October 18, 2016 Conference Call Slide Presentation HARLEY-DAVIDSON, INC THIRD QUARTER UPDATE

Transcription

1 HARLEY-DAVIDSON, INC THIRD QUARTER UPDATE OCTOBER 18, 2016

2 2016 THIRD QUARTER UPDATE THIS PRESENTATION SUPPORTS THE AUDIO CONFERENCE CALL CONFERENCE CALL PARTICIPANTS Introduction Business Perspectives Financial Results Q&A Amy Giuffre, Director, Investor Relations Matt Levatich, President and CEO John Olin, Senior Vice President and CFO This presentation includes forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings presentation and filings with the SEC. Harley-Davidson disclaims any obligation to update information in this presentation. Additional information and risk factors are included at the end of this presentation 2

3 2016 THIRD QUARTER BUSINESS PERSPECTIVES MATT LEVATICH, PRESIDENT & CEO, HARLEY-DAVIDSON, INC.

4 DRIVING DEMAND STRATEGY AREAS OF FOCUS Increase product and brand awareness Grow new ridership in the U.S. Increase and enhance brand access Accelerate the cadence and impact of new products 4

5 DRIVING DEMAND INITIATIVES Q3 PERFORMANCE U.S. market stability with 52.3% 601+cc market share Modest international retail sales growth of 1% Launch of Milwaukee-Eight engine Successful demand driving investments 5

6 THE ROAD AHEAD Manage the company and brand for the future Continue driving demand Deliver strong returns 6

7 2016 THIRD QUARTER FINANCIAL RESULTS JOHN OLIN, SENIOR VICE PRESIDENT & CFO, HARLEY-DAVIDSON, INC.

8 Consolidated Motorcycles and Related Products and Financial Services Segments Q VS. Q RESULTS REVENUE NET INCOME EPS $1.27 $114.1 $0.64 Billion Million (3.2)% (18.7)% (7.2)% Earnings impacted by: Motorcycles Segment operating income down 23.9% Revenue down 4.3% on 9.1% lower shipments Gross margin percent of 33.6%, down 1.0 pts. Higher yr./yr. SG&A behind demand driving and product development investments Operating margin of 10.0%, down 2.5 pts. Financial Services Segment operating income down 4.6% 8

9 Motorcycles and Related Products Segment WORLDWIDE RETAIL SALES Versus prior year Motorcycles Q3 16 YTD Worldwide 68, % -1.9% U.S. 45, % -4.7% International 23, % 3.3% U.S. new retail sales impacted by weak industry results September retail sales and market share rebounded after weak July/August Great reception to the Milwaukee-Eight engine International new retail sales growth continued EMEA, Asia-Pacific and Canada up; Latin America down Global competitive environment remains intense; macro-economic challenges persist 9

10 INVENTORY Motorcycles and Related Products Segment RETAIL SALES Units (thousands) SHARE U.S. RETAIL SALES H-D U.S. NEW RETAIL MOTORCYCLE SALES % H-D U.S. NEW 601+CC RETAIL MARKET SHARE* 52.4% 52.3% 50.0% 50.8% -0.1 pts pts. -7.1% Q3 '15 Q3 '16 YTD '15 YTD '16 Q3 retail sales impacted by: Stable Market Share + Demand driving and product development investments + Fantastic response to Milwaukee-Eight engine Q3 '15 Q3 '16 YTD '15 YTD ' 16 YTD share growth behind demand driving and new product investments New Milwaukee-Eight motorcycles drove 3.2 pts. of share growth in September * Source: Motorcycle Industry Council H-D U.S. NEW RETAIL MOTORCYCLE INVENTORY Weak Industry Sales - Lapping strong PY industry growth - Weakness in oil-dependent areas - Softer yr./yr. used motorcycle values Continued industry competitiveness Up ~9,700 motorcycles yr./yr. behind: - Weak summer retail sales - Initial dealer fill of 2017 MY motorcycles Continue to aggressively manage supply in line with demand; expect year-end inventory to be flat to PY 10

11 RETAIL SALES INTERNATIONAL RETAIL SALES H-D EUROPE 601+CC RETAIL MARKET SHARE 10.4% 10.3% Versus prior year Q3 16 YTD International 1.0% 3.3% - EMEA Region 1.9% 6.6% Retail sales lift in September from Milwaukee- Eight engine - Asia Pacific Region 1.7% 2.9% Strong results in Japan and Australia - Latin America -7.6% -12.7% Macro-economic challenges in Brazil - Canada 4.3% 6.3% Direct distribution transition successful OPPORTUNITY SHARE Motorcycles and Related Products Segment H-D INTERNATIONAL NEW RETAIL MOTORCYCLE SALES YTD '15 YTD '16 Share flat to prior year through September INTERNATIONAL GROWTH Objective: Grow international retail sales at a faster rate than the U.S. Enhance brand access Plan to add 150 to 200 new international dealerships through dealerships added in Q3 2016; 20 YTD Focus on dealer profitability and delivery of Harley- Davidson Customer Experience (HDCX) Invest in product awareness and brand relevance 11

12 Motorcycles and Related Products Segment SHIPMENTS & MIX SHIPMENTS MOTORCYCLE SEGMENT Q3 16 vs. PY Total 48,611 (9.1)% Touring 47.9% 6.8 pts. Cruiser* 28.8% (5.6) pts. Street / Sportster 23.3% 100.0% * Includes Dyna, Softail, V-Rod and CVO platforms (1.2) pts. Q shipments down 4,861 motorcycles yr./yr. Within guidance of 48,500 to 53,500 motorcycles 46.0% of motorcycle shipments were international Mix Touring up behind our investment in the 2017 Touring motorcycles featuring the Milwaukee-Eight engine 12

13 Motorcycles and Related Products Segment REVENUE REVENUE MOTORCYCLES SEGMENT ($ millions) Q3 16 vs. PY Motorcycle $788.9 (2.9)% P&A (8.3)% General Merchandise 65.3 (5.4)% Other 6.1 (7.2)% Total Revenue $1,091.6 (4.3)% Motorcycles segment revenue was down $48.7 million yr./yr. in Q behind a 9.1% decrease in motorcycle shipments Average motorcycle revenue per unit yr./yr. increased $1,035 in Q behind higher pricing, a richer product mix and favorable currency 2017 MY weighted average pricing up approximately 2¼%; net of new content costs, up approximately 1¼ pts. expressed as a percent of revenue 13

14 Motorcycles and Related Products Segment GROSS MARGIN GROSS MARGIN MOTORCYCLES SEGMENT ($ millions) Q3 YTD 2015 Gross Margin $394.0 $1,631.5 % of revenue 34.6% 37.9% - Volume (35.2) Pricing net of cost Mix 9.6 (19.3) - Currency 0.8 (33.2) - Raw materials Manufacturing (18.7) (73.8) 2016 Gross Margin $367.0 $1,564.9 % of revenue 33.6% 36.1% Q3 Motorcycles Segment gross margin was impacted by: - Mix favorable motorcycle family mix - Currency higher revenues behind slightly weaker U.S. dollar - Manufacturing Expected cost associated with KC ERP & Milwaukee-Eight engine; lost absorption behind lower production 14

15 Motorcycles and Related Products Segment OPERATING MARGIN OPERATING MARGIN MOTORCYCLES SEGMENT ($ millions) Q3 YTD 2015 Operating Income $143.1 $869.1 % of revenue 12.5% 20.2% - Gross Margin (27.0) (66.6) - SG&A (7.2) (38.4) 2016 Operating Income $108.9 $764.1 % of revenue 10.0% 17.6% Q3 Motorcycles segment operating income was down $34.2M, or 23.9%, compared to prior year - Q3 yr./yr. SG&A higher due to increased demand driving and product development investments 15

16 Financial Services Segment HDFS OPERATING INCOME FINANCIAL SERVICES SEGMENT ($ millions) Q3 YTD 2015 Operating Income $72.8 $ Net interest income Gain on securitization Provision for retail motorcycle loan losses (10.1) (31.3) - Provision for wholesale loan losses Operating expenses All other Operating Income $69.4 $215.4 Financial Services Q3 operating income was lower due to increased provision for retail loan losses partially offset by favorable net interest income 16 16

17 Financial Services Segment HDFS Q FINANCIAL SERVICES SEGMENT OPERATIONS Originations New and used H-D retail motorcycle loans Q3 $884.1M (10.2)% vs. Q3 15 YTD approximately 80% prime Market Share U.S. H-D new retail motorcycle sales Q3 64.3% (5.0) pts vs. Q3 15 LIQUIDITY (Millions) Cash & Equivalents $351.4 Availability Bank Credit Facilities $383.7 Asset-Backed Conduit Total Availability $983.7 Finance receivables outstanding Retail $6.17B Wholesale 1.15B Total $7.32B +1.4 % vs. Q

18 Financial Services Segment HDFS RETAIL MOTORCYCLE LOAN PERFORMANCE 5% 4% 3% 4.83% 3.73% 3.24% 30+ Day Delinquencies 3.11% 3.16% 3.00% 3.61% 3.49% 30+ day delinquency 3.61% on-balance sheet receivables 3.49% on a managed basis (Including receivables sold in the Q2 16 full securitization) 2% Q Q Q Q Q Q Q % 2% 1% 2.04% 1.11% Annualized Loss Experience 1.19% 1.08% 0.88% 0.65% 1.59% 1.57% Annualized loss rate 1.59% on-balance sheet receivables 1.57% on a managed basis (Including receivables sold in the Q2 16 full securitization) 0% Q Q Q Q Q Q Q

19 Consolidated Motorcycles and Related Products and Financial Services Segments HARLEY-DAVIDSON, INC. Q HARLEY-DAVIDSON, INC. VS. PRIOR YEAR Cash & Marketable Securities - $795.3 million vs. $1.42 billion Operating cash flow YTD - $927.8 million vs. $1.02 billion Capital spending YTD - $162.7 million vs. $139.1 million Depreciation/Amortization expense YTD - $154.6 million vs. $142.0 million Tax rate YTD 32.9% vs. 34.8% 19

20 Multi-Year Millions Year-over-year Millions SHAREHOLDER RETURNS Harley-Davidson has consistently returned cash to our shareholders Dividends Per Share Discretionary Share Repurchases $1.10 $0.93 $1.05 $1,000.0 $883.3 * $0.90 $0.70 $0.50 $0.30 $0.31 $0.35 $800.0 $600.0 $400.0 $200.0 $536.0 * $104.6 $368.1 $0.10 Q3 YTD $0.0 Q3 YTD * Includes shares repurchased in conjunction with 2015 debt issuance $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 CAGR 25% CAGR ++ $1.24 $1.10 $0.84 $0.62 $0.40 $ $1,600 $1,526 ** $1,400 $1,200 $1,000 $800 $604 $600 $456 $300 $400 $218 $200 $0 $ ** $750 million funded by debt issuance 20

21 GUIDANCE 2016 EXPECTATIONS as of October 18, 2016 Motorcycles and related products segment Motorcycle shipments Gross margin % SG&A 264, ,000, down ~1% to up 1% vs [Q4 44,200 49,200] Down yr./yr. Flat to up modestly yr./yr. Flat as a percent of revenue Operating margin % 15% - 16% Financial services segment HDFS operating income Down modestly yr./yr. Harley-Davidson, Inc. Capital expenditures $255 - $275 million Effective tax rate Approximately 33% 21

22 HARLEY-DAVIDSON Through focused investment in growth, Harley-Davidson plans to: Drive demand Increase impact Further broaden appeal Deliver strong value to shareholders Milwaukee-Eight TM 107 engine 22

23 FORWARD-LOOKING STATEMENTS The company intends that certain matters discussed in this presentation are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of These forwardlooking statements can generally be identified as such because the context of the statement will include words such as the company "believes," "anticipates," "expects," "plans," or "estimates" or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets, guidance or goals are also forward-looking statements. Such forwardlooking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, unfavorably or favorably, from those anticipated as of the date of this presentation. 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 forwardlooking statements included in this presentation are only made as of the date of this presentation, and the company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The company's ability to meet the targets and expectations noted depends upon, among other factors, the company's ability to (i) execute its business strategy, (ii) manage through changes in general economic conditions, including changing capital, credit and retail markets, and political events, (iii) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (iv) drive demand by executing its marketing strategy of appealing to and growing sales to multi-generational and multi-cultural customers worldwide in an increasingly competitive marketplace, (v) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles and collections, (vi) develop and introduce products, services and experiences that are successful in the marketplace, (vii) balance production volumes for its new motorcycles with consumer demand, including in circumstances where competitors may be supplying new motorcycles to the market in excess of demand at reduced prices, (viii) prevent and detect any issues with its motorcycles or any associated manufacturing processes to avoid delays in new model launches, recall campaigns, regulatory agency investigations, increased warranty costs or litigation and adverse effects on its reputation and brand strength, (ix) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS loan portfolio, Cont. 23

24 FORWARD-LOOKING STATEMENTS (x) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (xi) effectively execute reorganization actions within expected costs and realize the expected benefits of those actions, (xii) continue to develop the capabilities of its distributors and dealers and manage the risks that its independent dealers may have difficulty obtaining capital and managing through changing economic conditions and consumer demand, (xiii) manage risks that arise through expanding international manufacturing, operations and sales, (xiv) manage through the effects inconsistent and unpredictable weather and weather patterns may have on retail sales of motorcycles, (xv) manage supply chain issues, including quality issues and any unexpected interruptions or price increases caused by raw material shortages or natural disasters, (xvi) implement and manage enterprise-wide information technology systems, including systems at its manufacturing facilities, (xvii) manage changes and prepare for requirements in legislative and regulatory environments for its products, services and operations, (xviii) retain and attract talented employees, (xix) manage its exposure to product liability claims and commercial or contractual disputes, (xx) execute its flexible production strategy, (xxi) adjust to healthcare inflation and reform, pension reform and tax changes, (xxii) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, and (xxiii) continue to manage the relationships and agreements that the company has with its labor unions to help drive long-term competitiveness. In addition, the company could experience delays or disruptions in its operations as a result of work stoppages, strikes, natural causes, terrorism or other factors. Other factors are described in risk factors that the company has disclosed in documents previously filed with the Securities and Exchange Commission. The company's ability to sell its motorcycles and related products and services and to meet its financial expectations also depends on the ability of the company's independent dealers to sell its motorcycles and related products and services to retail customers. The company depends on the capability and financial capacity of its independent dealers and distributors to develop and implement effective retail sales plans to create demand for the motorcycles and related products and services they purchase from the company. In addition, the company's independent dealers and distributors may experience difficulties in operating their businesses and selling Harley-Davidson motorcycles and related products and services as a result of weather, economic conditions or other factors. 24