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.
Cash Flow
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.
Stock Repurchase
The Company repurchased 2.9 million shares of its common stock at a cost of $175.8 million during the first quarter of 2005.
Shipment Guidance
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.
Company Background
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
