Harley-Davidson Inc. on January 22 reported full-year 2009 revenue of $4.29 billion and income of $70.6 million, or $0.30 per share, from continuing operations. In the fourth quarter, the company reported revenue of $764.5 million and a loss of $147.2 million, or $0.63 per share, from continuing operations. Affecting fourth-quarter results were a previously announced 53.1 percent reduction in Harley-Davidson motorcycle shipments from the year-ago period and $167.1 million in restructuring and Buell product line exit costs.
Including MV Agusta discontinued operations, the company reported a full-year net loss of $55.1 million, or $0.24 per share, and a fourth-quarter net loss of $218.7 million, or $0.94 per share.
"Our full-year 2009 results were affected by the difficult economy, as well as the planned actions we took that resulted in restructuring charges of $224 million. We believe these actions are critical to restoring greater profitability and long-term growth to Harley-Davidson," said Keith Wandell, Harley-Davidson Inc. president and chief executive officer. "We are confident we have made the right decisions for our future, and we are executing our strategy with focused intensity."
Full-Year and Fourth-Quarter Results
For the full-year from continuing operations: revenue was $4.29 billion in 2009 compared to $5.58 billion in 2008, a 23.1 percent decrease; income was $70.6 million in 2009 compared to $684.2 million in 2008, a decrease of 89.7 percent; and earnings per share decreased 89.7 percent to $0.30 in 2009, compared to $2.92 in 2008. Full-year results from continuing operations primarily reflect the effects of lower motorcycle shipments, restructuring and Buell product line exit costs, and non-cash charges related to Harley-Davidson Financial Services.
In the fourth-quarter of 2009, the company reported revenue of $764.5 million compared to $1.28 billion in the year-ago quarter, a 40.2 percent decrease, and a loss of $147.2 million, or $0.63 per share, compared to income of $91.9 million, or $0.40 per share in 2008, from continuing operations.
2010 Guidance
For 2010, the company expects to ship 201,000 to 212,000 Harley-Davidson motorcycles to dealers and distributors worldwide, a reduction of five to ten percent from 2009. "We believe 2010 will continue to be a challenging year," Wandell noted. In the first quarter of 2010, Harley-Davidson expects to ship 52,000 to 57,000 motorcycles. Gross margin is expected to be between 32.0 percent and 33.5 percent for the full year. The company expects full-year capital expenditures of between $235 million and $255 million, including $95 million to $110 million to support restructuring activities.
‘Delivering Results Through Focus’ Strategy
During the fourth quarter, the company moved forward with the execution of its business strategy, unveiled in October 2009, to deliver results by focusing on Harley-Davidson products and experiences, global expansion, demographic outreach and commitment to core customers. Additionally, the company will continue to expand its initiative to enhance profitability through continuous improvement in manufacturing, product development and business operations.
"Focusing our investment behind the uniquely strong Harley-Davidson brand provides the most attractive path to sustained, long-term growth," Wandell said. "We also expect to achieve substantial gains in the efficiency of our operations through continuous improvement."
Motorcycles and Related Products Segment
Fourth Quarter: Revenue from Harley-Davidson motorcycles during the fourth quarter of 2009 was $552.0 million, down 45.6 percent compared to the year-ago period. The company shipped 35,938 Harley-Davidson motorcycles to dealers and distributors worldwide, down 53.1 percent from the fourth quarter of 2008 but in line with previous guidance of 35,000 to 40,000 units. Revenue from Parts and Accessories totaled $144.6 million during the quarter, down 4.9 percent, and revenue from General Merchandise, which includes MotorClothes apparel, was $66.8 million during the quarter, down 3.2 percent compared to the year-ago period.
Gross margin percent was down during the quarter from the year-ago period, primarily as a result of fixed costs being spread over fewer units and the impact of exiting the Buell product line. Operating loss was $221.8 million compared to an operating income of $162.2 million in the fourth quarter of 2008. Operating margin was negatively affected by lower gross margin and restructuring charges incurred during the quarter.
Full-Year: For the full year 2009, revenue from Harley-Davidson motorcycles was $3.17 billion compared to $4.24 billion in 2008 on shipments of 223,023 Harley-Davidson motorcycles, compared to 303,479 motorcycles in 2008. Revenue from Parts and Accessories totaled $767.3 million in 2009, down 10.7 percent, and revenue from General Merchandise was $282.2 million, down 10.1 percent compared to 2008.
Full-year 2009 gross margin was 32.3 percent compared to 34.6 percent in 2008, and operating margin was 7.3 percent compared to 17.5 percent in 2008.
Retail Motorcycle Sales: During the fourth quarter, retail sales of Harley-Davidson motorcycles decreased 21.4 percent worldwide, 27.9 percent in the U.S. and 10.3 percent in international markets, compared to the prior-year quarter. Industry-wide U.S. retail heavyweight (651cc+) motorcycle sales declined 20.9 percent during the quarter, compared to the year-ago period.
For the full year 2009 compared to 2008, retail sales of Harley-Davidson motorcycles decreased 22.7 percent worldwide, 25.8 percent in the U.S. and 15.4 percent in international markets. Industry-wide U.S. retail heavyweight motorcycle sales declined 36.7 percent in 2009, compared to 2008.
Financial Services Segment
Harley-Davidson Financial Services (HDFS) recorded an operating loss of $7.1 million for the fourth quarter of 2009, compared to an operating loss of $24.9 million in the fourth quarter of 2008. Key drivers of reduced operating loss versus the year-ago quarter include a decrease in impairments on retained securitization interests and a decrease in fair value writedowns on held-for-sale receivables, partially offset by an increase in the provision for retail loan losses.
For the full year 2009, HDFS reported an operating loss of $118.0 million, compared to operating income of $82.8 million in 2008.
HDFS continued to access the capital markets during the quarter, raising $1.76 billion through the unsecured debt and term asset-backed securitization markets. Through its 2009 funding actions, HDFS expects to meet its 2010 anticipated funding requirements.
Restructuring
The company now expects previously announced restructuring activities that began in 2009 to result in total one-time charges of $430 million to $460 million into 2012, including charges of $175 million to $195 million in 2010. The company continues to anticipate annual ongoing total savings from restructuring of approximately $240 million to $260 million upon completion of all announced restructuring activities, including savings of approximately $135 million to $155 million anticipated in 2010.
In December, Harley-Davidson announced that, as a result of the ratification of a new seven-year labor agreement at its York, Pa. motorcycle production operations, the company is restructuring those facilities to focus on the core operations of motorcycle assembly, metal fabrication and paint. "When the restructuring is completed, we will have completely changed the face of how we build motorcycles in York and we expect significantly greater manufacturing flexibility and significant annual cost savings from a more efficient operation. It is a tribute to our employees at York that they understood we could not continue on the course we were on, and they worked with us to find a better way," said Wandell.
During the fourth quarter, the company made the decision to consolidate its vehicle test facilities from three locations, in Alabama, Arizona and Florida, into one location in Arizona.
Income Tax Rate
The company's full-year effective tax rate from continuing operations was 60.5 percent compared to 35.8 percent from the prior year. The increase was due primarily to the previously reported one-time charge for the Wisconsin tax law change and the non-deductible goodwill write-off for Harley-Davidson Financial Services, as well as the impact of reduced earnings. In 2010, the company expects its full-year effective tax rate to be approximately 36.5 percent from continuing operations.
Cash Flow
Cash and marketable securities totaled $1.67 billion as of Dec. 31, 2009, compared to $568.9 million at year end 2008. Cash provided by operating activities for continuing operations was $609.0 million and capital expenditures were $116.7 million in 2009. In the fourth quarter, Harley-Davidson Motor Company made a $215 million contribution to fund Company pension plans.
Discontinued Operations
The company continues to move forward with the sale of MV Agusta and is in the process of identifying potential buyers, following Harley-Davidson's decision in the fourth quarter of 2009 to divest the subsidiary. MV Agusta is now presented as a discontinued operation for all periods. For the full year of 2009, Harley-Davidson Inc. incurred a $125.8 million loss from discontinued operations, or a loss of $0.54 per share, comprised of operating losses as well as a fair value adjustment.
Company Background
Harley-Davidson Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company (HDMC), Harley-Davidson Financial Services (HDFS), Buell Motorcycle Company (Buell), and MV Agusta.