266.4 million compared to fourth-quarter 2019.

Full-Year 2020 Highlights

• Consolidated revenues for 2020 came in at $4,054 million, declining 24% from the prior year’s $5,362 million. Moreover, the company’s adjusted earnings per share for the year came in at 77 cents, tanking 77% from the $3.36 per share reported in 2019.
• The motor company streamlined the product portfolio, reducing the planned number of models by almost 30%.
• Paid dividends of $0.44 per share for the full year
• Re-set motorcycle model year launch timing to align with beginning of the year seasonality
• Exited 39 markets to focus on the approximately 50 highest-potential markets
• Reduced total dealer network by approximately 160 net global dealers in 2020

Jochen Zeitz, chairman, president and CEO, Harley-Davidson summarized the financial call: “The entire Harley-Davidson team put forth tremendous effort in 2020 and we now have the right organization, structure and strategy in place to make step changes in our performance and enhance our position as the most desirable motorcycle brand in the world.”

DISCLOSURE: The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Harley-Davidson.  The author does not own or does the author plan to purchase and/or sell any $HOG stock.

Photo courtesy Harley-Davidson.

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Harley-Davidson Q3 2020 Financials

Good afternoon.

Election Day is a week away. There’s new evidence of water on the moon. Amy Coney Barrett is a Supreme Court justice, the fire hose of information continues to overwhelm even the most devout COVID-19 science junkies and Harley-Davidson shares soared 27% to $36.82 earlier in the day after reporting third-quarter net income of $120.2 million and post its best Q3 result since 2015.

A striking result after Harley-Davidson put a German environmentalist in charge and recorded a worldwide sales decline of 8%, which is the 15th consecutive quarterly decline.

Wall Street is reviving optimism about Harley’s future at a time when motorcycle sales are in decline. Talk about exaggerating your perspective.

Jochen Zeitz’s (CEO) “ReWire” (yes, a play on the LiveWire electric motorcycle) strategy cut 30% of the models in the lineup, exited 39 markets, eliminated 10% of its workforce including product teams developing new motorcycle models — were executed to manage down motorcycle volume and reduce its global presence due to low sales.  

The actions helped to stop discounting and drive dealership prices higher to MSRP in Q3.  It’s also a tacit acknowledgement that the motor company’s smaller scope and scale is the only way forward after multiple abandoned growth plans and over a decade long quest to appeal and reach new types of riders.

Abandoning affordable, youth-oriented motorcycles is a staggering reversal given Mr. Zeitz’s experience at Puma in connecting with the youth culture and claiming ownership of that generation in Europe. Remember “Puma chic” streetwear fashion?

Harley-Davidson Inc. is back!  Back, to making big, expensive motorcycles for its most devoted customers.

UPDATE: October 27 at 5:13PM Pacific — Full Disclosure: I don’t currently own or have plans to purchase HOG stock.

Photos courtesy of Bloomberg and Harley-Davidson

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Harley-Davidson Q2 2020 Financial Results

Jason Momoa (i.e. “Aquaman”) collaborates with Harley-Davidson

How often have we recently heard… “We continue to face challenges during these unprecedented times.” — Harley-Davidson CEO Jochen Zeitz opening statement during the July 28, 2020 financial call.

I’m not a grammar nerd, but “unprecedented times” is a tiresome word.  Stop saying it Mr. Zeitz – and it’s also inaccurate!

We are not in an “unprecedented” time.

This isn’t the 1930’s Great Depression, the worst economic downturn in the history of the industrialized world. There’s been no dot-com bubble (i.e. Internet bubble) that was caused by excessive speculation in Internet-related companies in the late 1990s. It’s not the real estate bubble of 2008 and the follow-on market crash, recession and unemployment that was linked to the “subprime mortgage crisis.” There is no automotive industry crisis of 2008–2010 where declining automobile sales and scarce availability of credit led to General Motors, Chrysler, and Ford facing insolvency without major government intervention. It’s not the 1918 flu pandemic, which killed 675,000 Americans and the worldwide death toll was estimated at 100 million. One pandemic death is too much, but the COVID-19 deaths are currently nowhere close to that, thankfully.

Q2 2020 HOG Earnings Report

So, stop using these new most-hated sayings: “unprecedented” times, it’s the “new normal” and “we are in this together” mantra.

And, who’s the “we” here? The point is “we” are not all on the same team in this pandemic. Everyone is dealing with it in their own way. The restaurant employee who’s been unemployed for months isn’t in this together with a Fortune 500 CEO.  The nurse on the front-line treating pandemic patients isn’t in this with the marketing manager who can work from home.

It’s not “unprecedented” for me to rant about something while being largely sequestered at home for nearly five months. But it is what it is, I guess.

Back to the Q2’20 financial call… and some key comments made during the call:

• The Harley-Davidson culture has suffered. The company has seen five consecutive restructuring’s every year in order to basically chase the downward trend in sales.
• “The Rewire” strategic vision is now being replaced by “The Hardwire.” (more on this at the bottom of the post)
• Extending the 2020 model year through fall (historically launch was late August) and now new bikes will arrive in dealer showrooms early 2021.
• Used motorcycle pricing increased about 6% throughout Q2, certainly, higher than Harley has seen in any previous quarter.
• Harley continues to see strong potential in Adventure Touring and will launch Pan America globally in 2021.
• Harley has streamlined the structure, which now requires approx 700 fewer positions and approximately 500 employees laid off.
• H-D is not willing to sacrifice the strength of their legacy in a quest for pure volume growth going forward.
• Increased recognition on the role of digital technology as a critical priority in the future for Harley-Davidson.
• H-D will focus on roughly 50 primary markets that generate the vast majority of their retail sales and shipments.
• Surprise!  Planning to add a Sustainability Officer to the team who will further H-D commitment to the planet and to society.
• New brand building approach and social media campaign directed by “Aquaman” i.e. Jason Momoa (video of Mr. Momoa touring H-D Museum)

Q2’20 Numbers:

• Harley-Davidson posted a loss of $0.60 per share for Q2’20
• Worldwide retail sales of new motorcycles were down 26.6% versus prior year and Q2 revenue of $865 million was down 47% year over year.
• U.S. retail sales in Q2’20 were down 26.7% versus prior year.
• EMEA declined 29.8%, Asia Pacific was down 10.2%, and Latin America saw declines in Mexico and Brazil and finished the quarter down 51%.
• U.S. market share of new bike registrations was 38.5%, down 8.1 percentage points
• Motorcycle mix shifted from touring to cruising versus Q2’19, which reduced average motorcycle revenue per bike.
• Credit losses were down due to lower delinquencies and lower repossessions helped by H-D offering of payment extensions to certain customers.
• While Q2 results were again terrible, Harley-Davidson was still able to sell over 31,000 motorcycles in the U.S. during a global health crisis that closed off its retail stores.

During the financial call, Mr. Zeitz announced Harley will have yet another roadmap to follow: “The Hardwire,” the motor company’s third visionary plan in two years.

You might recall “The More Roads to Harley-Davidson” plan unveiled in July 2018 which stated the development of 100 new models over 10 years, giving more attention to international markets than in the U.S. market, and putting a much greater focus on electric vehicles.

That plan was largely abandoned earlier this year when then CEO Matt Levatich abruptly left the company and was replaced by chairman Zeitz. The “More Roads” was replaced by the vague and loosely defined “The Rewire” plan, which incorporated some of Levatich’s plan, but would instead focus more on key markets and products to drive the bike maker’s profitability and growth potential.

Now we can look forward to a new 5-year strategic plan; “The Hardwire,” which will be grounded in enhancing the desirability of Harley’s brand and protecting the value (i.e., keep pricing elevated) of the iconic products.” The Hardwire roadmap is expected to take over in the fourth quarter and serve as the strategic plan for the company to follow through 2025.

Photos courtesy of Asphalt & Rubber and Harley-Davidson

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The Harley-Davidson Paradox

The motor company gets beat down by critics for lack of technology advancements and then they’re pummeled on social media by customers every time they sway off from tradition.

In this category, the rock and hard place are A) the need for change and B) the danger of following the buzz.  And, in an increasingly social media driven world it is easy, and tempting, to mistake the buzz and savvy social pundits for a real business opportunity.

Simultaneously, the Wall Street view of Harley-Davidson’s move into electric motorcycles being an enduring trend will likely come up dry.  Then the industry analysts believe the U.S. motorcycle market is in terminal decline and are not influenced by a “fun appliance” and the More Roads to Harley-Davidson plan.

But, for many riding enthusiasts, the motor company has introduced so many changes over the last few years its difficult to know where to start.  I’m not talking paint colors, rather engineering developments, i.e. water-cooled engines, Reflex Linked Brakes with ABS,  Reflex Defensive Rider System (RDRS), subscription-based cellular connectivity, advanced electronics with Bluetooth connectivity, voice recognition (microphone/headphone fitted to the rider’s helmet), text to speech technology, sophisticated GPS navigation system, wind tunnel designs to reduce head buffeting, LED lights, revised manufacturing processes, 131 cubic inch Screamin’ Eagle® Crate Motor and the first great-looking electric motorcycle (LiveWire) along with a large number of smaller updates.

The list goes on and on….

Other than the fact that the motorcycles are not inexpensive and in several instances most everyone would consider as very expensive, there’s not much else really to grumble about.

Yet, Harley-Davidson stated yesterday in the Q4 2019 and year-end financial report that its motorcycle sales slipped again!  Despite multiple new models, electrification, expanded overseas operations and Brand strategies to resuscitate demand.

The 4th quarter 2019 net income was $13.5 million on consolidated revenue of $1.07 billion versus net income of $0.5 million on consolidated revenue of $1.15 billion in the fourth quarter of 2018.  That brought full-year 2019 revenue to $5.36 billion, compared with $5.72 billion in 2018.  For 2019, earnings were $2.68 a share, compared with $3.19 in 2018. Adjusted earnings for 2019 were $3.36 a share, down from $3.78.  Harley-Davidson sold 7% fewer units in Q4’19 than a year earlier. The U.S. dealers which account for half of worldwide Harley sales, saw their retail sales fall 3%.

CEO Matt Levatich tried to curb the narrative numbers skid (12th consecutive quarter of U.S. retail sales decline!) in the company’s announcement, saying, “Our performance in Q4 and the full year was in line with our expectations and indicative of increased business stability.”

I am reminded that in matters of business, it’s often the case that the most vehement of corporate assertions are at 180 degrees to inconvenient facts.

The freedom of the open road is all very well, but remaining in the marketplace and growing is key. The motor company should avoid “stooping to compete” with the rest of motorcycling (i.e. chasing buzz).  Harley is iconic because, instead of treating motorcycles as a commodity, it recognizes them as a basis for a lifestyle and a shared set of attitudes

Photos courtesy of Harley-Davidson

UPDATE: January 30, 2020 — added: 12th consecutive quarter of U.S. sales decline.

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Harley-Davidson Earnings Report: Q4 2014

2015 Road Glide

Harley-Davidson (NYSE: HOG) released its Q4’14 financial report along with full-year results.  The motor company reported a drop in net income for the final quarter, but overall profits were up for the year.

Celebrating its 112th year, Harley-Davidson shipped 270,726 motorcycles around the world in 2014.  The Road Glide had a big comeback and sales have been robust and represented about 14% of total U.S. retail sales in the fourth quarter.

For the full year 2014, the Company shipped 270,726 motorcycles to dealers and distributors, a 3.9 percent increase compared to 2013 and in line with guidance. Full-year revenue from motorcycles was $4.39 billion compared to $4.07 billion in the year-ago period. Revenue from parts and accessories was $875.0 million compared to $873.1 million in 2013.  Consolidated revenue topped the $6 billion mark for the first time since 2006.

In 2014, international sales of new Harley-Davidson’s grew at more than 5% and accounted for more than 36% of total retail Harley-Davidson  motorcycle sales which is up from 30% in 2008.

You can read the full financial press release HERE.

Photo courtesy of H-D.

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