Harley-Davidson(HOG) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenue in Q2 2025 decreased by 19%, largely in line with expectations across HDMC and HDFS, while revenue also decreased at LiveWire [27] - Consolidated operating income for Q2 was $112 million, a decline of 69% at HDMC, while HDFS operating income decreased by 2% [28] - Earnings per share for Q2 was $0.88, with global retail sales down 15% year-over-year [28][29] - Operating cash flow was $509 million, down $68 million from the prior period, with total cash and cash equivalents at $1.6 billion, a decrease of $261 million year-over-year [46][47] Business Line Data and Key Metrics Changes - HDMC revenue decreased by 23% in Q2, driven by a 28% decline in motorcycle shipments, totaling 36,000 units compared to 50,000 units in the prior year [34] - HDFS revenue was $257 million, a decrease of 2%, with operating income at $70 million, down 2% compared to last year [43] - LiveWire reported an operating loss of $19 million, an improvement from a $28 million loss in the prior Q2, with unit sales down to 55 from 158 [46] Market Data and Key Metrics Changes - North American retail sales were down 17%, while international markets saw a decline of 12% [28][29] - In EMEA, retail was down 5%, with growth in Germany and the Benelux regions offset by declines in France and the UK [30] - Asia Pacific retail was down 21%, attributed to intense competition in the lightweight motorcycle segments [31] Company Strategy and Development Direction - The company has entered strategic partnerships with KKR and PIMCO for HDFS, aiming to enhance long-term value and reduce overall funding costs [3][5] - A new efficiency program will be introduced to enhance productivity, leveraging technology including AI for cost savings [11] - Plans to launch new entry-level products and a small displacement motorcycle are set for 2026, targeting an entry price below $6,000 [20][19] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing economic uncertainty and elevated interest rates impacting customer purchasing behavior [10][29] - There are signs of improvement in customer traffic in North America, with expectations for positive comp growth in the latter half of the year [64][65] - The company remains cautious about the global tariff environment, estimating a full-year impact from tariffs to be between $50 million and $85 million [42] Other Important Information - The HDFS transaction is expected to generate $1.25 billion in cash for Harley Davidson, allowing for debt reduction and share buybacks [9][49] - The company plans to reduce debt by $450 million and invest up to $300 million in future growth opportunities [49] Q&A Session Summary Question: What are the components used to calculate the 1.75 times book value marker for the HDFS transaction? - The calculation is based on the proceeds from KKR and PIMCO for their equity investment in the business, reflecting the premium paid versus the post-transaction book value [51][53] Question: What is driving the underlying profitability of HDFS, and what is the normalized profitability expected in 2026? - The profitability has improved due to stabilization in used values and better repossession rates, with normalized earnings expected to be around $240 million to $250 million annually [55][62] Question: How does the company feel about current dealer inventories and the target for year-end? - The company expects a significant reduction in dealer inventory, targeting a double-digit decline by year-end [69][70] Question: What is the rationale for the 4.9% equity sale in the HDFS transaction? - The 4.9% limit is due to regulatory requirements from the FDIC regarding ownership percentages in the HDFS business [76][78]