HARLEY-DAVIDSON, INC. 2017 FIRST QUARTER UPDATE APRIL 18, 2017
2017 FIRST QUARTER UPDATE THIS PRESENTATION SUPPORTS THE AUDIO CONFERENCE CALL CONFERENCE CALL AGENDA Introduction Strategy Perspectives Financial Results Q&A Amy Giuffre, Director, Investor Relations Matt Levatich, President and CEO John Olin, Senior Vice President and CFO All 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
2017 FIRST QUARTER STRATEGY PERSPECTIVES MATT LEVATICH, PRESIDENT & CEO, HARLEY-DAVIDSON, INC.
Q1 OVERVIEW U.S. down as we anticipated, market share up Improved U.S. inventory position International retail sales softer than we anticipated Confident in our ability to deliver the full-year plan 4
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Q1 2017 PROGRESS Building Riders U.S. Dealers trained more than 8,800 students through H-D Riding Academy; up 10 percent compared to Q1 2016 In 2016, for the ninth straight year, Harley-Davidson was the number-one seller of new on-road motorcycles in the U.S. to Outreach as well as Core* *Outreach data is based on IHS Markit New Registrations for Motorcycles with 601 and greater cc engines from 2008 2016. Outreach is defined as young adults ages 18-34; women; African Americans; and Hispanics. Core is defined as Caucasian men 35-plus. 6
Q1 2017 PROGRESS New Product Launches Road King Special powered by the Milwaukee-Eight engine Street Rod Grow International Business Seven new dealerships added internationally 7
MODEL YEAR 17.5 LAUNCHES Road King Special 8
MODEL YEAR 17.5 LAUNCHES Street Rod 9
THE NEXT CHAPTER We are investing to deliver near-term results that drive long-term performance and value We are building the next generation of Harley-Davidson riders We are energized by our focused strategy, powerful brand and commitment to excellence 10
2017 FIRST QUARTER FINANCIAL RESULTS JOHN OLIN, SENIOR VICE PRESIDENT & CFO, HARLEY-DAVIDSON, INC.
Consolidated Motorcycles and Related Products and Financial Services Segments Q1 2017 VS. Q1 2016 RESULTS REVENUE NET INCOME EPS $1.50 $186.4 $1.05 Billion Million (14.2)% (25.6)% (22.8)% Earnings impacted by: Motorcycles Segment operating income down 28.2% Revenue down 15.7% on 14.7% lower shipments Gross margin percent of 35.9%, down 1.5 pts. Lower yr./yr. SG&A Operating margin of 18.0%, down 3.1 pts. Financial Services Segment operating income down 6.6% 12
Motorcycles and Related Products Segment WORLDWIDE RETAIL SALES Q1 17 Motorcycles Vs. PY Worldwide 55,049 (4.2)% U.S. 33,316 (5.7)% International 21,733 (1.8)% U.S. new retail sales down in Q1, but on-target to our plan Strong demand for Milwaukee-Eight bikes Limited availability of MY 2017 motorcycles Significant sell-through of MY 2016 carry-over motorcycles International new retail sales lower than expected Asia Pacific down behind Japan and emerging markets Canada and EMEA retail sales soft, but healthy underlying momentum Strong growth in Latin America We remain confident in our full-year shipment guidance 13
INVENTORY Motorcycles and Related Products Segment RETAIL SALES Motorcycles (thousands) SHARE U.S. RETAIL SALES H-D U.S. NEW RETAIL MOTORCYCLE SALES H-D U.S. NEW 601+CC RETAIL MARKET SHARE* 35.3 33.3-0.5% -5.7% 50.9% 51.3% -0.4 pts. +0.4 pts. Q1 '16 Q1 '17 Q1 '16 Q1 '17 Q1 retail sales impacted by: - Weak industry sales on soft used prices and weakness in oildependent areas - Limited availability of MY 2017 bikes + Milwaukee-Eight bikes in high demand + Focus on growing ridership Continued industry competitiveness Q1 market share up 0.4 pts despite: - Limited availability of MY 2017 bikes - Victory liquidation H-D U.S. NEW RETAIL MOTORCYCLE INVENTORY We believe dealer inventory well-positioned for selling season at end of Q1 - Down approximately 8,200 motorcycles compared to prior year - Improved model year mix - more in line with prior year Committed to aggressively manage supply in line with demand * Source: Motorcycle Industry Council 14
RETAIL SALES INTERNATIONAL RETAIL SALES H-D EUROPE 601+CC RETAIL MARKET SHARE* Motorcycles and Related Products Segment H-D INTERNATIONAL NEW RETAIL MOTORCYCLE SALES 9.7% 10.0% Q1 17 Vs. PY International (1.8)% - EMEA (0.4)% Healthy underlying demand behind S-model Cruisers and Milwaukee-Eight; lapping prior year Q1 growth of 8.8% - Asia Pacific (9.3)% Japan down behind weak industry; share up Soft emerging market demand - India demonetization impact continued - Latin America 24.2% Strong increase in Brazil as we lap prior year price increases - Canada (4.4)% Lapping strong prior year Q1 growth of 16.3% OPPORTUNITY SHARE Feb. YTD '16 Feb. YTD '17 Feb. YTD share up in a highly competitive environment INTERNATIONAL GROWTH Objective: Grow international business to 50% of annual volume by 2027 Strategy: Grow reach and impact - Expand dealer network - Plan to add 150 to 200 new dealerships between 2016 through 2020-7 added Q1 17 - Target competitive riders - Expand H-D Touring - Build brand awareness through apparel * Source: Association des Constructeurs Europeens de Motocycles (ACEM) 15
Motorcycles and Related Products Segment SHIPMENTS & MIX SHIPMENTS MOTORCYCLE SEGMENT Q1 17 Vs. PY Total 70,831 (14.7)% Touring 41.0% (5.4) pts. Cruiser* 35.5% 3.1 pts. Street / Sportster 23.5% 100.0% 2.3 pts. * Includes Dyna, Softail, V-Rod and CVO platforms Q1 2017 shipments down 12,205 motorcycles yr./yr. Within guidance range of 66,000 to 71,000 motorcycles 35.4% of motorcycle shipments were international Q1 Mix unfavorable Touring down to help focus dealers on selling through MY 2016 motorcycles 16
Motorcycles and Related Products Segment REVENUE REVENUE MOTORCYCLES SEGMENT ($ millions) Q1 17 Vs. PY Motorcycle $1,099.7 (16.5)% P&A 169.0 (8.0)% General Merchandise 55.8 (20.9)% Other 4.2 (11.9)% Total Revenue $1,328.7 (15.7)% Motorcycles segment revenue down 15.7% in Q1 behind a 14.7% decrease in motorcycle shipments Average motorcycle revenue per unit yr./yr. decreased $342 in Q1 behind unfavorable mix, partially offset by higher pricing 17
Motorcycles and Related Products Segment GROSS MARGIN GROSS MARGIN MOTORCYCLES SEGMENT ($ millions) Q1 2016 Gross Margin $590.3 % of revenue 37.4% - Volume (92.9) - Pricing net of cost 12.6 - Mix (26.4) - Currency 6.6 - Raw materials (2.4) - Manufacturing / other (10.3) 2017 Gross Margin $477.5 % of revenue 35.9% Q1 Motorcycles Segment gross margin % of revenue was impacted by: - Mix unfavorable motorcycle family mix - Currency favorable due to balance sheet remeasurement - Manufacturing higher expense due to timing of fixed cost absorption and higher depreciation, partially offset by strong productivity 18
Motorcycles and Related Products Segment OPERATING MARGIN OPERATING MARGIN MOTORCYCLES SEGMENT ($ millions) Q1 2016 Operating Income $332.5 % of revenue 21.1% - Gross Margin (112.8) - SG&A 19.1 2017 Operating Income $238.8 % of revenue 18.0% Q1 Motorcycles segment operating income was down 28.2% compared to prior year - SG&A lower yr./yr. behind timing of marketing and engineering investments 19
Financial Services Segment HDFS OPERATING INCOME FINANCIAL SERVICES SEGMENT ($ millions) 2016 Operating Income $56.3 - Net interest income 0.8 - Provision for retail motorcycle loan losses (6.6) - Provision for wholesale loan losses 0.2 - Operating expenses 0.2 - All other 1.7 2017 Operating Income $52.6 Q1 Financial Services Q1 operating income was lower than prior year due to increased provision for retail loan losses 20 20
Financial Services Segment HDFS 2017 FINANCIAL SERVICES SEGMENT OPERATIONS Originations New and used H-D retail motorcycle loans Q1 $709.8M 3.8% vs. Q1 16 YTD approximately 80% prime Market share U.S. H-D new retail motorcycle sales Q1 62.9% 6.1 pts vs. Q1 16 Finance receivables outstanding Retail $6.00B Wholesale 1.33B Total $7.33B (2.7)% vs. Q1 16 LIQUIDITY (Millions) Cash & equivalents $360.3 Availability Bank Credit Facilities $485.7 Asset-Backed Conduits 600.0 Total Availability $1,085.7 Other HDFS paid H-D, Inc. a dividend of $106 million (January 2017) HDFS issued: $150M 2-yr. MTN $350M 3.25-yr. MTN 21 21
Financial Services Segment HDFS RETAIL MOTORCYCLE LOAN PERFORMANCE 5% 4% 4.57% 3.68% 30+ Day Delinquencies 30+ day delinquency 3.17% on-balance sheet receivables 3% 2% 3.17% 2.92% 2.88% 2.56% 2.66% 2.64% 3.09% Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 3.09% on a managed basis (Including receivables sold in the Q2 16 full securitization) 3% 2% 1% 2.83% 1.58% Annualized Loss Experience 1.00% 1.09% 1.33% 1.56% 1.98% 2.31% 2.25% Annualized loss rate 2.31% on-balance sheet receivables 2.25% on a managed basis (Including receivables sold in the Q2 16 full securitization) 0% Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 22 22
Consolidated Motorcycles and Related Products and Financial Services Segments HARLEY-DAVIDSON, INC. 2017 Q1 HARLEY-DAVIDSON, INC. VS. PY Cash & marketable securities - $844.7 million vs. $739.1 million Operating cash flow - $159.9 million vs. $41.1 million Capital spending - $24.0 million vs. $39.0 million Depreciation/amortization expense - $54.9 million vs. $50.0 million Tax rate 34.5%, flat to prior year 23
Multi-Year Millions Year-over-year Millions SHAREHOLDER RETURNS Harley-Davidson has consistently returned cash to our shareholders Dividends Per Share Discretionary Share Repurchases $0.40 $0.35 $0.35 $0.365 $150 $144.6 $0.30 $0.25 $100 $70.9 $0.20 $0.15 $50 $0.10 Q1 '16 Q1 '17 $0 Q1 '16 Q1 '17 $1.40 $1.20 $1.00 CAGR 24% $1.10 $0.84 $1.24 $1.40 $1,600 $1,400 $1,200 $1,000 $1,526* $0.80 $0.60 $0.40 $0.20 $0.00 $0.62 $0.475 2011 2012 2013 2014 2015 2016 $800 $600 $400 $200 $0 $604 $456 $459 $218 $300 2011 2012 2013 2014 2015 2016 * Funded by $750 million HDI debt issuance 24
GUIDANCE 2017 EXPECTATIONS as of April 18, 2017 Motorcycle shipments Flat to down modestly vs. 2016 [Q2: 80,000 85,000] Motorcycles and Related Products segment Gross margin % Approximately in line with 2016 SG&A Approximately in line with 2016 Flat as a percent of revenue Operating margin % Approximately in line with 2016 Financial Services segment HDFS operating income Down yr./yr. Harley-Davidson, Inc. Capital expenditures $200 million - $220 million Effective tax rate Approximately 34.5% 25
HARLEY-DAVIDSON, INC. Through disciplined and focused investment, we plan to deliver strong returns to our investors and sustain the company for the long-term Grow Ridership Grow Share AND Profit in the U.S. Grow Reach and Impact Grow Share AND Profit Internationally Nail the Fundamentals to Compete to Win 26
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 1995. 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 and business conditions, including changing capital, credit and retail markets, and the changing political environment, (iii) accurately estimate and adjust to fluctuations in foreign currency exchange rates, interest rates and commodity prices, (iv) prevent a cybersecurity breach involving consumer, employee, dealer, supplier, or company data and respond to evolving regulatory requirements regarding data security, (v) 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, (vi) develop and introduce products, services and experiences that are successful in the marketplace, (vii) manage the credit quality, the loan servicing and collection activities, and the recovery rates of HDFS' loan portfolio, (viii) 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, (ix) manage the impact that prices for and supply of used motorcycles may have on its business, including on retail sales of new motorcycles, Cont. 27
FORWARD-LOOKING STATEMENTS (x) 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, (xi) 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, (xii) manage risks that arise through expanding international manufacturing, operations and sales, (xiii) adjust to tax reform, healthcare inflation and reform and pension reform, (xiv) manage through the effects inconsistent and unpredictable 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) manage its exposure to product liability claims and commercial or contractual disputes, (xix) execute its flexible production strategy, (xx) retain and attract talented employees, (xxi) successfully access the capital and/or credit markets on terms (including interest rates) that are acceptable to the company and within its expectations, and (xxii) 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. 28