Harley Reports Record Second Quarter

Elliot Strong
by Elliot Strong
Ever wanted to learn about the inner workings of Harley, but were afraid to ask? Read on...

Milwaukee, Wis., July, 2002 -- Harley-Davidson, Inc. (NYSE: HDI) today announced record revenue and earnings for its second quarter ended June 30, 2002. The Company's second quarter revenue was $1.0 billion, an increase of 16.1 percent over the same period last year. Diluted earnings per share for the second quarter were 47 cents, a 25.4 percent increase compared to last year.

"In the midst of challenging economic times, we are pleased to deliver another record quarter," said Jeffrey L. Bleustein, chairman and chief executive officer of Harley-Davidson, Inc. "Worldwide retail sales of Harley-Davidson motorcycles for the first half of the year grew 19 percent over the same time period last year. Our 100th Anniversary products were enthusiastically received by our global dealer network during our Summer Dealer Meeting which just concluded in Milwaukee. On July 17, several hundred of our dealers and employees will fire up the new bikes and head south to Atlanta for the kick-off of Harley-Davidson's 100th Anniversary Open Road Tour. The Atlanta event, July 19-21, is the first of 10 events to be held around the world to celebrate our rich history and, more importantly, the beginning of our next 100 years," said Bleustein.

Motorcycles and Related Products Segment - Second Quarter Results

Second quarter revenue from Harley-Davidson motorcycles was $760.1 million, an increase of 12.7 percent over last year. Shipments of Harley-Davidson motorcycles in the second quarter totaled 65,540 units, up 5,379 units or 8.9 percent over last year. As a result of continued manufacturing success and customer demand, the Company is increasing its 2002 target for Harley-Davidson motorcycles from 261,000 to 262,000, an 11.2 percent increase over the prior year.

Second quarter revenue from Parts and Accessories (P&A), which consists of Genuine Motor Parts and Genuine Motor Accessories, totaled $168.8 million, a 21.8 percent increase from the year-ago quarter.

Second quarter revenue from General Merchandise, which consists of MotorClothes apparel and collectibles, totaled $51.3 million, up 54.7 percent or $18.1 million over the same period last year. Revenue from 100th Anniversary MotorClothes items accounted for more than $10 million of the increase.On a longer-term basis, the Company expects the growth rate for P&A revenues to increase slightly faster than the Harley-Davidson motorcycle unit growth rate. General Merchandise is expected to grow slightly slower than the motorcycle unit growth rate.

Second quarter gross margin was 33.5 percent of revenue, which matches 2001's second quarter gross margin. Second quarter operating margin for the Motorcycles and Related Products Segment was 18.3 percent of revenue, compared to 17.9 percent of revenue for the same period last year.

Pension Plan Assumption

During the quarter, the Company adjusted its long-term expected return on pension plan assets from 10.5 to 8.5 percent as a result of projected market conditions. The pre-tax impact of this change was a $3 million expense for the quarter and is expected to be approximately $6 million in expense for the full year.

Harley-Davidson Retail Data

Retail sales of Harley-Davidson motorcycles in the United States were up 20.4 percent for the period January through June 2002, when compared to the same period last year. Harley-Davidson retail sales in Europe and Japan were up 11.3 and 10.3 percent, respectively, when compared with 2001. Refer to the accompanying table for available industry data.

Financial Services Segment - Second Quarter Results

Harley-Davidson Financial Services, Inc. (HDFS) reported second quarter operating income of $37.0 million, up from $23.1 million in the year-ago quarter. The subsidiary's performance was better than expected and was driven primarily by strong retail loan originations through the dealer network and strong credit quality of its loan portfolio. The Company's second quarter securitization of $586 million of motorcycle retail loans resulted in a gain of $21.4 million, which compares to a securitization of $366 million and gain of $16.8 million during the prior year second quarter.The Company is raising its expectation for HDFS's total year 2002 operating income to be approximately 50 percent higher than 2001 performance. Over the long term, the Company expects the HDFS growth rate to be slightly higher than the Company's motorcycle unit growth rate.

Cash Flow Reporting

With this second quarter report, Harley-Davidson is providing investors with even greater financial transparency by including a cash flow statement as one of the supporting schedules.

"We are continuing our practice of providing clear and concise financial information to the investment community," said James L. Ziemer, vice president and chief financial officer of Harley-Davidson, Inc. "Operations generated cash of over $427 million during the first six months of 2002, allowing us to fund our manufacturing expansion and maintain the strength of our balance sheet."

Share RepurchaseDuring the quarter, the Company repurchased approximately 514,000 shares of its common stock. This brings the share repurchase amount to 1,089,000 shares on a year to date basis.

Harley-Davidson, Inc. - Six Month Results

For the six month period, revenue totaled $1.93 billion, a 17.7 percent increase over the year-ago period. Diluted earnings per share were 87 cents, an increase of 27.7 percent compared to the first six months last year. Shipments of Harley-Davidson motorcycle units were 130,209 a 13.9 percent increase over last year's 114,315.

Through the first six months of this year, Harley-Davidson motorcycle revenue was $1.51 billion, a 17.0 percent increase over the $1.29 billion in revenue in 2001.

For the first six months of 2002, P&A revenue totaled $300 million, a 21.2 percent increase over last year's $247.5 million, while General Merchandise revenue totaled $93.6 million, a 29.4 percent increase compared with $72.3 million during the same period in 2001.For the first six months, HDFS operating income was $49.2 million, a $21.1 million increase.

Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services, Inc. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. Buell Motorcycle Company produces sport and sport-touring motorcycles. Harley-Davidson Financial Services, Inc. provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and customers.

Forward-Looking Statements

The Company intends that certain matters discussed in this release are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or "estimates" or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Certain of such risks and uncertainties are described below. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this release are only made as of the date of this release, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The Company's ability to reach targeted production objectives and maintain revenue and income growth depends upon, among other factors, the Company's ability to (i) continue to realize production efficiencies at its production facilities through the implementation of innovative manufacturing techniques and other means, (ii) successfully implement production capacity increases in its facilities, (iii) successfully introduce new products and services, (iv) avoid unexpected P&A /general merchandise supplier backorders, (v) sell all of the motorcycles it has the capacity to produce, (vi) continue to develop the capacity of its distributor and dealer network, (vii) avoid unexpected changes in the regulatory environment for its products, (viii) successfully adjust to foreign currency exchange rate fluctuations, (ix) successfully adjust to interest rate fluctuations, and (x) successfully manage changes in the credit quality of HDFS's loan portfolio.

In addition, the Company could experience delays in the operation of manufacturing facilities, work stoppages, difficulty with suppliers, natural causes or other factors. Risk factors are also disclosed in documents previously filed by the Company with the Securities and Exchange Commission.

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