This summary is based on the first quarter fiscal 2008 earnings call conducted by Harley-Davidson Inc. (HOG) on April 17, 2008.
Management:
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President, Chief Executive Officer & Director: James L. Ziemer
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Chief Financial Officer & Executive Vice President: Thomas E. Bergmann
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President Harley-Davidson Financial Services: Saiyid T. Naqvi
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Director of Investor Relations: Amy Guiffre
Key Investors Issues
- Revenue was $1.31 billion, up 10.8% compared to $1.18 billion in 2007.
- Net income was $187.6 million or 79 cents a share down 2.5%.
- The company repurchased 2.6 million shares for $100.1 million.
First Quarter Highlights
Revenue was $1.31 billion, up 10.8% compared to $1.18 billion in the year-ago quarter on strong international retail sales up nearly 17%.
- On a worldwide basis retail sales of Harley-Davidson motorcycles by dealers were down 5.6% compared to a year ago.
- Retail sales of new Harley-Davidson motorcycles in the US decreased 12.8% in the first quarter of 2008 compared to the same period in 2007.
- Overall, the US 651 plus CC motorcycle market decreased 14.0%.
- Outside of the US dealers growth continued as retail sales increased 16.8% compared to the same quarter last year.
- Retail sales of Harley-Davidson motorcycles in Canada were up 31.1%, the Europe region was up 7.8%, the Asia Pacific region was up 19.5% and the Latin America region was up 53.3%.
Operating cash flow was $146.8 million, down from $519.6 million in of 2007, with the decrease primarily driven by HDFS’ smaller first quarter securitization transaction.
- Depreciation was $49.7 million and capital expenditures were $43.2 million.
- The company repurchased 2.6 million shares for $100.1 million compared to 870,000 shares for $61.3 million in the first quarter of last year.
- As of March 30, 2008 there were 236.5 million shares of common stock outstanding and 20.5 million shares remaining on two board approved share repurchase authorizations.
- Net income was $187.6 million or 79 cents a share down 2.5% or $4.7 million from $192.3 million or 74 cents a share in the prior period despite revenue growth.
Wholesale shipments, worldwide Harley-Davidson motorcycle shipments were 71,868 units an increase of 6.1% over 2007.
Shipments in 2007 were affected by a strike at Harley-Davidson manufacturing facilities in York Pennsylvania that resulted in four weeks of loss production.
- Domestic shipments of 47,826 units were down 1.9% from 2007, representing 66.5% of the total volume shipped to worldwide dealers down from 71.9% a year ago.
- International shipments of 24,042 units were up 26.4% compared to the same quarter last year.
- For the second quarter of 2008 the firm expects to ship between 76,000 and 80,000 Harley-Davidson motorcycles, about 15,000 to 19,000 units fewer than the second quarter of 2007.
Touring volume was 36.8% compared to 32.2% in 2007, with custom shipment volume representing the soft-tail.
- Dyna and BRSC motorcycles was 40.5% compared to 45.4% for 2007 and Sportser motorcycle mix was 22.8% of the total mix compared to 22.4% lasting the prior year.
- The firm continues to manage mix carefully and balance shipments between the major motorcycle families based on forecasts in customer demand.
- Product investments in touring continue to be market leading and the latest introductions in the custom segment Rocker C and Crossbones are hot sellers as customers are eager to ride these new models this spring.
Revenue from Harley-Davidson motorcycles was $1.02 billion up 14.1% as average revenue per Harley-Davidson unit increased $997 or 7.6% from the year ago quarter.
- This increase can be primarily attributed to favorable mix and favorable foreign exchange rate.
- Revenue from parts and accessories was $181.9 million which was down 3.3% over the year ago quarter, due to the decrease in new motorcycle retail sales in the US.
- To help support P&A demand a website tool that allows customers to select accessories and install them on a virtual motorcycle was updated this quarter to include all available Harley-Davidson models.
- General merchandise revenue was strong at $84 million an increase of 10.4% or $7.9 million.
- Gross margin in the quarter was 36.4% of revenue up from 35.9% in 2007 due to favorable mix and favorable foreign exchange rates.
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Harley-Davidson Financial Services delivered income of $34.9 million a decrease of $24 million or 40.8% compared to last year’s due to a reduction in income from securitization.
- In the first quarter of 2007 HDFS sold $540 million of retail motorcycle loans and as part of the transaction HDFS retained $54 million of the subordinated securities on its balance sheet and recognized a loss totaling $5.4 million.
- This compares to an $800 million securitization transaction with a gain of $13 million during last year’s first quarter.
- The loss in the first quarter of 2008 was driven by increased securitization funding costs due to capital market volatility and expectation of higher credit losses compared to historical trends.
HDFS originated $518 million in retail motorcycle loans compared to $630 million in 2007 as it maintained its retail market share on new motorcycles sold in the US at 51.4% compared to 51.3% in 2007.
- In terms of credit performance the 30 plus day delinquency rate for managed retail motorcycle loans was 4.78% compared to 4.08% in 2007.
- The firm continues to enhance its underwriting criteria for new originations and implemented several changes including adjusting the loan-to-value ratios downward for many of the subprime categories.
- On the loan servicing side, it allocated more resources for in house collection efforts and increased the number of collection calls made during the evening hours and weekends.
In addition, it expanded outsourcing of both the early stage delinquent loans and accounts in bankrupt status to firms specializing in those activities.
