Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     

HARLEY-DAVIDSON, INC.

(HOG)
  Report
Real-time Estimate Cboe BZX  -  02:30 2022-09-29 pm EDT
35.82 USD   -3.71%
09/28Global markets live: Tesla, Biogen, Lyft, Ford, Toyota...
MS
09/27Harley-Davidson Electric Motorcycle Division LiveWire Closes SPAC Merger With AEA-Bridges
MT
09/27Harley-Davidson, LiveWire and AEA-Bridges Impact Corp Announce Closing of Business Combination
BU
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

HARLEY-DAVIDSON, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/04/2022 | 11:06am EDT

Harley-Davidson, Inc. is the parent company of the groups of companies referred to as Harley-Davidson Motor Company and Harley-Davidson Financial Services. Unless the context otherwise requires, all references to the "Company" include Harley-Davidson, Inc. and all its subsidiaries. The Company operates in two segments: Motorcycles and Related Products (Motorcycles) and Financial Services.

The "% Change" figures included in the Results of Operations sections were calculated using unrounded dollar amounts and may differ from calculations using the rounded dollar amounts presented. Certain "% Change" deemed not meaningful (NM) have been excluded.

(1) Note Regarding Forward-Looking Statements

The Company intends that certain matters discussed in this report 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 by reference to this footnote or because the context of the statement will include words such as the Company "believes," "anticipates," "expects," "plans," "may," "will," "estimates," "targets," "intends," "is on-track," "forecasting," or words of similar meaning. Similarly, statements that describe or refer to future expectations, future plans, strategies, objectives, outlooks, targets, guidance, commitments 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 report. Certain of such risks and uncertainties are described in close proximity to such statements or elsewhere in this report, including under the caption "Cautionary Statements" in this Item 2, as well as in Item 1A. Risk Factors, as well as in Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in the "Key Factors Impacting the Company" and the "Guidance" sections in this Item 2 are only made as of July 28, 2022 and the remaining forward-looking statements in this report are made as of the date of the filing of this report (August 4, 2022), and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Overview

The Company's net income was $215.8 million, or $1.46 per diluted share, in the second quarter of 2022, compared to $206.3 million, or $1.33 per diluted share, in the second quarter of 2021. In the second quarter of 2022, Motorcycles segment operating income was $191.7 million, up $5.9 million from the second quarter of 2021. The increase in operating income from the Motorcycles segment for the second quarter of 2022 was driven primarily by price increases and lower operating expenses partially offset by the impact of lower shipment volumes, higher supply chain costs and unfavorable foreign currency exchange rates compared to the same quarter last year. Operating income from the Financial Services segment in the second quarter of 2022 was $85.9 million, down $8.6 million compared to the prior year quarter due primarily to an increase in the provision for credit losses.

Retail sales of new Harley-Davidson motorcycles in the second quarter of 2022 were down 22.7% compared to the second quarter of 2021, including declines of 28.9% in the U.S. and 9.3% in international markets. Retail sales during the second quarter of 2022 were adversely impacted by low dealer inventory levels which were further impacted by a suspension of production and shipments for approximately two weeks during the second quarter. Refer to the Motorcycles Retail Sales and Registration Data section for further discussion of retail sales results.

Key Factors Impacting the Company(1)

Supply Chain Challenges - During the second quarter of 2022, the Company continued to experience disruption and increased costs related to global supply chain challenges including the continued global semiconductor chip shortages. As a result of these challenges, the Company experienced higher costs in the second quarter of 2022, although the rate of supply chain inflation experienced during the quarter declined as compared to the rate experienced during the first quarter of 2022. The decline in the inflation rate was primarily a result of normalization in logistics costs. While logistics costs continue to remain higher than a year ago, the Company did not experience volatile pricing and reduced its reliance on expedited shipping during the second quarter of 2022. The Company expects that inflation rates for logistics and materials costs will continue to improve during the balance of 2022. In the aggregate, the Company expects supply chain costs to continue to be inflationary during the second half of 2022, but the Company believes it will move beyond the peak levels of inflation experienced in 2021. Further, the Company expects year-over-year favorability for certain costs of raw materials as inflation in raw material markets decelerates.

                                       43

--------------------------------------------------------------------------------

Table of Contents

In addition, during the second quarter of 2022, the Company received information from a third-party supplier concerning a regulatory compliance matter relating to the supplier's component part. As a result, out of an abundance of caution, the Company suspended all vehicle assembly and shipments (excluding LiveWire models) for approximately two weeks during the second quarter of 2022. The Company continues to work through the regulatory compliance matter with its relevant suppliers and at this time does not expect that this matter will result in additional costs or recall expenses that are material. The Company expects that in the second half of 2022 it will make up production and shipments lost as a result of the suspension of production and shipments during the second quarter.

Suspension of Additional European Union Tariffs - In April 2021, the Company received notification from the Economic Ministry of Belgium that, following a request from the European Union (EU), the Company would be subject to revocation of the Binding Origin Information (BOI) rulings that allowed it to supply its EU markets with certain motorcycles produced at its Thailand manufacturing facility at tariff rates of 6%. As a result of the revocation, all non-electric motorcycles that Harley-Davidson imported into the EU, regardless of origin, were subject to a total tariff rate of 31% from April 19, 2021 through the end of 2021. On October 30, 2021, the U.S. and EU announced an agreement related to the Section 232 tariffs on steel and aluminum that were implemented in 2018 by the U.S. and the subsequent rebalancing tariff measures taken by the EU. This agreement suspended the additional tariffs initially imposed by the EU on the Company's motorcycles, reducing the total EU tariff rate on the Company's motorcycles from 31% to 6%, effective January 1, 2022. The lower 6% tariff rate applies to all motorcycles imported by the Company into the EU, regardless of origin. Under the agreement between the U.S. and the EU, the lower tariff rate will remain in effect until December 31, 2023. During such time, the U.S. and EU will monitor and review the operation of the agreement, seeking to conclude the negotiations on steel and aluminum tariffs by December 31, 2023. These negotiations are ongoing, and there are no assurances the U.S. and EU will reach a resolution that concludes the trade conflict on steel and aluminum tariffs beyond December 31, 2023.

To date, the Company continues to pursue its appeals of the revocation of the BOIs and the denial of its application for temporary extended reliance on the 6% tariff rate (for motorcycles produced in Thailand and ordered prior to April 19, 2021), although there is no assurance that these appeals will continue or be successful.

COVID-19 Pandemic - The Company continues to manage through the impacts of the COVID-19 pandemic and its associated variants by keeping safety and community well-being a priority. The Company continues to proactively follow protocols to keep workers safe in its manufacturing facilities. The full impact of the COVID-19 pandemic on future results depends on future developments, such as the ultimate duration and scope of the pandemic including associated variants, the success of vaccination programs, the consequences of vaccine requirements, and its impact on the Company's employees, customers, dealers, distributors, and suppliers. Future impacts and disruptions could have an adverse effect on production, supply chains, distribution, and demand for the Company's products.

LiveWire Transaction - On December 13, 2021, the Company and AEA-Bridges Impact Corp. (ABIC), a special purpose acquisition company (SPAC), announced that they have entered into a definitive business combination agreement under which LiveWire, the Company's electric motorcycle division, will become a separate business of the Company and combine with ABIC to create a new publicly traded company. The parties expect that the transaction will be financed by ABIC's $400 million cash held in trust (assuming no redemptions by ABIC's shareholders in the context of the transaction), a $100 million cash investment from the Company, and a $100 million investment from an independent strategic investor, Kwang Yang Motor Co., Ltd. (KYMCO). In addition, to the extent any shares of the SPAC are redeemed, the Company will invest an additional amount equal to the dollar value of such redemptions up to a maximum of $100 million.

The transaction, which has been approved by the boards of directors of both the Company and ABIC, is now expected to close at the beginning of the Company's 2022 fourth fiscal quarter. The consummation of the business combination is subject to the approval of ABIC's shareholders and other conditions. Upon closing of the transaction, the Company will retain a controlling financial interest in LiveWire. As the controlling shareholder following the transaction, the Company will continue to consolidate LiveWire's results, with additional adjustments to recognize non-controlling shareholder interests.

Guidance(1)

On July 28, 2022, the Company provided the following guidance for 2022, which reflects its current outlook for the supply chain challenges discussed above.

The Company continues to expect Motorcycles segment revenue growth, compared to 2021, between 5% and 10%. This forecast incorporates the expectation that the Company will make up production and wholesale shipments lost as a result of the temporary suspension of production and shipments during the second quarter. In addition, this guidance incorporates the Company's information and expectations as of July 28, 2022 for the impact of supply chain challenges, including semiconductor chip availability. The Company's guidance also assumes a Euro exchange rate of $1.01. The Company estimates that every $0.01 change in the average Euro exchange rate equates to a revenue change of approximately $3 million in the

                                       44

--------------------------------------------------------------------------------

Table of Contents

second half of 2022. The Company continues to expect revenue in 2022 to be positively impacted by global pricing as the Company works to offset cost headwinds across its supply chain.

The Company continues to expect Motorcycles segment operating margin as a percent of revenue of 11% to 12%. The Company believes the anticipated positive impacts from pricing will more than offset the expected cost inflation across the supply chain. Also, the suspension of the additional EU tariffs is expected to contribute over a percentage point of margin growth.

Given the Company's plan to make up shipment volume lost as a result of the approximate two-week suspension of production and shipments during the second quarter, it now expects the Motorcycles segment revenue growth rate in the second half of 2022, compared to 2021, to be in the low- to mid-double digits. In addition, the Company now expects Motorcycles segment operating income margin percent to be in the mid-to-high single digits for the second half of 2022.

The Company continues to expect Financial Services operating income to decline 20% to 25% in 2022 compared to 2021. This decline is largely a result of the favorable credit loss allowance reductions and lower actual credit losses in 2021 that are not expected to repeat in 2022.

The Company continues to expect capital investments between $190 and $220 million in 2022. The Company plans to continue to invest behind product development and capability enhancement in support of The Hardwire strategy.

The Company's capital allocation priorities remain to fund growth through The Hardwire initiatives, pay dividends and execute discretionary share repurchases.

© Edgar Online, source Glimpses

All news about HARLEY-DAVIDSON, INC.
09/28Global markets live: Tesla, Biogen, Lyft, Ford, Toyota...
MS
09/27Harley-Davidson Electric Motorcycle Division LiveWire Closes SPAC Merger With AEA-Bridg..
MT
09/27Harley-Davidson, LiveWire and AEA-Bridges Impact Corp Announce Closing of Business Comb..
BU
09/09HARLEY-DAVIDSON, INC. : Ex-dividend day for
FA
09/07Harley-Davidson Shares Rise After CEO Stock Purchase
MT
09/06Insider Buy: Harley-Davidson
MT
08/30Harley-Davidson Maintains Quarterly Dividend at $0.1575/Share, Payable Sept. 22 to Shar..
MT
08/30Harley-Davidson, Inc. Declares Dividend
GL
08/30Harley-Davidson, Inc. Approves A Cash Dividend for the Third Quarter of 2022, Payable o..
CI
08/25Strattec Security Appoints Dennis Bowe as CFO
MT
More news
Analyst Recommendations on HARLEY-DAVIDSON, INC.
More recommendations