Harley-Davidson's Second Century Momentum Builds With Another Record Quarter
MILWAUKEE, July 14 -- Harley-Davidson, Inc. today announced record revenue and earnings for its second quarter ended June 27, 2004. Revenue for the quarter was $1.33 billion compared with $1.22 billion in the year-ago quarter, an 8.9 percent increase. Second quarter diluted earnings per share (EPS) were 83 cents, a 25.8 percent increase compared with last year's 66 cents.
"We are pleased to report another excellent quarter for Harley-Davidson," said Jeffrey L. Bleustein, Chairman and Chief Executive Officer of Harley- Davidson, Inc. "The record results we have delivered through the first six months of this year are in line with the Company's previously stated long-term direction of sustainable growth."
U.S. retail sales of Harley-Davidson(R) motorcycles were 18.8 percent ahead of last year for the quarter and up 16.5 percent for the first six months. "Our dealers report that floor traffic is brisk, driven by keen interest in the entire Harley-Davidson experience and in particular, the Sportster(R) motorcycle family which was completely redesigned for the 2004 model year. The redesign, which was intended to broaden the appeal of that product line, is clearly achieving its purpose. Tomorrow we will bring even more excitement to our customers when the 2005 model year motorcycles and related new products will be unveiled to our worldwide dealer network at our summer dealer meeting in San Diego," said Bleustein.
Motorcycles and Related Products Segment - Second Quarter Results
Second quarter revenue from Harley-Davidson motorcycles was $1.02 billion, an increase of 6.8 percent over last year. Worldwide shipments of Harley- Davidson motorcycles in the second quarter totaled 82,034 units, up 6,009 units or 7.9 percent over last year. The Company's shipment target remains 317,000 Harley-Davidson motorcycles for 2004.
Second quarter revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $230.1 million, a 12.7 percent increase or $25.9 million more than the year-ago quarter. Over the long term, the Company expects P&A revenue to grow at a rate slightly faster than the motorcycle unit growth rate.
Second quarter revenue from General Merchandise, which consists of MotorClothes(R) apparel and collectibles, totaled $53.1 million, up 21.5 percent or $9.4 million over the same period last year. Over the long term, the Company expects General Merchandise to grow at a rate lower than the motorcycle unit growth rate.
Second quarter gross margin for the Motorcycles and Related Products Segment was 37.9 percent of revenue compared to 36.4 percent in the second quarter of last year. Favorable gross margin was primarily impacted by plant efficiencies, including those that generally occur at the end of the model year. Some of these efficiencies are not expected to be maintained in the second half of the year due to new model year startup.
Operating margin increased from 21.9 percent in 2003 to 25.2 percent in 2004 due primarily to higher gross margin and a change in the timing of marketing related costs in 2003 when compared with 2004. In 2003, operating expenses were higher in the first half of the year to support the 100th Anniversary activities and programs. In 2004, operating expenses will be higher in the second half of the year, which is more typical of the Company's operations.
Motorcycle Retail Data - Six Month Results
Retail sales of Harley-Davidson motorcycles in the United States were up 16.5 percent, or nearly 20,000 units for the period January through June 2004, when compared to the same period last year. Harley-Davidson retail sales were up approximately 100 units in Europe or 0.7 percent and down approximately 380 units in Japan or 7.3 percent, respectively, when compared with 2003. Harley-Davidson retail sales changes in Europe and Japan are generally tracking with motorcycle sales in the heavyweight markets in those locations.
Financial Services Segment - Second Quarter Results
Harley-Davidson Financial Services, Inc. (HDFS) reported second quarter operating income of $49.0 million, up $4.5 million or 10.2 percent from the year-ago quarter. The Company's second quarter securitization of $626 million in motorcycle retail loans resulted in a gain of $19.3 million, which compares to a securitization of $425 million and a gain of $22.2 million during the second quarter of 2003. The gain as a percentage of the amount of loans securitized was lower when compared with last year's gain due to the costs of a new enhanced dealer participation program and rising market interest rates. Based on the current competitive market and interest rate environment, the Company believes the full impact of these changes will result in future securitization gains in the range of 2.0 to 2.5 percent.
Annualized credit losses on a managed portfolio basis as of the end of the second quarter were lower at 0.63 percent in 2004, down from 0.75 percent in 2003.
Over the long term, the Company expects the HDFS growth rate to be slightly higher than the Company's motorcycle unit growth rate.
During the quarter, the Company repurchased approximately 1.3 million shares of its common stock. This brings share repurchases to 9.1 million shares on a year-to-date basis.
Cash Flow - Six Month Results
During the first six months, operations generated cash of $609 million. The Company invested $64 million in capital expenditures, paid dividends of $53 million and repurchased shares at a cost of $474 million.
Harley-Davidson, Inc. - Six Month Results
For the six month period, revenue was $2.49 billion compared with $2.33 billion, a 6.9 percent increase over the year ago period. Diluted earnings per share were $1.52, compared with $1.28, an increase of 18.8 percent compared to the same period last year.
Through the first six months of this year, shipments of Harley-Davidson motorcycle units were 156,124, a 6.5 percent increase over last year's 146,633. Harley-Davidson motorcycle revenue was $1.94 billion, a 5.8 percent increase over $1.83 billion in revenue in 2003. P&A revenue totaled $399.3 million, a 9.7 percent increase over last year's $364.0 million. General Merchandise revenue totaled $107.5 million, a 7.3 percent increase compared with $100.1 million during the same period in 2003.
During the same period, HDFS operating income was $99.3 million, a 13.1 percent increase over last year's $87.8 million during the first six months.
Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. Buell Motorcycle Company produces sport and sport-touring motorcycles. Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and customers.
The Company's ability to meet the targets and expectations noted depends upon, among other factors, the Company's ability to (i) continue to realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products and services, (iv) avoid unexpected P&A /general merchandise supplier backorders, (v) sell all of the Harley-Davidson motorcycles it plans to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, (viii) successfully adjust to foreign currency exchange rate fluctuations, (ix) successfully adjust to interest rate fluctuations, and (x) successfully manage changes in the credit quality of HDFS's loan portfolio.
In addition, the Company could experience delays in the operation of manufacturing facilities as a result of work stoppages, difficulty with suppliers, natural causes, terrorism or other factors. Risk factors are also disclosed in documents previously filed by the Company with the Securities and Exchange Commission.
TABLES FOLLOW Harley-Davidson, Inc. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 27, June 29, June 27, June 29, 2004 2003 2004 2003 Net revenue $1,327,808 $1,218,872 $2,493,509 $2,332,563 Gross profit 503,416 443,218 943,545 846,250 Operating expenses 168,333 176,465 341,364 339,872 Operating income from motorcycles and related products 335,083 266,753 602,181 506,378 Financial services income 81,060 71,287 161,554 142,056 Financial services expense 32,053 26,821 62,234 54,233 Operating income from financial services 49,007 44,466 99,320 87,823 Corporate expenses 5,034 4,183 9,523 8,656 Total operating income 379,056 307,036 691,978 585,545 Investment income and other, net 4,264 1,729 8,521 7,470 Income before provision for taxes 383,320 308,765 700,499 593,015 Provision for income taxes 136,079 106,523 248,678 204,589 Net income $247,241 $202,242 $451,821 $388,426 Earnings per common share: Basic $0.84 $0.67 $1.53 $1.29 Diluted $0.83 $0.66 $1.52 $1.28 Weighted-average common shares: Basic 294,304 302,164 296,039 302,263 Diluted 296,396 304,339 298,135 304,448 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) June 27, Dec. 31, June 29, 2004 2003 2003 (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $798,542 $812,449 $691,459 Marketable securities 514,462 510,211 500,669 Accounts receivable, net 130,606 112,406 113,025 Finance receivables, net 954,918 1,001,990 910,963 Inventories 217,711 207,726 206,574 Other current assets 81,814 84,345 73,169 Total current assets 2,698,053 2,729,127 2,495,859 Finance receivables, net 633,450 735,859 606,619 Other long-term assets 1,393,237 1,458,102 1,194,636 Total assets $4,724,740 $4,923,088 $4,297,114 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $654,477 $631,468 $696,753 Current portion of finance debt 96,977 324,305 343,331 Total current liabilities 751,454 955,773 1,040,084 Finance debt 670,000 670,000 380,000 Other long-term liabilities 219,261 212,179 219,789 Postretirement health care benefits 139,909 127,444 116,487 Shareholders' equity 2,944,116 2,957,692 2,540,754 Total liabilities and shareholders' equity $4,724,740 $4,923,088 $4,297,114 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) Six months ended June 27, June 29, 2004 2003 Cash flows from operating activities: Net income $451,821 $388,426 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 104,864 95,262 Provision for long-term employee benefits 33,978 39,007 Provision for finance credit losses 1,678 1,963 Gain on current year securitizations (44,498) (48,587) Collection of retained securitization interests 60,603 44,177 Contributions to pension plans - (12,000) Tax benefit of stock options 11,860 3,575 Other operating cash flows 13,196 5,741 Net changes in current assets and current liabilities (24,908) 92,300 Total adjustments 156,773 221,438 Net cash provided by operating activities 608,594 609,864 Cash flows from investing activities: Capital expenditures (64,205) (82,649) Finance receivables, net 164,994 (34,032) Net change in marketable securities (8,018) 13,267 Other, net (9,618) 1,212 Net cash provided by (used in) investing activities 83,153 (102,202) Cash flows from financing activities: Net decrease in finance debt (218,100) (47,922) Dividends paid (53,010) (22,739) Purchase of common stock for treasury (473,468) (30,563) Issuance of common stock under employee stock plans 38,924 4,093 Net cash used in financing activities (705,654) (97,131) Net (decrease) increase in cash and cash equivalents (13,907) 410,531 Cash and cash equivalents: At beginning of period 812,449 280,928 At end of period $798,542 $691,459 Harley-Davidson, Inc. Net Revenue and Motorcycle Shipment Data Three Months Ended Six Months Ended June 27, June 29, June 27, June 29, 2004 2003 2004 2003 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $1,020,263 $955,425 $1,939,069 $1,831,932 Buell(R) motorcycles 23,109 15,016 45,192 35,514 Parts & Accessories 230,146 204,199 399,334 364,043 General Merchandise 53,068 43,663 107,476 100,138 Other 1,222 569 2,438 936 $1,327,808 $1,218,872 $2,493,509 $2,332,563 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 65,102 61,931 124,846 118,883 Export 16,932 14,094 31,278 27,750 Total 82,034 76,025 156,124 146,633 Motorcycle product mix: Touring 25,031 20,912 46,435 39,400 Custom 39,407 41,276 76,271 80,248 Sportster(R) 17,596 13,837 33,418 26,985 Total 82,034 76,025 156,124 146,633 BUELL UNITS Motorcycle shipments: Buell 2,718 1,942 5,321 4,883 Year-to-date Heavyweight (651+ cc) Motorcycle Retail Registrations (Units), data through month indicated. 2004 2003 % change United States - H-D (June) 141,407 121,414 16.5% - Industry (June) 287,528 257,929 11.5% Europe - H-D (June) 14,978 14,875 0.7% - Industry (May) 183,938 181,133 1.5% Japan - H-D (June) 4,849 5,232 -7.3% - Industry (May) 18,287 19,611 -6.8% Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson (H-D) data. Data for Europe includes registrations in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom. Data Sources: (subject to update) United States: Motorcycle Industry Council, Europe: Company reports, Giral S.A. Japan: Company reports, Industry sources