Harley-Davidson, Inc. 2024 Q1 Form 10-Q Summary
Business context and reporting period
Harley-Davidson, Inc. filed an unaudited Form 10-Q for the three months ended March 31, 2024. The company operates through Harley-Davidson Motor Company (HDMC), LiveWire and Harley-Davidson Financial Services (HDFS).
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.730 billion | $1.789 billion | (3.3%) |
| Operating income | $263.1 million | $369.6 million | (28.8%) |
| Net income attributable to Harley-Davidson | $234.9 million | $304.1 million | (22.7%) |
| Diluted EPS | $1.72 | $2.04 | (15.7%) |
| Operating margin | 15.2% | 20.7% | Down 5.4 percentage points |
| Effective tax rate | 20.0% | 23.0% | Down 3.0 percentage points |
| Net cash from operating activities | $104.0 million | $46.7 million | Increase of $57.3 million |
Motorcycles and related products revenue was $1.481 billion, down 5.4%. Financial services revenue increased 11.5% to $248.8 million. HDMC operating income declined 29.0% to $238.4 million, LiveWire’s operating loss increased to $29.2 million from $24.5 million, and HDFS operating income declined 7.8% to $53.9 million.
Cash, cash equivalents and restricted cash totaled $1.607 billion at March 31, 2024, including $1.465 billion of cash and cash equivalents. Total debt was $7.209 billion, and brokered certificates of deposit totaled $441.2 million. Management reported $2.947 billion of cash and available credit and conduit capacity, including $997.5 million of U.S. conduit availability and $481.3 million of net credit facility availability.
Finance receivables, net were $7.906 billion, compared with $7.498 billion at December 31, 2023 and $7.574 billion at March 31, 2023. The allowance for credit losses was $380.4 million. Retail loan annualized losses increased to 3.74% from 3.21%, and the 30-day delinquency rate increased to 4.00% from 3.74%.
Material changes versus the prior comparable period
- Worldwide retail motorcycle sales were essentially flat at 39,405 units. North America increased 5.6%, while EMEA declined 11.0% and Asia Pacific declined 12.3%.
- Worldwide motorcycle shipments fell 7.3% to 57,672 units, reflecting lower wholesale shipments and a planned shift toward Grand American Touring models.
- HDMC revenue declined primarily because of lower shipments, elimination of the pricing surcharge, revised 2024 pricing and higher promotional costs. Gross profit fell 17.2%, and operating margin declined to 16.2% from 21.6%.
- HDFS interest income increased 15.9% because of higher average finance receivables and yields, but higher funding costs, credit losses and operating expenses reduced segment operating income.
- Finance services interest expense increased 20.7% to $88.7 million, while the provision for credit losses increased 16.5% to $61.0 million.
- Cash flow from operations improved, but total cash, cash equivalents and restricted cash declined by $41.4 million during the quarter. The company spent $46.4 million on capital expenditures, repaid $234.2 million of securitization debt, paid $24.4 million of dividends and repurchased $107.8 million of common stock.
- Weighted-average diluted shares declined to 136.9 million from 148.9 million, primarily because of share repurchases.
Guidance, outlook, commentary and risks
Management said first-quarter results were generally in line with expectations and reaffirmed its 2024 HDMC and HDFS outlook while revising LiveWire’s expected loss. HDMC revenue is expected to be flat to down 9%, worldwide dealer retail unit sales are expected to be flat to up 9%, and wholesale shipments are expected to decline 1% to 10%. HDMC operating margin is expected to be 12.6% to 13.6%.
LiveWire motorcycle sales are expected to be 1,000 to 1,500 units, with a 2024 operating loss forecast of $105 million to $115 million, improved from the prior $115 million to $125 million range. HDFS operating income is expected to be flat to up 5%. Management expects HDFS credit losses to moderate in the second half of 2024 and expects interest rates to moderate, although the timing remains uncertain.
2024 capital investments are expected to be $225 million to $250 million. The company expects approximately $100 million of additional productivity savings and plans to repurchase a similar dollar amount of shares in 2024 as in 2023, subject to market and liquidity conditions.
Management identified persistent high interest rates, inflation, muted consumer confidence, higher motorcycle payments, lower auction recovery values, foreign exchange movements, supply-chain and logistics issues, tariffs, dealer health, product acceptance and credit performance as important risks.
The company has not accrued costs for brake-hose regulatory compliance matters involving supplier Proterial Cable America. It estimates that a required field action or recall could cost approximately $100 million to $400 million, although management expects NHTSA to grant requested inconsequentiality determinations. The company also has warranty and recall liabilities of $67.2 million, including $17.7 million related to recall campaigns.
The U.S. asset-backed commercial paper conduit facility had a November 20, 2024 expiration date, and the Canadian conduit had a June 28, 2024 expiration date; management expects these facilities to be renewed. On April 12, 2024, the company extended a $710 million global credit facility from April 2025 to April 2029. The company reported compliance with its financial covenants as of March 31, 2024.
Important facts for investors to verify
- Whether North American retail momentum and new Touring models offset international weakness and lower wholesale shipments.
- Whether HDMC margins reach the 12.6% to 13.6% 2024 guidance range amid pricing changes, lower volumes, foreign exchange and manufacturing costs.
- HDFS retail credit losses, delinquency trends, recovery values and allowance adequacy in a high-rate, inflationary environment.
- Renewal of the Canadian and U.S. asset-backed conduit facilities before their stated expiration dates.
- The status and potential cost of the PCA brake-hose regulatory matter and any NHTSA determination or recall requirement.
- LiveWire unit sales, operating losses, funding needs and progress toward its 2024 outlook.
- The sustainability of share repurchases and dividends relative to operating cash flow, debt maturities and HDFS funding requirements.