This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Harley-Davidson Inc. (HOG) on 23 January, 2009.
Management:
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President and Chief Executive Officer: James L. Ziemer
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Chief Financial Officer: Thomas E. Bergmann
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Director of Investor Relations: Amy Guiffre
Key Investors Issues
- Revenue of $1.29 billion dropped 7% from $1.39 billion in the year-ago quarter.
- Net income was $77.8 million or 34 cents a share, down 58.2% from $108.3 million or 78 cents a share in the prior year.
Full Year Highlights:
- Revenue was $5.59 billion compared to $5.73 billion in 2007, a 2.3% decline.
- Net income was $654.7 million or $2.79 a share, down 25% from $933.8 million or $3.34 a share in 2007.
- Wholesale shipments of Harley-Davidson motorcycles were 303,479 units, an 8.2% decrease compared to 330,619 units in 2007.
Fourth Quarter Highlights
Revenue was $1.29 billion compared to $1.39 billion in the year-ago quarter, a 6.8% decrease on lower sales of bikes.
- Net income was $77.8 million or 34 cents a share, down 58.2% from $108.3 million or 78 cents a share in the prior year.
- Cash and cash equivalents totaled $594 million and cash used by operations was $685 million compared to $798 million of cash provided in 2007.
- This decrease in cash flows from operations of $1.48 billion was primarily the result of net proceeds from securitization being $2.0 billion less than the same period in 2007.
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Motorcycles and Related Products worldwide retail sales of HDFS motorcycles were down 13.1% compared to a year ago.
- In the U.S., retail sales of new Harley-Davidson motorcycles decreased 19.6% compared to the same period in 2007 and overall, the U.S. 651-plus CC motorcycle market decreased 25.5%.
- International dealer’s retail sales growth slowed and increased 0.7%, with the Europe region up 3.4%, the Latin America region was up 28.0%, Canada was up 1.4%, and the Asia-Pacific region was down 8.9%.
- Asia-Pacific region dealer retail sales were impacted by the earlier availability of new model year product into Japan.
Worldwide wholesale shipment of Harley-Davidson motorcycles were 76,581 units for the fourth quarter.
- Inventory levels in the U.S. dealer network inventory was over 12,000 units lower than one year ago.
- Growth in overall international inventory has been increasing moderately to support ongoing retail sales growth and new market development.
- In the motorcycle family shipment mix touring was 34.2% compared to 35.9% of the shipment mix in 2007.
- Custom, representing soft tails, Dyna, and VRSC motorcycles was 46.5% compared to 43.0% in 2007 and Sportster motorcycles were 19.3% of the total shipment mix.
- Revenue from Harley-Davidson motorcycles was $1.02 billion, down 8.5% as a result of 4,625 fewer units shipped and a decrease in the average revenue per unit of $414.
Average revenue per unit fell in the fourth quarter as a result of unfavorable foreign currency exchange rates, a lower revenue shipment mix, and the recording of estimated costs for the Sportster motorcycle trade-up program.
- Revenue from parts and accessories was $152 million or a decrease of 7.9% from the year ago quarter.
- General merchandise revenue was $69 million, a decrease of 6.0% or $4.4 million.
- Gross margin was 31.6% of revenue, down from 35.7% in 2007 driven by the change in motorcycle mix and the recording of the estimated cost associated with the Sportster motorcycle trade-up program.
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Harley-Davidson Financial Services recorded an operating loss of $24.9 million, a decrease of $63.5 million compared to operating income of $38.6 million in the year ago quarter.
- The decrease is primarily due to a $28.4 million writedown of finance receivables held for sale to fair value and a $35.1 million writedown of retained securitization interest.
- The quarterly discounted cash flow analysis used to value the held-for-sale portfolio resulted in a fair value that was lower than the carrying value and therefore required a $28.4 million writedown.
- Of the total, $13.6 million was due to higher projected credit losses and other adjustments, and $14.8 million was due to an increase in the discount rate used in the valuation model.
In the retain securitization interest pool, quarterly revenue and evaluation of the assumptions used to value the pool resulted in a $35.1 million writedown this quarter.
- The firm took several actions to adjust underwriting and collection standards to mitigate the impact of a deteriorating U.S. economy on the loan portfolio performance.
- In terms of credit performance, the 30-plus day delinquency rate for managed retail motorcycle loans as of December 31, 2008 was 6.29% compared to 6.15% as of December 31, 2007.
- The company continued to access the commercial paper market throughout the quarter, including participation in the Fed''s CPSS program and into a $500 million asset-backed commercial paper conduit facility.
- The funds generated from this facility were primarily used to repay the medium-term notes that matured in December.
- To meet HDFS funding needs for 2009, the firm will access the unsecured debt capital market, seek to increase the $500 million asset-backed commercial paper conduit facility and gain access to the asset-backed securitization market.
Strategic Insights:
- The firm’s strategy is focused on three critical areas - investing in the Harley-Davidson brand, getting cost structure right, and obtaining funding for HDFS to help dealers sell motorcycles and retail customers to buy them.
- The company will focus even more on making sure it is allocating marketing spend and the product development spend in the most effective way in supporting the brand.
- Last year the firm reduced production levels in response to the falling economy and the result was lower dealer inventories and is it going to show similar discipline this year.
