Harley-davidson, Inc. · NYSE:HOG
Harley-davidson — Q3 2018 Earnings Presentation
31 slides from Harley-davidson's earnings presentation, Oct 23, 2018
Slide 1: 2018 Third Quarter Update
HARLEY-DAVIDSON, INC. 2018 THIRD QUARTER UPDATE October 23, 2018 | Conference Call Slide Presentation OCTOBER 23, 2018
Slide 2: Conference Call Agenda
2018 THIRD QUARTER UPDATE THIS PRESENTATION SUPPORTS THE AUDIO CONFERENCE CALL CONFERENCE CALL AGENDA ▪ 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 This presenta
Slide 3: Business Perspectives
BUSINESS PERSPECTIVES MATT LEVATICH, PRESIDENT & CEO, HARLEY-DAVIDSON, INC. October 23, 2018 | Conference Call Slide Presentation
Slide 4: Q3 2018 Results Highlights
Q3 2018 RESULTS Highlights ▪ More Roads to H-D accelerated plan for growth unveiled and progress made ▪ EPS of $0.68 ($0.78 excluding manufacturing optimization costs) ▪ HDFS earnings up year-over-year on improved loss performance ▪ Repurchased 1.9 million shares; paid $0.37 per share dividend, up 1
Slide 5: Objectives & Strategy
OBJECTIVES & STRATEGY October 23, 2018 | Conference Call Slide Presentation 5
Slide 6: Funding & Financials
FUNDING & FINANCIALS Cumulative investments Growth objectives expected through 2022 Operating Capital* 2017 vs. 2022 $450-$550 million $225-$275 million Revenue +$1 to $1.5 billion Retail 5 yr CAGR 3.8 to 5.5% Operating +$200 to $250 million Electric income 5 yr. CAGR 5.9 to 7.1% Retail Electric Ope
Slide 7: Funding & Financials: Objectives through 2022
FUNDING & FINANCIALS Objectives through 2022 Income Investment 2018 2019 2020 2021 2022 Investments in growth opportunities will result in start-up losses through 2019 Expect $450-$550 million cumulative by 2022 Intense cost focus 2018 2019 2020 2021 2022 Investments are expected to be funded by cos
Slide 8: More Roads strategy: product, retail and dealers
Keep current riders engaged and inspire new Meet customers where they are and Drive a performance framework to improve riders by extending heavyweight leadership how they want to engage with a dealer financial strength and the Harley- and unlocking new markets and segments multi-channel retail exper
Slide 9: Building the Next Generation of H-D Riders
BUILDING THE NEXT GENERATION OF H-D RIDERS We build riders More Roads content ▪ Nearly 2 million views across our social media channels ▪ Over 1 million visits to h-d.com #FindYourFreedom interns ▪ Over 200 million media impressions ▪ 43+ million social video views 115th Anniversary Celebrations ▪ 2
Slide 10: Financial Results
FINANCIAL RESULTS JOHN OLIN, SENIOR VICE PRESIDENT & CFO, HARLEY-DAVIDSON, INC. October 23, 2018 | Conference Call Slide Presentation
Slide 11: Q3 2018 vs. Q3 2017 Results
Q3 2018 VS. Q3 2017 RESULTS REVENUE NET INCOME EPS $1.32 $113.9 $0.68 Billion Million Consolidated – Motorcycles and Related Products and Financial Services Segments 14.3% 66.9% 70.0% Earnings impacted by: ▪ Motorcycles Segment operating income* up $48.3 million ̶ Revenue up 16.8% on 16.7% higher sh
Slide 12: Worldwide Retail Sales
WORLDWIDE RETAIL SALES vs. prior year Q3 Motorcycles Q3 YTD Worldwide 59,226 (7.8)% (5.9)% U.S. 36,220 (13.3)% (10.2)% International 23,006 2.6% 1.1% Source: Dealer reported data ▪ Q3 Worldwide retail sales down 7.8% ▪ U.S. retail sales down – Ongoing industry new motorcycle sales weakness Motorcycl
Slide 13: U.S. Retail Sales and Inventory
U.S. RETAIL SALES H-D U.S. NEW RETAIL MOTORCYCLE SALES H-D U.S. NEW 601+CC RETAIL MARKET SHARE* 124.8 53.1% 50.9% 50.7% 49.7% 112.0 (8.0)% +0.8 (2.2) (0.1) (1.0) Motorcycles (thousands) (10.2)% pts. pts. pts. pts. SHARE 41.8 36.2 (8.1)% (13.3)% Q3 '17 Q3 '18 YTD '17 YTD '18 RETAIL SALES Q3 '17 Q3 '1
Slide 14: International Retail Sales
INTERNATIONAL RETAIL SALES H-D INTERNATIONAL NEW RETAIL H-D EUROPE NEW 601+CC MARKET SHARE* MOTORCYCLE SALES 10.4% 9.6% Vs. prior year Q3 YTD SHARE International 2.6% 1.1% - EMEA 4.6% 4.7% Strong results across Sept YTD '17 Sept YTD '18 western Europe ▪ Market share gain behind strong Softail sales
Slide 15: Shipments & Mix
SHIPMENTS & MIX SHIPMENTS MOTORCYCLES SEGMENT Q3 '18 vs. PY YTD' 18 vs. PY Total 48,639 16.7% 185,176 (4.7)% Touring 45.7% 10.5 pts. 45.4% 4.0 pts. Cruiser* 33.0% (8.5) pts. 33.5% (1.3) pts. Street / 21.3% (2.0) pts. 21.1% (2.7) pts. Sportster® 100.0% 100.0% * Includes Softail and CVO, PY includes S
Slide 16: Motorcycles Segment Revenue
REVENUE REVENUE* MOTORCYCLES SEGMENT ($ millions) Q3 ‘18 vs. PY YTD ‘18 vs. PY Motorcycle $821.7 28.4% $3,144.8 5.7% P&A 212.4 (7.2) 612.5 (3.3) General Merchandise 58.3 (19.8) 183.5 (4.2) Licensing 10.6 7.8 29.4 0.7 Other 20.9 95.5 42.8 12.5 Total Revenue $1,123.9 16.8% $4,013.0 3.7% Motorcycles an
Slide 17: Gross Margin
GROSS MARGIN GROSS MARGIN MOTORCYCLES SEGMENT ($ millions) Q3 YTD 2017 Gross Margin $274.3 $1,322.1 % of revenue 28.5% 34.2% - Volume 28.2 (76.8) - Pricing net of cost 20.8 41.5 - Mix 34.1 97.0 - Currency (7.4) 8.3 - Raw materials (3.8) (13.2) - Manufacturing /other* 1.2 (25.6) 2018 Gross Margin $34
Slide 18: Operating Margin
OPERATING MARGIN OPERATING MARGIN MOTORCYCLES SEGMENT ($ millions) Q3 YTD 2017 Operating Income $17.4 $571.3 % of revenue 1.8% 14.8% - Gross Margin 73.1 31.1 - SG&A (10.0) (46.5) - Restructuring (14.8) (74.0) 2018 Operating Income $65.7 $481.9 % of revenue 5.8% 12.0% Motorcycles and Related Products
Slide 19: HDFS Operating Income
HDFS OPERATING INCOME FINANCIAL SERVICES SEGMENT ($ millions) Q3 YTD 2017 Operating Income $77.1 $211.6 - Net interest income 3.7 (4.5) - Provision for retail motorcycle loan losses 7.3 27.3 - Provision for wholesale loan losses (1.6) (0.7) - Operating expenses (3.2) (6.8) - All other 0.5 1.0 2018 O
Slide 20: HDFS Operations and Liquidity
HDFS 2018 FINANCIAL SERVICES SEGMENT OPERATIONS LIQUIDITY (Millions) Originations End of Q3 2018 New and used H-D retail motorcycle loans Cash & equivalents $350.3 Q3 $893.4M 9.3% vs. Q3 ’17 YTD $2.60B 3.5% vs. YTD ’17 Availability YTD approximately 80%-85% prime Bank Credit Facilities $171.1 Market
Slide 21: HDFS Retail Motorcycle Loan Performance
HDFS RETAIL MOTORCYCLE LOAN PERFORMANCE 5% 4.83% 4% 3.73% 3.72% 3.61% 3.60% 3.24% 3.11% 3.16% 3.00% 3% 2% Q3 '10 Q3 '11 Q3 '12 Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 3% 2.04% 2% 1.59% 1.73% 1.55% 1.11% 1.19% 1.08% 0.88% Financial Services Segment 1% 0.65% 0% Q3 '10 Q3 '11 Q3 '12 Q3 '13 Q3 '14 Q3
Slide 22: Harley-Davidson, Inc. Cash and Cash Flow
HARLEY-DAVIDSON, INC. 2018 HARLEY-DAVIDSON, INC. VS. PY ▪ Cash & marketable securities - $937.0 million vs. $683.1 million Q3 ▪ Operating cash flow - $1.12 billion vs. $949.1 million YTD Consolidated – Motorcycles and Related Products and Financial Services Segments ▪ Capital spending - $119.8 milli
Slide 23: Cash Generation/Returns
CASH GENERATION/RETURNS Harley-Davidson leads in cash generation and consistently returned cash to shareholders (2015-2017) 3-Yr. Avg. Free Cash Flow Conversion(1)(2) 3-Yr. Avg. Free Cash Flow Margin(1)(2) 3-Yr. Avg. ROIC and ROE(1)(3) 3-Yr. Avg. Cumulative Capital Return / Market Capitalization(1)(
Slide 24: Shareholder Returns
SHAREHOLDER RETURNS Harley-Davidson has consistently returned cash to shareholders Dividends Per Share Discretionary Share Repurchases $1.095 $1.11 $456.1 $1.20 $500 $1.10 $450 $1.00 $400 Year- $0.90 $350 over- $0.80 Millions $300 $222.0 $0.70 $187.8 $250 year $0.60 $0.365 $0.37 $200 $0.50 $150 $84.
Slide 25: Manufacturing Optimization
MANUFACTURING OPTIMIZATION Manufacturing Optimization Summary as of Oct. 23,2018 $ Millions (Estimated) 2018 2019 2020 Total Temporary Inefficiencies $15-$20 $15-$20 - $30-$40 Restructuring $85-$95 $40-$50 - $125-$145 Total Costs $100-$115 $55-$70 - $155-$185 % cash ~70% ~70% NA ~70% 2018 Actual Res
Slide 26: Guidance: 2018 Expectations
GUIDANCE 2018 EXPECTATIONS as of October 23,2018 Motorcycle shipments 231,000 to 236,000 Q4: 45,800 to 50,800 Down yr./yr. Gross margin % Motorcycles and Related (~flat excluding mfg. optimization and tariff impact)(1) Products segment Up yr./yr. SG&A (~flat as a percent of revenue) 9% to 10% Operat
Slide 27: Building the Next Generation of Harley-Davidson Riders Globally
HARLEY-DAVIDSON, INC. BUILDING THE NEXT GENERATION OF HARLEY-DAVIDSON RIDERS GLOBALLY Focused investments, strong returns to grow the company for the long-term October 23, 2018 | Conference Call Slide Presentation 27
Slide 28: Non-GAAP Measures
NON-GAAP MEASURES This presentation includes financial measures that have not been calculated in accordance with U.S. generally accepted accounting principles (GAAP), and are therefore referred to as non-GAAP financial measures. The non-GAAP measures listed below are intended to be considered by use
Slide 29: Reconciliation of GAAP to Non-GAAP Amounts
RECONCILIATION OF GAAP TO NON-GAAP AMOUNTS This presentation contains non-GAAP measures related to net income and diluted earnings per share that exclude manufacturing optimization costs. Reconciliations of non-GAAP amounts to reported GAAP amounts are included below. Three Nine months months In tho
Slide 30: Reconciliation of GAAP to Non-GAAP Amounts
RECONCILIATION OF GAAP TO NON-GAAP AMOUNTS This presentation contains performance measures calculated using non-GAAP amounts as inputs. These performance measures include: "3-yr. Avg. Free Cash Flow Conversion", "3-yr. Avg. Free Cash Flow Margin“, “3-Yr. Avg. ROIC and ROE”. Reconciliations of non-GA
Slide 31: Forward-Looking Statements
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 1995. These forward-looking statements can general