Company Generates Net Income of $117.3 Million, Inclusive of Restructuring and One-Time Tax Charges.
Harley-Davidson, Inc. (NYSE:HOG) reported decreased revenue, net income and diluted earnings per share for the first quarter of 2009 compared to the year-ago period. Worldwide retail sales of Harley-Davidson® motorcycles in the first quarter declined 12.0 percent and U.S. retail sales declined 9.7 percent from last year’s first quarter.
"While we are mildly encouraged by the fact that the U.S. retail sales rate declined less in the first quarter than in the prior two quarters, we remain cautious and continue to expect 2009 to be an extremely challenging business environment," said Jim Ziemer, President and Chief Executive Officer of Harley-Davidson, Inc. "We continue to make good progress in executing our strategy for the economic downturn, and we will continue to manage our business with strong discipline."
In January, the Company announced initial estimates that its planned unit volume reduction and operations restructuring would result in the elimination of about 800 hourly production jobs during 2009 and 2010. After further development and refinement of production and restructuring plans, the Company now expects that approximately 300 to 400 additional production jobs will be eliminated over the two years.
The Company today reaffirmed its plans to ship between 264,000 and 273,000 Harley-Davidson motorcycles to dealers worldwide in 2009, a 10 percent to 13 percent reduction from 2008.
First Quarter Results Summary
Net income and diluted earnings per share during the quarter were significantly affected by costs associated with previously announced volume reduction and operations restructuring activities and by an unrelated change in Wisconsin tax law. The Company recorded pre-tax restructuring costs of $34.9 million during the first quarter. The Company also incurred a one-time $22.5 million tax charge related to a change in Wisconsin tax law enacted mid-quarter without public hearings and which applied retroactively to Jan. 1, 2009. In light of these one-time costs, net income for the quarter was $117.3 million compared to $187.6 million in the first quarter of 2008, on revenue of $1.29 billion compared to $1.31 billion in the year-ago period. The Company reported diluted earnings per share of $0.50 in the quarter, versus $0.79 a year ago.
The Company shipped 74,670 Harley-Davidson motorcycles in the first quarter of 2009 compared to 71,868 motorcycles shipped in the year-ago period and within the Company’s guidance for the quarter.
Second-Quarter Shipments and Full-Year Gross Margins
The Company plans to ship 55,000 to 59,000 Harley-Davidson motorcycles during the second quarter of 2009. The Company also reaffirmed its expectation for full-year gross margins to be between 30.5 percent and 31.5 percent, which compares to 34.5 percent for the full year 2008. The decrease is primarily due to an expected unfavorable shipment mix versus 2008, the allocation of fixed costs over fewer units, and expected unfavorable foreign currency exchange rates versus 2008.
Strategy for the Current Economic Environment
On Jan. 23, 2009, Harley-Davidson announced a three-part strategy for managing through the global economic downturn and strengthening its operations and financial results going forward. That strategy consists of: 1) continuing to invest in the Harley-Davidson brand; 2) creating the appropriate cost structure; and 3) obtaining funding to support the lending activities of Harley-Davidson Financial Services (HDFS).
"We have a clear strategy and we expect that it will enable us to emerge from the economic downturn in a position of strength," said Ziemer. "And our team continues to execute our strategy with confidence and conviction."
Brand Investment
In the first quarter, the Company’s "Ride Free" Sportster® motorcycle trade-up program successfully created consumer interest and reinforced the brand value of Harley-Davidson motorcycles. Starting in April, the Company rolled out a national "Super Ride" program. This program provides an expanded opportunity for U.S. consumers to test ride a wide range of Harley-Davidson motorcycles at participating dealerships.
"Demo rides have proven to be one of the most effective ways to turn dreamers into customers and to get current customers excited about a new motorcycle. Through all of our marketing, we are reaching consumers in ways that support the brand and the value proposition of our motorcycles," said Ziemer.
Cost Structure
The Company is proceeding on schedule with its previously announced volume reduction and plans for consolidating production operations. Planning also continues on schedule for the consolidation of Parts and Accessories and General Merchandise distribution through a third-party provider. In early April, the Company completed the transition of its U.S. transportation fleet operations to a third-party provider.
In January, the Company initially had estimated that the planned volume reduction and restructuring actions would result in the elimination of about 1,100 jobs over the course of 2009 and 2010, consisting of about 300 non-production, primarily salaried positions and about 800 hourly production positions. The Company now estimates that an additional 300 to 400 hourly production jobs will be eliminated.
"We don’t make any job reduction decisions lightly," said Ziemer. "But based on further planning since January and a deeper analysis of our production requirements, we have now determined that fewer production employees will be required. We will continue to work with the union leadership as we move forward, and as always, we will appropriately manage Harley-Davidson based on business conditions and the needs of the marketplace."
On a combined basis, Harley-Davidson expects the volume reduction and restructuring activities to result in one-time charges of approximately $120 million to $150 million over the course of 2009 and 2010, including $34.9 million incurred during the first quarter of 2009. The Company now estimates ongoing annual savings of approximately $70 million to $80 million upon completion of the restructuring actions, with 2009 savings estimated to be $20 million to $25 million and 2010 savings estimated to be $40 million to $55 million.
HDFS Funding
The Company continues to act on a number of fronts to obtain the necessary funding to support the lending activities of HDFS. In February, the Company raised $600 million for HDFS through the issuance of senior unsecured notes. Harley-Davidson, Inc. also preserved about $54 million in cash during the first quarter through a reduction in the dividend paid in March. On March 18, 2009, the Company extended its $500 million asset-backed commercial paper conduit facility to March 2010, and in coming weeks anticipates increasing the size of that facility to provide additional funding. At that same time, the Company also anticipates renewing a substantial portion of a $950 million, 364-day senior unsecured bank credit facility which is due to expire in July 2009. In addition, the Company intends to access the term asset-backed securitization market in the second quarter of 2009, which transaction the Company expects to be eligible for the Federal Reserve Bank’s Term Asset-Backed Securities Loan Facility (TALF) program.
"We continue to make good progress on funding the needs of HDFS through the paths we have identified previously and anticipate that we will be able to obtain the needed liquidity," said Tom Bergmann, Chief Financial Officer of Harley-Davidson, Inc. and interim President of HDFS.
