harley-davidson, inc. 2017 third quarter update
TRANSCRIPT
October 17, 2017 | Conference Call Slide Presentation
HARLEY-DAVIDSON, INC.
2017 THIRD QUARTER UPDATE
OCTOBER 17, 2017
October 17, 2017 | Conference Call Slide Presentation
2017 THIRD QUARTER UPDATE
Introduction Amy Giuffre, Director, Investor Relations
Business Perspectives Matt Levatich, President and CEO
Financial Results John Olin, Senior Vice President and CFO
Q&A All
CONFERENCE CALL AGENDA
2
This presentation includes forward-looking statements that are subject to risks that could cause actual results to be
materially different. Those risks include, among others, matters we have noted in our latest earnings presentation and
filings with the SEC. Harley-Davidson disclaims any obligation to update information in this presentation. Additional
information and risk factors are included at the end of this presentation.
THIS PRESENTATION SUPPORTS THE AUDIO CONFERENCE CALL
October 17, 2017 | Conference Call Slide Presentation
2017 THIRD QUARTER BUSINESS PERSPECTIVES MATT LEVATICH, PRESIDENT & CEO, HARLEY-DAVIDSON, INC.
October 17, 2017 | Conference Call Slide Presentation
Q3 SNAPSHOT
U.S. motorcycle industry declined in the quarter, weakness expected
to continue
Harley-Davidson retail sales down
Managed supply in line with demand
Aggressively managed business cost structure
Invested in our long-term strategy
4
October 17, 2017 | Conference Call Slide Presentation
DELIVERING HIGH-IMPACT MOTORCYCLES
5
Fat Boy®
Fat Bob®
Eight new Softail® models feature an improved, significantly lighter frame built to
harness the new dual-counterbalanced Milwaukee-Eight® 107 and 114 engines
October 17, 2017 | Conference Call Slide Presentation
“La Fat Bob ainsi modifiée vient marcher sur les platebandes des gros roadsters - et remplacer feu la V-Rod de la marque américaine - dans un style tonitruant qui lui est propre.” – MotoMag.com
“The company says the machines are lighter and more powerful, and handle better, than the models they replace. I’ve ridden two of them, and I agree.” – Los Angeles Times
“For those who have been asking how H-D hopes to stay relevant as its core customer base gets too old to ride, here’s its answer.”– Lanesplitter “New technology with trademark heritage
style has long been Harley's recipe for success, and the 2018 Softail family looks like a great new dish from that cookbook.” – Maxim
WHAT THE MEDIA SAID
6
150M+ Impressions
October 17, 2017 | Conference Call Slide Presentation
DELIVERING HIGH-IMPACT MOTORCYCLES
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14 new high-impact motorcycles for model year 2018
Street Glide® Special
CVO™ LIMITED
October 17, 2017 | Conference Call Slide Presentation
BUILDING 2 MILLION RIDERS IN U.S.
8
More than 19,000 riders were
trained through Harley-
Davidson® Riding Academy in the
quarter
Harley-Davidson and EagleRider
forged exclusive U.S. alliance to
deliver premium motorcycle rental
experiences
October 17, 2017 | Conference Call Slide Presentation
GROWING INTERNATIONAL REACH
9
Ingolstadt, Germany Hatyai, Thailand
15 new dealerships in nine countries opened in the quarter
October 17, 2017 | Conference Call Slide Presentation
FULL THROTTLE ON OUR STRATEGY
10
October 17, 2017 | Conference Call Slide Presentation
2017 THIRD QUARTER FINANCIAL RESULTS JOHN OLIN, SENIOR VICE PRESIDENT & CFO, HARLEY-DAVIDSON, INC.
October 17, 2017 | Conference Call Slide Presentation
Q3 2017 VS. Q3 2016 RESULTS
Motorcycles Segment operating income down $89.3 million
Revenue down 11.9% on 14.3% lower shipments
Gross margin percent of 28.8%, down 4.8 pts.
Slightly lower yr./yr. SG&A
Operating margin of 2.0%, down 8.0 pts.
Financial Services segment operating income up 11.0%
Lower effective tax rate
YTD cash from operations up despite lower net income
Earnings impacted by:
12
Consolid
ate
d –
Moto
rcycle
s a
nd R
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ted P
roducts
and F
inancia
l S
erv
ices S
egm
ents
REVENUE NET INCOME EPS
$1.15 $68.2 $0.40 Billion Million
(9.7)% (40.2)% (37.5)%
October 17, 2017 | Conference Call Slide Presentation
WORLDWIDE RETAIL SALES
U.S. new retail sales down in Q3
– Industry new motorcycle sales weakness for eighth consecutive quarter
– Aggressive supply management delivering intended results
International new retail sales remained soft
– Declines in Japan, Australia and Mexico
– Growth across most other markets
Positive response to MY 2018 motorcycles
Maintaining shipment guidance
13
vs. Prior Year
Q3 Motorcycles Q3 YTD
Worldwide 64,209 (6.9)% (6.1)%
U.S. 41,793 (8.1)% (8.0)%
International 22,416 (4.6)% (2.9)%
Moto
rcycle
s a
nd R
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ted P
roducts
Segm
ent
Source: Dealer reported data
October 17, 2017 | Conference Call Slide Presentation
Q3 '16 Q3 '17 YTD '16 YTD '17
52.3% 53.1% 50.8% 50.7%
Q3 '16 Q3 '17 YTD '16 YTD '17
45.5 41.8
135.6 124.8
Mo
torc
ycle
s (t
ho
usa
nd
s)
U.S. RETAIL SALES
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H-D U.S. NEW 601+CC RETAIL MARKET SHARE* H-D U.S. NEW RETAIL MOTORCYCLE SALES
RET
AIL
SA
LES
SH
AR
E IN
VEN
TO
RY
Q3 retail sales impacted by:
Weak industry
– Soft used bike prices
– Hurricanes in Texas and the Southeast
Market Share gains
+ Strong demand for Cruisers
+ EagleRider initial fleet of new H-D rental
bikes
– Significantly constrained availability
YTD used H-D bike sales* & Q3 pricing
up vs. prior year
Q3 market share up despite significantly
constrained availability
Dealer inventory down approximately 12,200
motorcycles vs. prior year
Committed to aggressively manage supply in line with
demand. Expect year-end U.S. retail inventory will be
down significantly compared to year-end 2016
(0.1) pts.
(7.1)% (8.1)%
H-D U.S. NEW RETAIL MOTORCYCLE INVENTORY
Moto
rcycle
s a
nd R
ela
ted P
roducts
Segm
ent
* Source: Motorcycle Industry Council
+0.8 pts. (4.7)%
(8.0)% +0.8 pts.
(0.1) pts.
* YTD through Aug.
October 17, 2017 | Conference Call Slide Presentation
YTD '16 YTD '17
10.2% 9.6% vs. Prior Year
Q3 YTD
International (4.6)% (2.9)%
- EMEA (1.4)% (1.2)%
Healthy demand for new models and
growth in Europe; Middle-East and
Africa down
- Asia Pacific (6.7)% (6.3)%
Japan and Australia down; emerging
markets up
- Latin America (11.5)% (0.9)%
Mexico down, Brazil up
- Canada (3.3)% (2.0)%
INTERNATIONAL RETAIL SALES
15
INTERNATIONAL GROWTH
H-D EUROPE 601+CC MARKET SHARE*
RET
AIL
SA
LES
OP
PO
RT
UN
ITY
S
HA
RE
Strategy: Grow reach and impact
- Expand dealer network - Plan to add 150 to 200 new dealerships between 2016 through 2020
- 15 opened in Q3, 35 YTD
- Target competitive riders
- Expand H-D Touring
- Build brand awareness through apparel
Moto
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Segm
ent
H-D INTERNATIONAL NEW RETAIL
MOTORCYCLE SALES
Q3 share of 9.8% was up 0.3 pts.
YTD share down in a highly competitive environment
* Source: Association des Constructeurs Europeens de Motocycles (ACEM)
Objective: Grow international business to 50% of annual volume by 2027
October 17, 2017 | Conference Call Slide Presentation
Q3 vs. PY YTD vs. PY
Total 41,662 (14.3)% 194,300 (11.6)%
Touring 35.2% (12.7) pts. 41.4% 0.7 pts.
Cruiser* 41.5% 12.7 pts. 34.8% (0.9)pts.
Street /
Sportster®
23.3%
100.0%
- pts. 23.8%
100.0%
0.2 pts.
SHIPMENTS & MIX
Q3 shipments down 6,949 motorcycles yr./yr. as we aggressively managed supply in line with demand
‾ Within guidance range of 39,000 to 44,000 motorcycles
‾ 52.8% of motorcycle shipments were international
Q3 mix skewed to Cruisers reflecting MY 2018 all-new Softail motorcycles
SHIPMENTS MOTORCYCLES SEGMENT
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* YTD Includes Dyna, Softail, V-Rod and CVO platforms
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Segm
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October 17, 2017 | Conference Call Slide Presentation
REVENUE
Motorcycles Segment revenue down 11.9% in Q3 behind a 14.3% decrease in motorcycle shipments
Average motorcycle revenue per unit yr./yr. decreased $546 in Q3 behind unfavorable mix, partially offset by higher pricing and favorable currency
MY 2018 weighted average pricing up approximately 3%; net of new content costs up approximately 1 pt. as a percent of revenue
REVENUE MOTORCYCLES SEGMENT
($ millions)
17
Q3 vs. PY YTD vs. PY
Motorcycle $ 653.3 (17.2)% $3,023.5 (12.0)%
P&A 229.7 (0.7) 636.2 (5.5)
General Merchandise 72.7 11.3 191.5 (9.5)
Other 6.4 3.0 16.8 1.8
Total Revenue $962.1 (11.9)% $3,868.0 (10.8)%
Moto
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Segm
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October 17, 2017 | Conference Call Slide Presentation
GROSS MARGIN
Q3 YTD
2016 Gross Margin $367.0 $1,564.8
% of revenue 33.6% 36.1%
- Volume (49.6) (201.5)
- Pricing net of cost 6.5 38.9
- Mix (26.7) (25.9)
- Currency 4.5 2.5
- Raw materials (3.0) (12.8)
- Manufacturing / other (21.7) (35.9)
2017 Gross Margin $277.0 $1,330.1
% of revenue 28.8% 34.4%
GROSS MARGIN MOTORCYCLES SEGMENT
($ millions)
18
Q3 Motorcycles segment gross margin % of revenue impacted by:
- Mix – unfavorable motorcycle family mix
- Currency – favorable due to weaker U.S. dollar
- Raw materials – higher steel and aluminum costs
- Manufacturing expense – up on lower fixed cost absorption and higher start-up costs
Moto
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Segm
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October 17, 2017 | Conference Call Slide Presentation
OPERATING MARGIN
Q3 YTD
2016 Operating Income $108.9 $764.1
% of revenue 10.0% 17.6%
- Gross Margin (90.0) (234.8)
- SG&A 0.7 48.8
2017 Operating Income $19.6 $578.1
% of revenue 2.0% 14.9%
OPERATING MARGIN MOTORCYCLES SEGMENT
($ millions)
19
Q3 Motorcycles segment operating margin was down 8.0 pts. compared to prior year
- Q3 SG&A reflected higher marketing and product development investment, offset by aggressive cost management in other areas
Moto
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Segm
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October 17, 2017 | Conference Call Slide Presentation 20
Fin
ancia
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erv
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egm
ent
HDFS
Financial Services Q3 operating income was higher due to a lower
provision for retail loan losses
OPERATING INCOME FINANCIAL SERVICES SEGMENT
($ millions)
Q3 YTD
2016 Operating Income $69.5 $215.4
- Net interest income 0.2 -
- Gain on full securitization (Q2 2016) - (9.3)
- Provision for retail motorcycle loan losses 7.3 (0.6)
- Provision for wholesale loan losses 0.1 (0.5)
- Operating expenses (2.0) (2.2)
- All other 2.0 8.8
2017 Operating Income $77.1 $211.6
20
October 17, 2017 | Conference Call Slide Presentation 21
Fin
ancia
l S
erv
ices S
egm
ent
HDFS
2017 FINANCIAL SERVICES SEGMENT
LIQUIDITY (Millions)
End of Quarter
Cash & equivalents $ 372.1
Availability
Bank Credit Facilities $ 705.1
Asset-Backed Conduits 619.7
Total Availability $ 1,324.8
Other
HDFS paid H-D, Inc. a dividend of $90
million in Q3
OPERATIONS
Originations
New and used H-D retail motorcycle loans
Q3 $817.5M (7.5)% vs. Q3 ‘16
YTD $2,515.0M (3.3)% vs. YTD ’16
YTD approximately 80% prime
Market share
U.S. H-D new retail motorcycle sales financed
Q3 58.6% (5.7) pts. vs. Q3 ‘16
YTD 61.4% (0.7) pts. vs. YTD ‘16
Finance receivables outstanding
End of Quarter
Retail $6.34B
Wholesale 0.96B
Total $7.30B (0.3)% vs. Q3 ’16
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October 17, 2017 | Conference Call Slide Presentation
2.04%
1.11%
0.65%0.88%
1.08%1.19%
1.59%1.73%
0%
1%
2%
3%
Q3 '10 Q3 '11 Q3 '12 Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17
1.69%
∆
4.83%
3.73%
3.24%3.11% 3.00%
3.16%
3.61% 3.72%
2%
3%
4%
5%
Q3 '10 Q3 '11 Q3 '12 Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17
HDFS
22
30+ Day Delinquencies
Fin
ancia
l S
erv
ices S
egm
ent
22
RETAIL MOTORCYCLE LOAN PERFORMANCE Q3 2017
30+ day delinquency 3.72% on-balance sheet
receivables 3.65% on a managed basis
(Including receivables sold in the Q2 ‘16 full securitization)
Q3 2017 Annual loss rate
1.73% on-balance sheet receivables
1.69% on a managed basis
(Including receivables sold in the Q2 ’16 full securitization)
Annualized Loss Experience
3.65%
∆
∆
3.49%
∆
1.57%
October 17, 2017 | Conference Call Slide Presentation
Consolid
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and F
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HARLEY-DAVIDSON, INC.
Cash & marketable securities – $683.1 million vs. $795.3 million (Q3 quarter end)
Operating cash flow - $949.1 million vs. $927.8 million (YTD)
Capital spending - $114.0 million vs. $162.7 million (YTD)
Depreciation/amortization expense - $164.0 million vs. $154.6 million (YTD)
Tax rate – 33.2% vs. 32.9% (YTD)
2017 HARLEY-DAVIDSON, INC. VS. PY
23
October 17, 2017 | Conference Call Slide Presentation
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
Q3 YTD
$104.6
$368.1
$222.0
$456.1
Mill
ion
s
2016 2017
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Q3 YTD
$0.35
$1.05
$0.365
$1.095
2016 2017
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
2011 2012 2013 2014 2015 2016
$0.475
$0.62
$0.84
$1.10
$1.24
$1.40
24
SHAREHOLDER RETURNS
CAGR 24%
Harley-Davidson has consistently returned cash to our shareholders
Y
ea
r-ove
r-ye
ar
Discretionary Share Repurchases Dividends Per Share
Mu
lti-Y
ea
r
*Funded by $750 million HDI debt issuance
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2011 2012 2013 2014 2015 2016
$218 $300
$456 $604
$1,526*
$459
Mill
ion
s
October 17, 2017 | Conference Call Slide Presentation
Motorcycles and Related Products
segment
Motorcycle shipments 241,000 to 246,000 Q4: 46,700 to 51,700
Gross margin % Down yr./yr.
SG&A Down yr./yr. Flat as a percent of revenue
Operating margin % Down approx. 1 pt. yr./yr.
Financial Services segment
HDFS operating income Down yr./yr.
Harley-Davidson, Inc. Capital expenditures $200 million - $220 million
Effective tax rate Approximately 33.4%
as of October 17, 2017
25
GUIDANCE
2017 EXPECTATIONS
October 17, 2017 | Conference Call Slide Presentation 26
Focused investments,
strong returns
to sustain the company for the long-term
HARLEY-DAVIDSON, INC.
Disciplined to our strategies
October 17, 2017 | Conference Call Slide Presentation
FORWARD-LOOKING STATEMENTS
27
The company intends that certain matters discussed in this presentation are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the company "believes," "anticipates," "expects," "plans," or "estimates" or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this presentation. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this presentation are only made as of the date of this presentation, and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The company's ability to meet the targets and expectations noted depends upon, among other factors, the company's ability to (i) execute its business strategy, (ii) drive demand by executing its marketing strategy of appealing to and growing sales to multi-generational and multi-cultural customers worldwide in an increasingly competitive marketplace, (iii) develop and introduce products, services and experiences that are successful in the marketplace, (iv) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, (v) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles to the market in excess of demand at reduced prices, (vi) manage through changes in general economic and business conditions, including changing capital, credit and retail markets, and the changing political environment, (vii) manage risks that arise through expanding international manufacturing, operations and sales, (viii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (ix) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (x) prevent and detect any issues with its motorcycles or any associated manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, (xi) retain and attract talented employees, cont.
October 17, 2017 | Conference Call Slide Presentation
FORWARD-LOOKING STATEMENTS
28
(xii) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (xiii) continue to develop the capabilities of its distributors and dealers and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xiv) adjust to tax reform, healthcare inflation and reform and pension reform, (xv) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xvi) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xvii) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xviii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xix) manage its exposure to product liability claims and commercial or contractual disputes, (xx) execute its flexible production strategy, (xxi) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, and (xxii) continue to manage the relationships and agreements that the company has with its labor unions to help drive long-term competitiveness. In addition, the company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the company has disclosed in documents previously filed with the Securities and Exchange Commission. The company's ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the company's independent dealers to sell its motorcycles and related products and services to retail customers. The company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the company. In addition, the company's independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors.