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EMPTY RHETORIC FROM HARLEY

Boasting that Harley-Davidson had sharpened focus and reignited its culture, to deliver the best third-quarter net income since 2015, the company then went on to reveal how meaningless that claim was, in a gruesome results statement spanning the nine months of 2020 to date. BDN financial editor Roger Willis reports.

Harley’s total nine-monthly revenue has suffered a 22.4% slump to £2.548bn. The portion attributable to motorcycles and related products was 26.1% down at £2.092bn. Both operating and net profit plunged by 76.2%, respectively to £98.9m and £74.8m. Wholesale shipments to dealers and distributors worldwide during the period fell by 28.3% to 124,325 bikes.

Three-quarterly global retail bike sales for the brand sank by 18.1% to 146,953. US domestic consumption was 18.3% lower at 86,376, compared to a 5.8% decline for the American over-600cc market as a whole. There were 17.9% fewer overseas customers, who bought 60,577 machines.

Among foreign big-league markets, Europe was 18.7% in arrears on 26,014 and the Asia-Pacific region fell by a relatively modest 7.1% to 20,271. Canada was 27.2% down to 5668 and Latin America plummeted by 34.4% to 4760.

And then an extraordinary alleged profitability turnaround occured in Q3, hailed as the magic touch of new Harley CEO Jochen Zeitz. Except the details didn’t bear close scrutiny. During a quarter when its major competitors were experiencing rapid recovery, Harley remained on the back foot in quantitative terms. Wholesale bike shipments were 6.2% down to 42,983 and global retail sales fell by 8.1% to 53,802. Total quarterly revenue dropped by 8.4% to £892.6m.

Revenue from the motorcycles and related products segment was 9.8% lower at £739.8m. To be fair, Zeitz had slashed selling, administration and engineering costs by £52.5m. But he had also been obliged to increase restructuring expenses by £27.5m, presumably to pay off the hundreds of senior and middle-ranking managers who have been invited to seek career opportunities elsewhere since his arrival. Segmental operating profit retreated by 0.5% to £35.9m.

However, miraculously, overall operating profit climbed by 15.1% to £105.9m. How could that happen?  Look no further than the Harley-Davidson Financial Services consumer credit arm, where clever accountancy had tweaked bad-debt provisions to deliver a 25.1% rise in HDFS finance segment profit to £70m.

Such good fortune subsequently translated into a splendid 38.9% net profit improvement, reaching £92.5m. Again, clever accountancy was to the fore. Harley’s tax bill had been reduced by 58.6%, thanks to “discrete income tax benefits”. Of course, speculative investors read headlines rather than the small print of accounts. So, on the day these results were published, Harley’s share price stacked on an amazing 22.1%.    

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