Harley-Davidson Announces First Quarter 2006 Results
Worldwide Retail Sales of Harley-Davidson Motorcycles Increase 6.9 Percent
MILWAUKEE, April 12 -- Harley-Davidson, Inc. today announced record revenue and earnings for its first quarter ended March 26, 2006. Revenue for the quarter was $1.29 billion compared with $1.24 billion in the year-ago quarter, a 4.0 percent increase. Net income for the quarter was $234.6 million compared to $227.2 million, an increase of 3.2 percent over the first quarter of 2005. First quarter diluted earnings per share (EPS) were $0.86, an 11.7 percent increase compared with last year's $0.77.
"Harley-Davidson is off to an excellent start for 2006, having achieved record revenue and earnings," said Jim Ziemer, President and Chief Executive Officer, Harley-Davidson, Inc. "In addition, our dealers continued their retail sales growth momentum from the second half of 2005 as motorcycle sales increased by approximately 7 percent worldwide in the first quarter. With the increased seasonality in our business, we are pleased with this retail sales performance," said Ziemer.
Harley-Davidson's second quarter shipment plan is 78,000 2006 model year motorcycles. Production in the second quarter will also include approximately 13,000 2007 models to prepare for the new model introduction in mid July; however, these 2007 motorcycles will not be shipped until the third quarter.
The Company's wholesale shipment target for the calendar year 2006 remains between 348,000 and 352,000 Harley-Davidson(R) motorcycles. "We believe that the prospects for retail growth remain strong and support a wholesale unit growth rate in the range of 5 to 9 percent annually and an annual EPS growth rate of 11 to 17 percent," said Ziemer.
Motorcycles and Related Products Segment -- First Quarter Results
Revenue from Harley-Davidson motorcycles was $1.01 billion, an increase of $29.6 million, or 3.0 percent over the same period last year. Shipments of Harley-Davidson motorcycles totaled 79,506 units, an increase of 2,790 units, or 3.6 percent over last year's first quarter.
Revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $182.9 million, an increase of $6.0 million, or 3.4 percent over the year-ago quarter. Revenue from General Merchandise, which consists of MotorClothes(TM) apparel and collectibles, totaled $68.6 million, an increase of $9.1 million, or 15.3 percent.
For the long term, the Company expects the growth rate for P&A revenue to be slightly higher than Harley-Davidson's motorcycle shipment growth rate, and the General Merchandise growth rate is expected to be lower than the motorcycle shipment growth rate.
Gross margin for the first quarter of 2006 was 38.4 percent of revenue, up from 37.6 percent for the same period in 2005. Operating margin increased from 24.2 percent in the first quarter of 2005 to 24.3 percent in the first quarter of 2006.
Motorcycle Retail Sales Data
Worldwide retail sales of Harley-Davidson motorcycles increased 6.9 percent for the first quarter of 2006 compared to the same period in 2005. In the U.S., retail sales of Harley-Davidson motorcycles increased 5.8 percent for the quarter. The heavyweight motorcycle market in the U.S. increased 6.8 for the same period.
Retail sales of Harley-Davidson motorcycles grew 11.6 percent in international markets during the first quarter of 2006 compared with the first quarter of 2005. First quarter retail sales were up 16.3 percent in Japan and 6.6 percent in Europe.
Data is listed in the accompanying tables. Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported first quarter operating income of $51.6 million, a decrease of $1.9 million, or 3.6 percent, compared to the year-ago quarter. This decrease was primarily due to a lower year-over-year gain on the current securitization.
The first quarter securitization of $730 million in motorcycle retail loans resulted in a gain of $8.6 million, compared to the first quarter 2005 gain of $19.2 million. The 1.2 percent gain as a percentage of loans sold is consistent with management's prior guidance for the first quarter of 2006 of 1.0 to 1.4 percent.
For the long term, the Company expects the HDFS operating income growth rate to be slightly higher than the growth rate of Harley-Davidson motorcycle shipments.
Income Tax Rate
The Company's first quarter effective income tax rate was 36.0 percent compared to 35.5 percent in the same quarter last year. This increase was due to the expiration of the federal research and development tax credit as of December 31, 2005. The Company expects its annual effective tax rate in 2006 to be 35.5 percent assuming the retroactive reinstatement of this tax credit.
Cash Flow
Cash and marketable securities totaled $1.11 billion as of March 26, 2006, an increase of $65.7 million during the first quarter. Cash flow from operations was $365.2 million and capital expenditures were $36.0 million during the first quarter.
Stock Repurchase
The Company repurchased 2.1 million shares of its common stock at a cost of $107.1 million during the first quarter of 2006. These shares were repurchased under an authorization from the Company's Board of Directors to buy back 20 million shares. A total of 17.9 million shares remain under this authorization.
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 their retail customers.
Harley-Davidson, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts) Three months ended March 26, March 27, 2006 2005 Net revenue $1,285,090 $1,235,464 Gross profit 493,214 464,283 Operating expenses 180,902 165,426 Operating income from motorcycles & related products 312,312 298,857 Financial services income 95,901 88,812 Financial services expense 44,270 35,253 Operating income from financial services 51,631 53,559 Corporate expenses 4,757 7,274 Total operating income 359,186 345,142 Interest income and other, net 7,317 7,129 Income before provision for income taxes 366,503 352,271 Provision for income taxes 131,940 125,056 Net income $234,563 $227,215 Earnings per common share: Basic $0.86 $0.78 Diluted $0.86 $0.77 Weighted-average common shares: Basic 272,966 293,148 Diluted 273,623 294,161 Cash dividends per common share $0.18 $0.125 Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) (Unaudited) March 26, December 31, March 27, 2006 2005 2005 ASSETS Current Assets: Cash and cash equivalents $196,464 $140,975 $200,379 Marketable securities 915,434 905,197 1,184,148 Accounts receivable, net 148,561 122,087 146,199 Finance receivables held for sale 131,389 299,373 222,802 Finance receivables held for investment, net 1,546,417 1,342,393 1,386,665 Inventories 256,788 221,418 246,875 Other current assets 103,953 113,794 93,216 Total current assets 3,299,006 3,145,237 3,480,284 Finance receivables held for investment, net 625,664 600,831 531,250 Other long-term assets 1,475,177 1,509,141 1,294,239 $5,399,847 $5,255,209 $5,305,773 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable & accrued expenses $841,676 $668,139 $801,525 Current portion of finance debt 93,610 204,973 264,360 Total current liabilities 935,286 873,112 1,065,885 Finance debt 1,000,000 1,000,000 800,000 Postretirement healthcare benefits 64,573 60,975 51,297 Other long-term liabilities 235,400 237,517 117,754 Total shareholders' equity 3,164,588 3,083,605 3,270,837 $5,399,847 $5,255,209 $5,305,773 Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three months ended March 26, March 27, 2006 2005 Cash flows from operating activities: Net income $234,563 $227,215 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 54,232 53,325 Provision for long-term employee benefits 24,482 12,112 Provision for share-based payments 5,289 7,020 Gain on current year securitizations (8,647) (19,201) Net change in wholesale finance receivables (201,948) (191,108) Origination of retail finance receivables held for sale (604,924) (527,040) Collections on retail finance receivables held for sale 25,749 30,754 Proceeds from securitization of retail finance receivables 723,234 721,974 Contributions to pension and postretirement plans (2,726) (109,000) Other, net 1,553 (2,787) Net changes in current assets and current liabilities 114,344 74,098 Total adjustments 130,638 50,147 Net cash provided by operating activities 365,201 277,362 Cash flows from investing activities: Capital expenditures (36,017) (39,025) Finance receivables held for investment, net (19,837) (76,850) Collection of retained securitization interests 6,960 26,330 Net change in marketable securities (9,626) 149,845 Other, net 4,373 (2,365) Net cash (used) provided by investing activities (54,147) 57,935 Cash flows from financing activities: Net decrease in finance-credit facilities and commercial paper (105,707) (222,642) Dividends paid (48,955) (36,541) Purchase of common stock for treasury (107,065) (175,796) Excess tax benefits from share-based payments 1,098 5,699 Issuance of common stock under employee stock option plans 5,064 19,203 Net cash (used) by financing activities (255,565) (410,077) Net increase (decrease) in cash and cash equivalents 55,489 (74,780) Cash and cash equivalents: At beginning of period 140,975 275,159 At end of period $196,464 $200,379 Net Revenue and Motorcycle Shipment Data (unaudited) Three Months Ended March 26, March 27, 2006 2005 NET REVENUE (in thousands) Harley-Davidson(R) motorcycles $1,008,542 $978,951 Buell(R) motorcycles 24,056 20,049 Parts & Accessories 182,949 176,904 General Merchandise 68,551 59,463 Other 992 97 $1,285,090 $1,235,464 HARLEY-DAVIDSON UNITS Motorcycle shipments: United States 60,270 60,878 Export 19,236 15,838 Total 79,506 76,716 Motorcycle product mix: Touring 27,537 25,071 Custom 35,794 34,286 Sportster(R) 16,175 17,359 Total 79,506 76,716 BUELL UNITS Motorcycle shipments: Buell 3,037 2,469 Retail Sales of Harley-Davidson Motorcycles Year to Date March 2006 2005 United States 56,805 53,707 Europe* 6,910 6,485 Japan 2,482 2,134 Canada 1,796 1,934 All other markets 3,497 2,601 Total Harley-Davidson Retail Sales 71,490 66,861 Data Source (subject to update)
Data source for all 2005 and 2006 retail sales figures shown above is sales warranty and registration information provided by Harley-Davidson dealers and compiled by the Company. The Company must rely on information that its dealers supply concerning retail sales, and this information is subject to revision.
* Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom
Only Harley-Davidson(R) motorcycles are included in the Harley-Davidson Motorcycle Sales data.
Heavyweight (651+ cc) Market Industry Data Data Through Month Indicated 2006 2005 United States (March) 109,137 102,177 Europe* (February) 33,278 31,820 Data Source (subject to update) United States: Motorcycle Industry Council Europe: Giral S.A.
* Data for Europe include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom