Harley-Davidson(HOG) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net income increased by 38.9%, with earnings per share rising by 41.8% year-over-year to $0.78 [18] - The motorcycles segment operating income slightly declined year-over-year due to shipment declines and restructuring expenses, offset by cost reductions [18] - Financial Services operating income rose by 25%, driven by lower provisions for credit losses and reduced operating expenses [18] Business Line Data and Key Metrics Changes - Global retail sales of new Harley-Davidson motorcycles decreased by 8.1% year-over-year, primarily due to a 10.3% decline in the U.S. market [19] - The U.S. retail sales for 601+cc new bike registrations were down 8.5%, while the overall U.S. market for 601+cc new retail sales increased by 7.5% [20] - International retail sales in EMEA increased by nearly 7%, while Asia Pacific sales declined by 5.5% [20] Market Data and Key Metrics Changes - The company exited about 40 markets where low volume and little profit did not warrant investment, establishing a distributor model in 17 markets [12] - The U.S. market remains the top priority, with a focus on improving dealer profitability and customer experience [10][12] - The overall motorcycle inventory decreased by 34% globally, indicating a commitment to supply and inventory management [21] Company Strategy and Development Direction - The Rewire playbook aims to simplify operations, reduce costs, and focus on profitable products and markets, setting the foundation for the upcoming Hardwire strategic plan [30][31] - The Hardwire plan will emphasize desirability as a core strategy, focusing on profitable growth across motorcycles, parts, accessories, and general merchandise [31][32] - The company is exploring new segments, including adventure touring, while maintaining a stronghold in existing categories [33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges due to COVID-19 but expressed confidence in the company's strong liquidity position and cash management efforts [8][29] - The focus will be on desirable and profitable volume rather than just unit growth, with expectations of market share volatility in the coming quarters [21][55] - Management emphasized the importance of maintaining brand value and avoiding discounting practices that could devalue the brand [54] Other Important Information - The company announced a Q4 dividend of $0.02 per share, consistent with previous quarters, and suspended share repurchases to preserve cash [8][28] - Restructuring charges for the year are expected to total $169 million, with anticipated annual ongoing savings of $150 million beginning in 2021 [19][80] Q&A Session Summary Question: Impact of the new distributor model on margins - Management indicated minimal impact on margins from the distributor model, as these markets represent a small portion of overall sales [41] Question: Long-term topline potential after cost cuts - Management refrained from providing topline guidance but emphasized the focus on profitable growth rather than volume for its own sake [42][43] Question: Allocation of motorcycles to dealerships - The company allocates motorcycles based on dealer supply and projected forward sales, ensuring dealers with shorter supply times are prioritized [46] Question: Impact of dealer closures on shipments and retail - Approximately 61 full-line dealerships were closed, representing about 4% of the total, but this has led to improved dealer profitability and pricing [49][50] Question: Expectations for market share and competitive dynamics - Management acknowledged a drop in market share but reiterated the focus on building desirability rather than volume, with plans to manage inventory tightly [55][84] Question: Supply chain disruptions - Management reported no significant supply chain disruptions currently, although complexities have increased due to COVID-19 [58][59] Question: Future product introductions and model year changes - Regular introduction of new models will resume next year, with a shift in model year changeover to the beginning of the calendar year [67][69] Question: Percentage impact of exiting markets on sales and profits - The impact of exiting 39 markets is minimal, likely less than 1% of worldwide unit sales and profits [72] Question: Preparation for potential bans on gas-powered motorcycles - The company is committed to electric motorcycles, with the LiveWire model leading the segment, indicating a proactive approach to future regulations [76]