A casual glance at Harley-Davidson’s overall numbers for the first half of 2023 promised positivity. But a succession of second-quarter woes really spoilt the party. BDN financial editor Roger Willis reports.
Six months into the year, total turnover had risen by 9.1% to £2.531bn. Revenue from motorcycles and related products was 8.2% up to £2.158bn. The HDFS consumer credit and dealer inventory funding arm put on 17.4% to contribute £362.9m. So far, so good. Only a 35.4% slump in revenue to £11.6m from Harley’s LiveWire electrified spin-off queered the pitch.
However, operating profit was a strangely mixed bag, headlining just 4.3% up to £462.3m. Petrolhead biker earnings accounted for most of that, climbing by 23.3% to £414.9m. But LiveWire posted a £44.2m operating loss. And HDFS profitability plunged by 31.9% to £91.8m, presumably on the back of stiffening allowances for loan defaults. Net profit nevertheless still came in with a 10% gain at £377.1m.
Before moving on to sing from Harley’s seriously afflicted Q2 hymn sheet, there are some half-yearly clues. Global wholesale shipments of motorcycles into its dealer networks during the period grew by a mere 2.4% to 105,171 units. And parallel retail sales worldwide suffered a 4.5% decline to 90,951.
US dealer inventory had risen by 4.4% to 66,817 but domestic sales fell by 7.5% to 56,438. Canada was 6.3% down to 4955, the European-led EMEA region lost 6.1% at 14,037 and Latin America shrank by 10.8%. Sole growth was to be found in Asia-Pacific countries, which were 13% up to 14,406.
The full grievous tale of Q2 began with a 1.6% total revenue shortfall to £1.135bn. Turnover from motorcycles and related products fell by 4.5% to £941.3m, with associated operating profit 7.9% down to £152.7m. LiveWire revenue took a 43.8% dive to an almost token £5.5m, the brand booking a quarterly operating loss of £25.1m. And although HDFS enjoyed an 18.6% revenue increase to £189.1m, its operating profit plummeted by 31.4% to £46.4m. Combined operating profit across all business sectors was 20.3% in arrears on £174.1m. Quarterly net profit deteriorated by 17.5% to £140m.
Perhaps oddly, Q2 global retail Harley motorcycle sales were positive, 2.6% up to 51,526 units. Key US domestic deliveries also prospered by 1.6% to 32,161, although the EMEA region and Canada were on the back foot.
A telling factor was the reduction in Q2 wholesale shipments, 10.4% down worldwide to 42,934 units and the US domestic portion of those falling by 14% to 24,229. An enforced shutdown of Harley’s biggest assembly plant at York in Pennsylvania for several weeks in June, owing to recurrent parts shortages, bore an indeterminate degree of responsibility. Losing nearly a month’s production will inevitably also impact on Q3 peak-season product availability.
That wasn’t the only excuse, though. Addressing investors on a post-results conference call, Harley-Davidson chairman and chief executive Jochen Zeitz opined that tighter credit terms and conditions for US borrowers are undermining their ability to purchase big-ticket leisure items. “We’ve seen clear impact on demand and affordability with rising interest rates giving pause to higher-credit customers,” he said.
However, some US industry analysts think these troubles are of his own making. Quoted by Reuters, one pointed out: “Harley’s price increases and surcharges for popular models have lifted its earnings in previous quarters. But slowing demand is also reflective of consumers becoming less tolerant of price hikes.”
An immediate response from Zeitz has been to revise Harley’s full-year 2023 outlook. He now expects annual revenue growth to be in a range from flat to 3%. HDFS is likely to experience an operating profit decline in a 20-25% range. And LiveWire will incur an operating loss of somewhere between £90m and £100m on the basis of 600-1000 unit sales.
$-£ currency translation at forex rates applicable on 2 August.