Harley-Davidson Reports Record First Quarter
Moderates 2005 Motorcycle Shipment Growth Forecast
MILWAUKEE, April 13 -- Harley-Davidson, Inc. today announced record revenue and earnings for its first quarter ended March 27, 2005. Revenue for the quarter was $1.24 billion compared with $1.17 billion in the year-ago quarter, a 6.0 percent increase. First quarter diluted earnings per share (EPS) were 77 cents, a 13.2 percent increase compared with last year's 68 cents.
"As I prepare to take on the role of Chief Executive at Harley-Davidson, I am pleased that the Company is on a strong footing, having achieved another record quarter," said Jim Ziemer, Chief Financial Officer and CEO Elect, Harley-Davidson, Inc. "Looking ahead, we expect Harley-Davidson's business to continue to grow and 2005 to be our 20th consecutive record year."
"At the same time, U.S. retail sales of Harley-Davidson motorcycles during the first quarter of 2005 have been relatively flat with the same period last year-falling short of our expectations. Despite our continued optimism for the year, we feel it is prudent to limit short-term production growth, maintaining demand in excess of supply. This action will result in a change to our previous guidance for both shipments and earnings growth for 2005. Our shipments are now planned to increase from last year's 317,000 units to a target of 329,000 units compared to our original target of 339,000 units. Our 2005 earnings are expected to grow by approximately 5-8 percent in 2005 compared to our previous forecast of mid-teens earnings growth."
"While this volume adjustment may prevent us from attaining our previous goal of 400,000 units in 2007, we see no reason to change our long-term unit growth projection of 7-9 percent annually based on just three winter months of sales data. Similarly, we are not changing our projection of mid-teens earnings growth other than for this year," Ziemer added.
"For nineteen consecutive years, this management team has delivered record results, and I have the utmost confidence that the actions we are taking are appropriate and in our stakeholders' long-term interests," said Jeff Bleustein, Chairman and Chief Executive Officer of Harley-Davidson, Inc.
Motorcycles and Related Products Segment
First quarter revenue from Harley-Davidson(R) motorcycles was $979.0 million, an increase of 6.5 percent over the first quarter last year. Shipments of Harley-Davidson motorcycles totaled 76,716 units, up 2,626 units or 3.5 percent over last year.
First quarter revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts(TM) and Genuine Motor Accessories(TM), totaled $176.9 million, a 4.6 percent increase over the year-ago quarter. For the longer term, the Company expects P&A revenue to grow at a rate slightly faster than the motorcycle unit growth rate.
General Merchandise revenue, which consists of MotorClothes(R) apparel and collectibles, was $59.5 million in the first quarter, up 9.3 percent over the same period last year. For the longer term, the Company expects General Merchandise revenue to grow at a rate lower than the motorcycle unit growth rate.
First quarter gross margin for the Motorcycles and Related Products Segment was 37.6 percent of revenue, approximately the same as the year-ago quarter of 37.8 percent. Gross margin was negatively impacted by higher material costs, primarily metal surcharges; it benefited from favorable foreign currency exchange. Operating margin grew to 24.2 percent from 22.9 percent due to lower operating expenses.
Motorcycle Retail Sales Data
In the United States through March, Harley-Davidson retail motorcycle sales finished down approximately one percent compared to 2004. Similarly, the U. S. heavyweight motorcycle market declined 0.4 percent in the first quarter.
Worldwide retail sales of Harley-Davidson motorcycles grew 2.8 percent for the quarter, driven by strong performance in Europe and Japan, which increased 20.6 and 10.6 percent respectively. On an industry-wide basis through February 2005, the 651+cc segment grew slightly in Europe, while the heavyweight market in Japan was down for the same period. Data is listed in the accompanying tables.
Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported operating income of $53.6 million, up $3.3 million or 6.5 percent compared to the year-ago quarter. HDFS continued to experience strong customer acceptance of its financial products.
During the quarter, HDFS sold $730 million in retail motorcycle loans and recorded a gain of $19.2 million. This compares with a gain of $25.2 million on $625 million of loans securitized during the first quarter of 2004. The gain of 2.6 percent as a percentage of loans sold is slightly above management's guidance which is now 1.7 to 2.5 percent in the current interest rate environment.
Annualized credit losses on a managed portfolio basis increased during the quarter to 1.07 percent in 2005 from 0.77 percent in 2004 due to the combination of a higher incidence of losses and lower recovery rates. HDFS is maintaining its credit loss target of 1 percent or less of managed receivables.
In 2005, HDFS operating income is expected to be slightly lower than that achieved in 2004 primarily due to a highly competitive marketplace and an increasing interest rate environment. For the longer term, the Company expects the HDFS operating income growth rate to be slightly higher than the Company's motorcycle unit growth rate.
Stock Option Accounting
On January 1, 2005 the Company adopted new accounting rules requiring it to recognize expense related to the fair value of its employee stock option awards. Total stock compensation expense recognized by the Company during the first quarter of 2005 was $7.0 million.
Operations generated cash of $51.7 million during the first quarter of 2005 compared to $161.2 million during last year's first quarter. During the first quarter of 2005, the Company made a voluntary cash contribution of $102.3 million to post-retirement health care trusts to pre-fund retiree benefits. This contribution allows the investment earnings to grow tax free within the trusts.
The Company repurchased 2.9 million shares of its common stock at a cost of $175.8 million during the first quarter of 2005.
Harley-Davidson is revising its previous guidance and now plans to ship 329,000 Harley-Davidson motorcycles in 2005. This 329,000 unit target represents a 3.7 percent growth rate over 2004 shipments. The Company believes that this 10,000 unit reduction will occur almost entirely in the second quarter and will involve reducing planned production of 2005 Model Year motorcycles. Revised quarterly shipments are expected to be as follows: 77,000 units in the second quarter, 87,500 units in the third quarter and 87,500 units in the fourth quarter.
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 motorcycles. Harley- Davidson Financial Services provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and customers.
TABLES FOLLOW Harley-Davidson, Inc. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended March 27, March 28, 2005 2004 Net revenue $1,235,464 $1,165,701 Gross profit 464,283 440,129 Operating expenses 165,426 173,031 Operating income from motorcycles & related products 298,857 267,098 Financial services income 88,812 80,494 Financial services expense 35,253 30,181 Operating income from financial services 53,559 50,313 Corporate expenses 7,274 4,489 Total operating income 345,142 312,922 Interest income and other, net 7,129 4,257 Income before provision for taxes 352,271 317,179 Provision for income taxes 125,056 112,599 Net income $227,215 $204,580 Earnings per common share: Basic $0.78 $0.69 Diluted $0.77 $0.68 Weighted-average common shares: Basic 293,148 297,832 Diluted 294,161 299,932 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) (Unaudited) March 27, Dec. 31, March 28, 2005 2004 2004 ASSETS Current assets: Cash and cash equivalents $200,379 $275,159 $254,288 Marketable securities 1,184,148 1,336,909 848,399 Accounts receivable, net 146,199 121,333 132,270 Finance receivables, net 1,412,923 1,207,124 1,172,532 Inventories 246,875 226,893 222,811 Other current assets 93,216 98,854 76,975 Total current assets 3,283,740 3,266,272 2,707,275 Finance receivables, net 727,794 905,176 558,737 Other long-term assets 1,294,239 1,311,845 1,423,958 Total assets $5,305,773 $5,483,293 $4,689,970 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & accrued expenses $801,525 $677,255 $699,958 Current portion of finance debt 264,360 495,441 195,703 Total current liabilities 1,065,885 1,172,696 895,661 Finance debt 800,000 800,000 670,000 Other long-term liabilities 117,754 142,278 223,018 Postretirement health care benefits 51,297 149,848 134,091 Shareholders' equity 3,270,837 3,218,471 2,767,200 Total liabilities and shareholders' equity $5,305,773 $5,483,293 $4,689,970 Note: Certain prior year amounts have been reclassified to conform to the current year presentation. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended March 27, March 28, 2005 2004 Cash flows from operating activities: Net income $227,215 $204,580 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 53,325 50,947 Provision for long-term employee benefits 19,132 17,581 Gain on current year securitizations (19,201) (25,240) Net change in wholesale finance receivables (191,108) (169,808) Contributions to pension & postretirement plans (109,000) - Tax benefit from the exercise of stock options - 9,108 Other (2,787) 14,363 Net changes in current assets and current liabilities 74,098 59,661 Total adjustments (175,541) (43,388) Net cash provided by operating activities 51,674 161,192 Cash flows from investing activities: Capital expenditures (39,025) (30,990) Finance receivables, net 148,838 170,710 Collection of retained securitization interests 26,330 30,942 Net change in marketable securities 149,845 145,794 Other, net (2,365) (265) Net cash used in investing activities 283,623 316,191 Cash flows from financing activities: Net decrease in finance debt (222,642) (140,522) Dividends (36,541) (23,587) Purchase of common stock for treasury (175,796) (403,519) Excess tax benefits from share based payments 5,699 - Issuance of common stock under employee stock plans 19,203 15,204 Net cash used in financing activities (410,077) (552,424) Net decrease in cash and cash equivalents (74,780) (75,041) Cash and cash equivalents: At beginning of period 275,159 329,329 At end of period $200,379 $254,288 Note: Certain prior year amounts have been reclassified to conform to the current year presentation. Harley-Davidson, Inc. Net Revenue and Motorcycle Shipment Data (Unaudited) Three Months Ended March 27, March 28, 2005 2004 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $978,951 $918,806 Buell(R) motorcycles 20,049 22,083 Parts & Accessories 176,904 169,188 General Merchandise 59,463 54,408 Other 97 1,216 Total net sales $1,235,464 $1,165,701 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 60,878 59,744 Export 15,838 14,346 Total 76,716 74,090 Motorcycle product mix: Touring 25,071 21,404 Custom 34,286 36,864 Sportster(R) 17,359 15,822 Total 76,716 74,090 BUELL UNITS Motorcycle shipments: Buell 2,469 2,603 Retail Sales of Harley-Davidson Motorcycles First Quarter 2005 2005 2004 United States 53,707 54,216 Europe* 6,485 5,376 Japan 2,134 1,929 Canada 1,934 1,781 All other markets 2,601 1,767 Total Harley-Davidson Sales 66,861 65,069 Data Source: (subject to update) Harley-Davidson(R) Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson Motorcycle Sales data. *Data for Europe includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal Spain, Sweden, Switzerland, and the United Kingdom Heavyweight (651+ cc) Market Data Data Through Month Indicated 2005 2004 United States (March) 102,046 102,407 Europe* (February) 32,639 32,202 Japan (February) 3,857 4,350 Data Source: (subject to update) United States: Motorcycle Industry Council Europe: Giral S.A. Japan: JAIA Data for remaining markets not available on a monthly basis *Data for Europe includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal Spain, Sweden, Switzerland, and the United Kingdom