Harley-Davidson Q2 Earnings & Revenues Beat, Decline Y/Y - Analyst Blog
Harley-Davidson, Inc. HOG reported an 11.1% year-over-year decline in earnings to $1.44 per share in the second quarter of 2015 from $1.62 recorded in the year-ago quarter. However, earnings beat the Zacks Consensus Estimate of $1.39.
The year-over-year fall was due to lower motorcycle shipments, which was a conscious decision by the company to keep supply on par with demand and manage the competitive pressure arising from currency impact in the U.S. Net income decreased to $299.8 million from $354.2 million a year ago.
Consolidated revenues declined 9.9% to $1.82 billion. However, the figure surpassed the Zacks Consensus Estimate of $1.66 billion. Operating income decreased 15.6% to $462.5 million from $547.7 million in the second quarter of 2014.
Motorcycles and Related Products
Revenues from Motorcycles and Related Products declined to $1.65 billion in second-quarter 2015 from $1.83 billion in the year-ago quarter. Operating income from Motorcycles and Related Products decreased to $380.6 million from $473.3 million a year ago. The year-over-year decline was due to unfavorable currency translation and lower motorcycle shipments.
Revenues from Harley-Davidson motorcycles fell 11.6% to $1.31 billion. Harley-Davidson shipped 85,172 motorcycles to dealers and distributors worldwide during the second quarter of 2015, compared with 92,217 shipments in second-quarter 2014.
Harley-Davidson’s worldwide dealer retail sales of new motorcycles went down 1.4% to 88,931 units from 90,218 motorcycles sold in the year-ago quarter. Sales in the U.S dropped 0.8% to 57,790 motorcycles. International sales went down 2.7% to 31,141 motorcycles from 31,993 motorcycles sold in the prior-year quarter. An improvement of 16.6% in sales in the Asia-Pacific region was offset by an 8.9% fall in the Europe, Middle East, and Africa (“EMEA”) region, a 2.6% decline in the Latin America region, and a 9.9% decrease in Canada.
Revenues from Parts and Accessories decreased 5.4% to $256.8 million, while revenues from General Merchandise – which includes MotorClothes apparel and accessories – improved 1.5% to $77.5 million.
Harley-Davidson Financial Services (HDFS)
Revenues in the Financial Services segment rose 4.3% to $173.6 million in second-quarter 2015. Operating income increased 10% to $81.9 million from $74.4 million in the year-ago quarter, backed by favorable net interest income.
Financial Position
Harley-Davidson had cash and cash equivalents of $1.25 billion as of Jun 28, 2015, compared with $999.3 million as of Jun 29, 2014. Total debt increased to $6.2 billion from $5.4 billion as of Jun 29, 2014.
In the first half of 2015, Harley-Davidson’s operating cash flow improved to $613.9 million from $570.6 million in the same period a year ago. Capital expenditures increased to $85.2 million from $74.5 million in the first half of 2014.
Share Repurchases
Harley-Davidson spent $164.8 million to repurchase 2.8 million shares in the second quarter of 2015.
On Jun 17, 2015, Harley-Davidson announced that its board has authorized the repurchase of an additional 15 million shares, which consist of 7.2% of the outstanding shares as of May 1, 2015. This is in addition to the buyback of up to 20 million shares authorized in Feb 2014.
Harley-Davidson will obtain a long-term debt of $750 million in third-quarter 2015 to buy back shares during the second half of the year. The company expects the increase in debt and share repurchases to be cumulatively accretive to its earnings per share this year.
As of Jun 30, 2015, Harley-Davidson had remaining authorization to buy back nearly 30.9 million shares.
Looking Forward
Harley-Davidson reaffirmed the guidance for growth rate of motorcycle shipments in 2015 at 2–4%. The company expects shipment of 276,000–281,000 units this year.
Harley-Davidson also reiterated the guidance for operating margin from the Motorcycle segment in the range of 18–19%, and capital expenditures of $240–$260 million for 2015. The company expects operating income from the Financial Services segment to increase marginally in 2015, compared to the previous projection of a decline.
Harley-Davidson’s agreement with Deeley Harley-Davidson Canada, that will allow the former to directly distribute its motorcycles to independently-owned Harley-Davidson dealers in Canada, is expected to culminate by Aug 2015. The deal will adversely affect earnings per share for 2015 by around 4 cents due to transition costs.
In the third quarter of 2015, Harley-Davidson expects to ship 54,000–59,000 motorcycles, compared with 50,670 motorcycles shipped in the year-ago period.
Zacks Rank
Currently, Harley-Davidson carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks include The Goodyear Tire & Rubber Company GT, PACCAR Inc. PCAR and Pep Boys - Manny, Moe & Jack PBY. Pep Boys currently sports a Zacks Rank #1 (Strong Buy), while both PACCAR and Goodyear carry a Zacks Rank #2 (Buy).
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