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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Harley-Davidson Layoff Wave Accelerates

Some numbers to start your day and it’s not pretty.

The coronavirus pandemic, social unrest, and a scarred economy has created a tipping sentiment toward many jobs NOT coming back.

According to a Harley-Davidson press release, “The ReWire” strategy will now eliminate 700 positions globally of which 500 of the layoffs will occur this year. It will result in a $50 million restructuring charge in 2020, including $42 million in the second quarter. According to new Chief Executive Jochen Zeitz, getting the company on “a path to winning” also includes CFO John Olin leaving the company effective immediately.

Flashback – remember this abrupt CFO departure in 2009?

Some news outlets have reported Mr. Olin’s departure as a “retirement,” but color me skeptical since most retirements have a longer celebratory departure than immediately exit through the door. The current VP Treasurer, Darrell Thomas assumed duties as interim CFO until a successor is appointed.

I’m not sure why, but the CEO press release declaration of “a path to winning” reminded me of that time Charlie Sheen was winning HERE … maybe I just needed some humor?!

Harley-Davidson is not alone on the layoffs.  Below are just a few of the latest examples:

• Macy’s announced it would lay off about 3,900 and shutter stores
• AT&T will lay off 3,400 and shut down more than 250 stores.
• Hilton Hotels announced it would lay off 2,100 corporate employees amounting to 22% of its corporate workforce.
• Chevron announced it will cut 10% – 15% of its 45,000 global workforce.
• Boeing announced it would lay off nearly 7,000 employees.
• Uber announced it is cutting 3,700 jobs (14% of its workforce), then a month later announced they will cut 3,000 additional jobs and close 45 offices.
• Airbnb announced it is laying off about 25% of its workforce, or 1,900 employees.
• Virgin Atlantic (now part of Alaska Airlines) announced it would cut 3,150 jobs.
• Hertz plans to lay off 10,000 employees.
• Under Armour announced that it will lay off about 6,700 employees.
• United Airlines will send layoff warnings to 36,000 employees — nearly half its U.S. staff.
• ZipRecruiter laid off 443 employees.
• GE announced it will be reducing approximately 10% of its aviation unit’s workforce, amounting to about 2,500 employees.
• Cirque du Soleil announced it is laying off 95% of its 4,679 person staff.

You get the point.  Sadly, a lot of employees are expected to exit various organizations. In fact, since February, about 4.6 million Americans have stopped actively looking for work, and another 2.2 million are unemployed NOT on layoff.

And, then there are those companies that have taken an extremely tacky and classless route of laying off employees via Zoom.  Looking at you Bird, the electric scooter company, who laid off 30% of its staff via a 2-minute Zoom call.

Talk about a Nobel Prize-winning way to “Put a Bird on It” — From the “Portlandia” TV show.

Photos courtesy of Harley-Davidson, Great Art and IMDb.

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Harley-Davidson Announces Layoffs

Specifically, the motor company announced it will lay off approximately 90 employees at the York manufacturing plant and and 50 at the Tomahawk site in Wisconsin as part of an adjustment to its production volume.

The plant in Springettsbury Township just re-opened on May 20th as York County moved into Pennsylvania’s “yellow phase” of COVID-19 mitigation.

You might also recall that the motor company is pivoting from the “More Roads” plan to now focus efforts and energy to appeal to customers of premium-priced brands with limited availability.

I previously posted about this new success formula HERE.

Harley-Davidson has leveraged “scarcity” in the past. Underproduce motorcycles and limit distribution, which creates longer waits that in turn create an exclusivity mystique. Then up-sell consumers on the “premium-ness” motorcycle choice/brand.

As part of the new ‘scarcity strategy’ the company is adjusting its production volume (which to be fair, it routinely adjusts headcount), which will now result in a workforce reduction of York employees.

Previously, Harley-Davidson announced that it was reducing all non-essential spending and temporarily reducing salaries by 30 percent for executive leadership and 10 to 20 percent for most other salaried employees.

This reduction is nothing like the 2009 great recession when Keith Wendell cut the workforce by 2,700 hourly workers and 840 administrative employees.  Unless you are one of the laid off employees…then downsizing feels like cutting into “muscle” and is painful.

Laying off employees is difficult in normal times; but amidst the COVID-19 pandemic can magnify the tension and make coping with the turbulence very difficult. I hope Harley-Davidson makes the process equitable and those laid off have a soft landing.

Photo courtesy of Bradley Staffing Group.

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Harley-Davidson: What Happened

It could be the title of Harley-Davidson CEO, Matt Levatich’s memoir on his failed 2017 year while in charge of the Motor Company.

I happen to be riding with the HOG Lewis and Clark Expedition last week when Harley-Davidson announced their disappointing Q2’17 financial results and late to weigh in:

* Harley-Davidson net income dropped 7.7%. Sales in the U.S. were down 9.3% and 6.7% worldwide.

* Harley-Davidson now expects to ship 241,000 to 246,000 motorcycles to dealers worldwide in 2017, which is down approximately 6% to 8% from 2016.

* Harley-Davidson expects to ship 39,000 to 44,000 motorcycles in Q3’17, which is down approximately 10% to 20% from 2016.

* Approx 180 U.S. based manufacturing jobs will be cut in Menomonee Falls and Kansas City.  This in addition to the 118 workers who were axed back in April this year at the York plant as some positions were being shifted to Kansas City.

For those keeping track, this is a continuation of a three-year slide by the motor company.  However, during the call Mr. Levatich described what can only be called an “alternative reality” in hopes (I assume?) to reassure the financial markets and stated “we are going to build bikers first, add 2 million new Harley-Davidson riders and launch 100 brand new models during the next 10 years while growing the international business by 50%.”

Huh?

I’m being a bit snarky here, but his statement appears either woefully naïve to the point of negligence or a continuance of marketing spin.  Proclaiming an unprecedented future result of this magnitude smells like stunningly wishful thinking at best or at worst plain lying.  For reasons I can’t explain, why would Mr. Levatich climb up on a high-wire without a net given such an overly-optimistic prediction?  Even with nearly 8-million Americans that are “sleeping license holders,” — those who have motorcycle riding credentials, but don’t own a bike — it doesn’t pencil and seems unobtainable.

I don’t know if the boardroom folks in Milwaukee read the NW Harley Blog on a regular basis and/or  hang on its every word.  But, we know the motor company has been continuously producing motorcycles for more than a century,  yet seemingly everyone on the internet with a keyboard thinks they can do it better.

And it’s a well-established fact that internet bloggers and commenters are geniuses. They definitely know how to run a business better than a company that has been constantly producing motorcycles through two world wars, the Great Depression, and roughly 20 U.S. recessions.

Sure the motor company needs our help and I’ve got some feedback and plenty of comments.  But, until the motor company calls me asking for it, I’ll look for Mr. Levatich’s memoir, which will certainly be “a deeply intimate account and a cautionary tale on the world’s most iconic motorcycle brand.

Slightly modified book cover courtesy of Simon & Schuster.

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Polaris Industries Shutters Victory Motorcycle Operations

Polaris, the MN-based maker of motorcycles and all-terrain vehicles announced today that it’s winding down the Victory brand effective immediately to concentrate on its better-performing Indian Motorcycles business.

Polaris said it will assist dealerships in liquidating inventory and will supply parts for another 10 years and honor warranties in place.  Victory motorcycles are primarily manufactured in Spirit Lake, Iowa.

The first Victory motorcycles rolled out in 1998, yet never took much market share from Harley-Davidson Inc., in the cruiser-bike category. Indian Motorcycles, which Polaris relaunched after a 2011 acquisition, has performed better, however Harley’s market share remains at 48 percent to Indian’s 3 percent.

Polaris Industries Chairman and CEO Scott Wine stated, “This decision will improve the profitability of Polaris and our global motorcycle business, and will materially improve our competitive stance in the industry. Our focus is on profitable growth, and in an environment of finite resources, this move allows us to optimize and align our resources behind both our premium, high performing Indian Motorcycle brand and our innovative Slingshot brand, enhancing our focus on accelerating the success of those brands. Ultimately this decision will propel the industry-leading product innovation that is core to our strategy while fostering long-term growth and increased shareholder value.”

Photo courtesy of Victory/Polaris.

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Brace For Impact As Harley-Davidson Announces Layoff

News about Harley-Davidson during the month of August has been a bit of a wild ride.

There was the consent decree and $15M settlement with the EPA. Then the announcement that Harley expanded the list of bikes on recall that may have been built with defective hydraulic clutch systems.  Then the biggest engine-product launch for the company since 1988, when the Twin Cam made its debut.

And now today, the day before the Milwaukee Rally kicks off, Harley-Davidson announced that approximately 200 employees will face layoffs starting in October as the company adjusts motorcycle production due to slower sales.

According to various news reports including Rick Barrett, of the Milwaukee Journal Sentinel, the union stated many of the layoffs will take place at Harley’s assembly plant in York, Pa., and some will occur at the engine plant in Menomonee Falls, where the company employs approximately 1,000 people, as well as in Tomahawk.

Given that the Sturgis Motorcycle Rally attendance was down roughly 40% from a year ago (some of which was expected), suggest that some riders are busy doing other things than throttling down rural America’s roads to a rally which makes the launch of its Milwaukee-Eight engine motorcycles key to amp up any new motorcycle sales.

Photo courtesy of Sturgill Simpson Video.

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Harley-Davidson Cuts Head West

The eastern slope of the Sierra Nevada mountains offer motorcycle enthusiasts an interesting blend of motorcycle rides and some of the best scenery in the west.

Unfortunately, Northwestern Nevada is also the location of Harley-Davidson Financial Services (HDFS) who took quick action after the parent company, Harley-Davidson, posted disappointing Q2’09 financial results.   More than 100 employees were laid off of which many came from the facility in Carson City, NV.

HDFS provides financing for H-D dealers to buy inventory for their showrooms as well as loans for customers who are buying motorcycles.  The Carson City facility is co-located on the Western Nevada College campus and one of the largest HDFS facilities.  H-D negotiated a $750K tax break with the Nevada Commission on Economic Development and opened the new 100,000 sq-foot-office in 2005.  Laurie Cole (Director of HDFS Communications) stated that HDFS has 770 employees with the largest number based in Carson City and there were now ~300 employees remaining at the Arrowhead Drive office.

The economic changes have been dramatic and it’s a difficult time for the folks who have made this beautiful area their home.  The process of making H-D leaner and more efficient is filled with painful actions effecting really good people.  H-D is a good company that will continue to deliver great products. It may not feel like it today, but motorcycling enthusiasts around the world are counting on you to bring us the products we want and need in the future.

Photo courtesy of H-D and WNC.

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The Bottom

Not to buzz kill the summer riding season, but the current recession is the longest we’ve seen in the post-war period. 

Inclusive of the current downturn, there have been 11 recessions since WWII.  Having officially started in December 2007, this month marks the 19th month of the current “slump.”

As you would expect, cut-backs in consumer spending are visible throughout the economy (see below chart) and Harley-Davidson has felt the weight of the “great recession” too.  The company released its Q2’09 results today and worldwide retail unit sales of new H-D motorcycles were down 30.1% compared to the year-ago quarter. Retail new H-D motorcycle sales in the U.S. were down 35.1% and declined 18.2% in international markets compared to last year’s Q2.  On a “positive” note the company’s earnings were $19.9M on $1.15B revenue and industry-wide retail sales of heavyweight motorcycles in the U.S. declined 48.1% for the same period indicating that H-D performed better than its competition.

In his first quarterly report to the investment community as the new President and CEO Keith Wandell stated:

“While the underlying fundamentals of the Harley-Davidson brand remain strong and our dealers’ retail motorcycle sales declined less than our competitors, it is obviously a very tough environment for us right now, given the continued weak consumer spending in the overall economy for discretionary purchases.”  Wendell went on to say: “We plan to ship fewer Harley-Davidson motorcycles worldwide this year than we anticipate dealers will sell at retail,” which is meant to protect the brand.

Due to the declines in retail motorcycle sales, the Company has lowered its 2009 shipment expectations by 25-30%.  Because of the lowered shipment volume, H-D announced further headcount reductions of approximately 700 positions in the hourly production workforce and 300 positions in non-production, primarily salaried headcount, including some at HDFS. This is in addition to the previously announced reduction of ~1200 positions bringing the total reduction to approximately 2,200.  H-D started the year with 10,100 employees and of course H-D shares rise on news of the additional layoffs.

Looking forward, the company will introduce its 2010 models on July 25th at its Summer Dealer Meeting in Denver.  I wonder if it’s time again for import duties or a Motorcycle Czar?  For now let’s just hope for a great lineup of motorcycles that will create some riding buzz and motorcycle passion!

Photo and chart courtesy CEA.

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40 Years After The AMF Acquisition

This year marks a couple of interesting historical points on the Harley-Davidson calendar.  It’s coincidental that 2009 marks the first time a non-motorcycle riding enthusiast (CEO, Keith Wendell) was hired to run the company, and this occurred exactly 40 years after Harley-Davidson merged with American Machine and Foundry Company (AMF).  I don’t know if that is ironic or just business karma?!

At any rate, back in 1965 Harley-Davidson went public when the two families decided to give up control and put the company’s shares on the market.  Four years later, in January 1969 it merged with AMF.  The AMF merger started in 1968 when HD was looking for someone to buy the company.  In May of that year Bangor Punta (BP)** stepped in with an offer of $27 per share.  The HD board was skeptical of BP’s reputation and tenacity in pursuing acquisitions.  They continued to shop the company around.  In October they announced that AMF had struck a deal (at $29) and then a bidding war erupted.  Finally on December 18, 1968 there was a shareholder’s meeting to vote on the AMF merger at $40 per share which was $9 less than the BP offer.  The HD board like AMF’s motorcycle fanboy, Rodney C. Gott, and believed AMF had better alignment.  It was approved and in January 1969 the acquisition became final. 

At the time of the AMF merger, Harley-Davidson was producing 14,000 motorcycles per year.  AMF used the merger as a marketing opportunity to slap the Harley logo on many non-motorcycle-related things they produced, such as their golf carts. Management at HD was overrun by AMF personnel and they streamlined production, and slashed the workforce. The tactic resulted in a labor strike and lower quality motorcycles. The bikes were expensive and inferior in performance, handling, and quality to Japanese motorcycles. Sales declined, quality plummeted, and the company almost went bankrupt.

The marriage between motorcycles and one-time tobacco production equipment company lasted but 12 years.  The 1981 recession severely threatened HD’s share of the market for heavyweight bikes and AMF began to lose interest in keeping the struggling business afloat.  Then Vaughan Beals – who had joined HD in 1975 as VP – and a group of 13 HD exec’s raised $100M and bought the company for $81.5M from AMF on June 16, 1981 and restored the company to an independent status. The marketing phrase “The Eagle Soars Alone” became a rallying cry.  In 1986, HD again went public.

Given that HD is laying off and previously asked the union to approve wage cuts and reduced benefits for everyone in exchange of factory expansion… it’s easy to draw a parallel toward the AMF days?  What do you think?  Will HD roll strikes during this economic recession or gutter balls?

**Bangor Punta Corporation (abbreviated BP and was traded on the NYSE under BNK) was an American conglomerate and Fortune 500 Company from 1964 to 1984. It owned a number of well-known companies primarily in the pleasure craft, firearms and general aviation industries.

Photo courtesy HD.

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Pope Benedict’s Harley Motorcade

In what seems like the year of voting…I’ve been debating with myself over the last couple days whether or not I should write this post and then I saw some news on Harley sales. Obviously, I outvoted myself and wrote it!

This week the Pope is in Washington, DC., and since the Catholic Church is partly based on symbolism, it’s only fitting that one of America’s most iconic rides – the Harley motorcade – be symbolized too. As thousands of people greet Pope Benedict XVI and he’s schmoozed by President George W. Bush – the Police “Motorcycle Team” always stands ready as a precision motorcycle-cade team made up of officers from all the various Enforcement Groups there to Protect and Serve the dignitaries.  Canada has a similar team.

Given all the symbolism, I found it so very ironic that Harley Davidson decides today is the perfect time to announce that it will cut its work force by 8 percent and trim bike shipments by thousands since domestic sales fell nearly 13 percent in Q1.  These announced layoffs are dramatic and the first of this magnitude in 20+ years! 

It’s no surprise that Harley CEO Jim Ziemer might have something to say about the difficult economy…ya, think Jim?  Could that housing market implosion have anything to do with people no longer pulling equity out of their homes to finance Harley’s over priced “Surrender Your Inner Badness” or “March Badness” hype?!!  Two carnies and a pygmy pony could stomp out better marketing slogans than that.

I’m not sure about you, but I think a new $21K motorcycle (plus another $5K to make it run “nice”) is something people think twice or three times about.  I’ve blogged about arrogant dealers in the past who think people fall over themselves to spend that kind of cash, but with that easy equity cash bucket from the house gone, I think people will either hold on to their current bike for a little while longer or just wait out the “R” (recession thrash-n-crash) until the economy warm up a bit.

I read in several reports that Harley-Davidson has approx 5,600 production workers and 3,500 non-production workers.  Eight percent is approx 800 people impacted by this “downsize” decision and I truly feel sorry for each and every one of those cuts.  I work in an industry that routinely whacks-n-hacks a few thousand heads before morning smoke break so, I know the feeling….

It’s a difficult economic time my friends, but hang in there.

 

Photo courtesy of Philliefan99

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