Harley-Davidson, Inc. 2022 Q3 SEC Filing Summary
Business Context and Reporting Period
Harley-Davidson operates through Motorcycles and Related Products and Financial Services. This unaudited Form 10-Q covers the three and nine months ended September 25, 2022, compared with September 26, 2021.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $1.649 billion | $1.365 billion | $4.613 billion | $4.320 billion |
| Operating income | $338.7 million | $204.2 million | $905.6 million | $830.7 million |
| Net income | $261.2 million | $163.0 million | $699.5 million | $628.5 million |
| Diluted EPS | $1.78 | $1.05 | $4.68 | $4.06 |
| Operating margin | 20.5% | 15.0% | 19.6% | 19.2% |
| Net margin | 15.8% | 11.9% | 15.2% | 14.5% |
| Operating cash flow | Not separately provided | Not separately provided | $574.7 million | $925.6 million |
Motorcycles revenue increased 23.8% in Q3 and 7.6% year to date. Motorcycles operating income rose 163.9% in Q3 to $257.8 million, with a 17.9% operating margin versus 8.4% in the prior-year quarter. Financial Services operating income declined 24.0% in Q3 to $81.0 million and declined 20.8% year to date to $253.2 million.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $1.730 billion at September 25, 2022, compared with $1.875 billion at December 31, 2021 and $2.061 billion at September 26, 2021.
- Cash, cash equivalents and restricted cash totaled $2.042 billion at quarter-end. Total liquidity, including cash and reported availability under credit and conduit facilities, was $3.667 billion.
- Total debt was $7.171 billion, compared with $7.232 billion at September 26, 2021. Brokered certificates of deposit totaled $344.7 million.
- Net finance receivables were $7.342 billion, up from $6.863 billion a year earlier. The allowance for credit losses was $360.1 million versus $355.8 million.
- Nine-month investing cash outflow was $745.7 million, including $84.9 million of capital expenditures and $662.9 million of net finance-receivable funding.
- The company repurchased $338.5 million of common stock and paid $70.2 million of dividends during the first nine months. Approximately 9.9 million shares remained authorized for repurchase at September 25, 2022.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 20.7%, operating income increased 65.9%, net income increased 60.3%, and diluted EPS increased 69.5%.
- Motorcycle shipments rose 19.0% in Q3 as the company recovered much of the volume lost during the two-week production and shipment suspension in Q2. Nine-month shipments increased only 0.4%.
- Worldwide retail sales declined 2.3% in Q3 and 9.4% year to date. U.S. retail sales declined 5.4% in Q3 and 15.1% year to date, primarily reflecting low dealer inventory.
- Motorcycles profitability benefited from higher shipments, pricing, favorable mix and lower EU tariff costs. These benefits were partly offset by supply-chain costs, unfavorable foreign exchange and higher operating expenses.
- Financial Services credit-loss provision increased to $36.6 million in Q3 from $11.2 million and to $94.6 million year to date from $4.9 million. Annualized retail credit losses rose to 1.48% from 0.84%, while 30-day delinquencies rose to 3.66% from 2.76%.
- Operating cash flow decreased $350.8 million year to date, mainly because of less favorable working-capital changes and higher net cash outflows for wholesale financing.
Guidance, Outlook, Risks and Unusual Items
- Management maintained 2022 Motorcycles revenue growth guidance of 5% to 10% and Motorcycles operating margin guidance of 11% to 12%.
- Financial Services operating income was expected to decline 20% to 25% in 2022. Capital investment guidance was reduced to $170 million to $190 million from $190 million to $220 million.
- Management expected to recover the remaining shipment volume lost during the Q2 suspension in Q4, but anticipated lower Q4 wholesale shipments and higher product-development, marketing and model-year launch costs.
- Supply-chain disruption, semiconductor shortages, inflation, logistics costs, foreign exchange, the Ukraine conflict and potential recession remain significant risks. Management expected Q4 supply-chain inflation to be similar to Q3, with logistics and material costs improving through year-end.
- A regulatory compliance matter involving a supplier component caused the Q2 production and shipment suspension. The company could not reasonably estimate potential additional costs or recall expenses; it stated that material costs were not currently expected but remained possible.
- Recall liabilities increased to $31.2 million at quarter-end from $21.9 million a year earlier. Total warranty and recall liabilities were $77.9 million.
- On September 26, 2022, LiveWire completed its merger with AEA-Bridges Impact Corp. LiveWire received approximately $294 million of net proceeds, and Harley-Davidson retained approximately 89.4% ownership after investing $180 million net of transaction expenses. The company will continue consolidating LiveWire.
- The U.S. asset-backed commercial paper conduit commitment was increased from $900 million to $1.5 billion, with up to an additional $300 million subject to lender discretion. The facility was scheduled to expire November 18, 2022, and the company expected renewal.
- The company stated that it remained in compliance with applicable financial covenants and that disclosure controls were effective.
Most Important Facts for Investors to Verify
- Whether the company achieved the guided 5% to 10% 2022 Motorcycles revenue growth and 11% to 12% segment operating margin.
- Whether dealer inventory recovery and Q4 shipments translated into improved retail sales, particularly in the United States.
- Subsequent trends in Financial Services delinquencies, charge-offs, allowance rates and funding costs.
- The final financial impact of the supplier compliance matter, including any recall, warranty or production costs.
- LiveWire’s post-transaction cash use, operating losses, dilution and progress toward commercial scale and profitability.
- Renewal and pricing of the U.S. conduit facility and the company’s ability to refinance upcoming debt maturities.
- Exposure to tariffs after December 31, 2023, supply-chain inflation, foreign exchange volatility and recession-related demand deterioration.