Harley-Davidson, Inc Second Quarter Update July 21, 2015

Transcription

1 2015 Harley-Davidson Sportster Forty-Eight - Customized Harley-Davidson, Inc Second Quarter Update July 21, 2015

2 Harley-Davidson, Inc Second Quarter Update This presentation supports the quarterly conference call Conference call participants: Introduction Opening Remarks Financial Results Q&A Amy Giuffre, Director, Investor Relations Matt Levatich, President and CEO John Olin, Senior Vice President and CFO 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 release 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. 2

3 2015 Second Quarter Business Perspectives Matt Levatich, President & CEO, Harley-Davidson, Inc. 3

4 Competing to Win Managing supply in line with demand through flexible manufacturing capabilities Implementing demand-driving programs 4

5 Positive Momentum Near double-digit U.S. retail sales growth in June June new H-D motorcycles sales improvement in Europe Q retail sales of new H-D motorcycles up 16.6% in Asia Pacific Driven by growth in China and India Strong reception to Street 5

6 Success of Street In Asia Pacific, Harley-Davidson Street 750 is the best-selling H-D motorcycle of all time for first-year sales New to brand: 7/10 U.S. H-D Street customers 9/10 EMEA H-D Street customers In India, nearly all H-D Street customers 6

7 Additional Updates Increase share repurchases Canadian distribution transition 7

8 Looking Ahead Exciting 2016 model year launch and dealer meeting in August Maximizing our strategies and opportunities to reach Harley-Davidson s full potential as a growing global company Strong leadership position 8

9 2015 Second Quarter Financial Results John Olin, Senior Vice President & CFO, Harley-Davidson, Inc. 9

10 Consolidated Motorcycles and Related Products and Financial Services Segments Harley-Davidson, Inc. Q Vs. Q Results Revenue Net Income EPS $1.82 Billion $299.8 $1.44 Million 8.8% 15.3% 11.1% Earnings impacted by: Motorcycles Segment operating income decreased 19.6% Revenue down 10.0% on 7.6% lower shipments and 4.6% unfavorable currency exchange Strong gross margin percent of 39.2% Higher yr./yr. SG&A spending Lower operating margin percent Financial Services Segment operating income up 10% yr./yr. 10

11 Motorcycles and Related Products Segment Motorcycle Retail Sales Worldwide Harley-Davidson Retail Sales Vs. PY Q2 15 Vs. PY YTD Worldwide (1.4)% (1.4)% U.S. (0.7)% (0.7)% International (2.7)% (2.5)% Q2 worldwide retail sales of 88,931 Strong sales of new models Road Glide, Ultra Low/ Ultra Ltd. Low, CVO Street Glide, Freewheeler and Street Q2 U.S. retail sales down modestly 435 motorcycles Q2 international sales strong in Asia Pacific, offset by EMEA, Latin American and Canada Brand fundamentals remain strong Tough retail sales environment Implemented market actions in mid-to-late Q2 to counter impact of increased yr./yr. competitive activity Gained momentum strong June results 11

12 INVENTORY Motorcycles and Related Products Segment SALES Units (thousands) SHARE Motorcycle Retail Sales U.S. Harley-Davidson H-D U.S. New Retail Motorcycle Sales H-D U.S. New 601+CC Retail Market Share % 50.3% 52.3% 47.5% 48.8% (0.7)% pts. pts. pts. pts % (0.7)% 0 Q2 '14 Q2 '15 YTD '14 YTD '15 Q2 retail sales impacted by: Lapping: Initial enthusiasm of Rushmore launch last year Dealer fill of Street for Rider Training fleet (ex fleet, sales would have been up 2.1%) Significant foreign currency impact driving ongoing, aggressive price discounting by the competition Q2 '14 Q2 '15 YTD '14 YTD '15 Ongoing, aggressive price discounting and new product introductions by competitors H-D U.S. New Retail Motorcycle Inventory* (Units) * At period end Strong new model sales -- including Road Glide and double-digit growth in combined Street/Sportster retail sales Gained retail sales momentum behind market actions Q2 '09 Q2 '10 Q2 '11 Q2 '12 Q2 '13 Q2 '14 Q2 '15 Down approximately 1,600 motorcycles yr./yr. 12

13 SALES OPPORTUNITY SHARE Motorcycles and Related Products Segment Motorcycle Retail Sales International Harley-Davidson Vs. PY Q2 15 Vs. PY YTD H-D Europe 601+CC retail market share International (2.7)% (2.5)% - EMEA Region (8.9)% (7.7)% - Asia Pacific Region 16.6% 7.8% - Latin America Region (2.6)% (1.2)% - Canada (9.9)% (4.8)% EMEA Impact of low-priced models by competition Currency-driven volume declines in some markets (e.g. Russia) Lapping strong yr./yr. growth AP - Growth in all major markets led by emerging markets Latin America Strong Mexico; soft Brazil Canada Tough competitive environment combined with transition of distribution business YTD share down behind the impact of low-priced models by the competition (outside the Cruiser and Touring segments) International Growth We expect to grow international retail sales at a faster rate than domestic over time Focus on dealer profitability and delivery of Harley- Davidson Customer Experience (HDCX) Add new dealers; primarily in emerging markets Invest in product development 13

14 Motorcycles and Related Products Segment Shipment & Mix Harley-Davidson Motorcycle Shipments Q Vs. PY Total 85,172 (7.6)% Touring 34,563 (4.0) pts. Cruiser* 29, pts. Street/Sportster 20, pts. * Category previously referred to as Custom includes Dyna, Softail, V-Rod and CVO platforms Shipments in Q were down 7,045 motorcycles yr./yr. Within guidance range of 83,000 to 88,000 motorcycles Street/Sportster mix up primarily behind Street 1H shipments were down in excess of retail sales decline in order to reduce Q2 ending retail inventory to an appropriate level In Q2 2015, 35.3% of motorcycle shipments were international 14

15 Motorcycles and Related Products Segment Revenue Revenue Motorcycles Segment ($ Millions) Q % change Motorcycle $1,308.8 (11.6)% P&A (5.4)% General Merchandise % Other % Total Revenue $1,650.8 (10.0)% Motorcycles segment revenue was down $183.5 million in Q compared to Q driven by: 7.6% lower motorcycle shipments Unfavorable currency exchange revenue down 4.6% Average motorcycle revenue per unit year/year decreased $692 behind unfavorable currency exchange and product mix, partially off-set by higher pricing 15

16 Motorcycles and Related Products Segment Gross Margin Gross Margin Motorcycles Segment ($ Millions) Q2 YTD 2014 Gross Margin $724.1 $1,316.3 % of revenue 39.5% 38.6% - Volume (46.0) (54.3) - Pricing net of cost Mix (16.5) (7.4) - Currency (36.1) (75.5) - Raw materials Manufacturing (1.2) Gross Margin $647.2 $1,237.5 % of revenue 39.2% 39.1% Motorcycles segment gross margin was down $76.9 million or 10.6% in Q2 versus prior year 16

17 Motorcycles and Related Products Segment Operating Margin Operating Margin Motorcycles Segment ($ Millions) Q2 YTD 2014 Operating Income $473.3 $820.9 Operating Margin (% of revenue) 25.8% 24.1% - Gross Margin (76.9) (78.8) - SG&A (15.8) (16.0) 2015 Operating Income $380.6 $726.1 Operating Margin (% of revenue) 23.1% 23.0% Motorcycles segment operating income was down $92.7 million or 19.6% in Q2 compared to prior year 17

18 Financial Services Segment HDFS Operating Margin Financial Services Segment ($ Millions) Q2 YTD 2014 Operating Income $74.4 $ Net interest income Provision for retail motorcycle loan losses (0.5) (5.9) - Provision for wholesale loan losses Operating expenses (0.1) (1.0) - All other Operating Income $81.9 $146.6 Financial Services operating income in Q2 was up 10% as a result of higher net interest income and higher non-lending income 18

19 Financial Services Segment HDFS Q Financial Services Segment Operations Originations New and used H-D retail motorcycle loans $1.08 billion +7.0% vs. Q Approximately 80% prime YTD Share U.S. H-D new retail motorcycle sales 62.8% +6.8 pts. vs. Q Finance receivables outstanding Retail $5.96 billion Wholesale $1.33 billion Liquidity Cash & Equivalents $0.42 Availability Bank Credit Facilities $1.24 Asset-Backed Conduit $0.60 Total Availability $1.84 Total $7.29 billion +5.0% vs. Q Activities $500 million asset-backed securitization transaction at a time-weighted average rate of 1.16% 19

20 Financial Services Segment HDFS 5% 4.50% Retail 30+ Day Delinquencies Retail Motorcycle Loans 4% 3.53% 3% 2.68% 2.75% 2.68% 2.71% 2% 1% Q Q Q Q Q Q % 2% 2.04% Annualized Loss Experience Retail Motorcycle Loans 1% 1.06% 0.58% 0.80% 0.97% 1.08% 0% Q Q Q Q Q Q

21 Consolidated Motorcycles and Related Products and Financial Services Segments Harley-Davidson, Inc. Q Harley-Davidson, Inc. Cash & Marketable Securities at 6/28/15 - $1.30 billion vs. $1.06 billion at 6/29/14 Operating cash flow YTD $613.9 million vs. $570.6 million in 2014 Lower net wholesale lending, partially offset by lower net income Capital spending YTD - $85.2 million vs. $74.5 million in 2014 Depreciation expense YTD - $93.6 million vs. $87.1 million in 2014 Tax rate % vs. 35.5% in Q

22 5-Year Current Year Shareholder Value Harley-Davidson consistently returns value to our shareholders Dividends Per Share Discretionary Share Repurchases CAGR 29% CAGR ++ 22

23 Shareholder Value Harley-Davidson consistently returns value to our shareholders Recapitalization plan announced June 2015 Incur $750 million of long-term debt in Q3 Proceeds used to repurchase shares during 2H 2015 in addition to previously planned repurchases Expect to be slightly accretive to 2015 EPS. Expect 2016 EPS to reflect full benefit of repurchases Annual Discretionary Share Repurchases 23

24 Guidance 2015 Expectations as of July 21, 2015 Motorcycles and related products segment Motorcycle shipments Gross margin % SG&A 276, ,000 (Q3 54,000 59,000) Up modestly year/year Up modestly year/year total spend and % of revenue Operating margin % 18% 19% Financial services segment HDFS operating income Up modestly year/year Harley-Davidson, Inc. Capital expenditures $240 - $260 million Effective tax rate Approximately 35.5% This guidance does not include the impact of the anticipated Canadian distributor transaction. As previously indicated, the company expects the financial impact to be dilutive to 2015 earnings per share by approximately $0.04 incurred mainly in Q3. 24

25 Harley-Davidson Through focused investment in growth, Products Relevance International Harley-Davidson returns value to shareholders Strong margins Strong returns Harley-Davidson Street Motorcycle 25

26 Forward-Looking Statements 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 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 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) manage through changes in general economic conditions, including changing capital, credit and retail markets, and political events, (iii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (iv) 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, (v) continue to develop the capabilities of its distributors and dealers and manage the risks that our independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (vi) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, (vii) effect repurchases of its common stock at share prices that are within its expectations (viii) consummate the Canadian distributor transaction and complete the transition to the new direct distribution model in Canada on the timing, for the costs, and at the foreign currency exchange rates that are within its expectations, (ix) prevent a cybersecurity breach involving digital consumer, employee or dealer personal data, (x) manage the impact that prices for used motorcycles may have on retail sales of new motorcycles, (xi) manage risks that arise through expanding international manufacturing, operations and sales, (xii) manage through the effects inconsistent and unpredictable weather patterns may have on retail sales of motorcycles, (xiii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xiv) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xv) detect any issues with our motorcycles or any associated manufacturing processes to avoid delays in new model launches, recall campaigns, increased warranty costs or litigation, (xvi) develop and introduce products, services and experiences that are successful in the marketplace, (xvii) develop and implement sales and marketing plans that retain existing retail customers and attract new retail customers in an increasingly competitive marketplace, (xviii) implement and manage enterprise-wide information technology solutions, including solutions at its manufacturing facilities, (xix) continue to realize production efficiencies at its production facilities and manage operating costs including materials, labor and overhead, (xx) execute its flexible production strategy, (xxi) continue to manage the relationships and agreements that it has with its labor unions to help drive long-term competitiveness, (xxii) adjust to healthcare inflation and reform, pension reform and tax changes, (xxiii) retain and attract talented employees, (xxiv) continue to have access to reliable sources of capital funding and adjust to fluctuations in the cost of capital, and (xxv) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio. (Cont.) 26

27 Forward-Looking Statements 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. # # # 27