Harley-Davidson saw its total revenue decline 2% in the second quarter and its net income declined 18% as an unplanned production shutdown limited motorcycle shipments.
Total revenue for the company was $1.45 billion and net income of $178 million. Diluted earnings per share dropped from $1.46 last year to $1.22. Revenue results did beat Wall Street expectations by $160 million but earnings missed by 7 cents per share, according to Seeking Alpha.
Harley also revised its guidance for the remainder of the year in key areas.
For Harley-Davidson Motor Company, the segment responsible for production of motorcycles, revenue is now expected to be flat to up 3%. The prior guidance called for HDMC revenue growth of 4% to 7%. Operating income margin guidance for the segment was also cut from 14.1% to 14.6% down to 13.9% to 14.3%.
Guidance for LiveWire motorcycle unit sales was also cut from a range of 750 to 2,000 down to 600 to 1,000.
LiveWire, which is a separately traded public company but is still majority owned by Harley, reported just $7 million in revenue for the quarter, down from $13 million last year. The company shipped just 33 units in the quarter, down from 225 last year, and its operating loss widened from $19 million to $32 million. The loss was driven by product development spending related to the launch of the Del Mar, which happened last week.
The company said the loss was in-line with expectations as it is spending money on product development for the launch of the Del Mar electric motorcycle. The Del Mar sells at a lower price point than the initial LiveWire One and is expected to also contribute to volume growth after its launch later this year.
“Harley-Davidson showed continued progress in delivery of our Hardwire strategy this quarter, despite the macro-economic conditions affecting both the business and our customers. Following the production suspension we experienced late in the quarter impacting motorcycle shipments, we achieved retail growth for the quarter in addition to a strong increase in gross margin,” said Jochen Zeitz, chairman, president and chief executive officer of Harley-Davidson. “We are confident in our ability to navigate near-term headwinds and remain optimistic on the future, most notably following the successful launch of our game-changing CVO’s and the highly attended gathering of our community during our anniversary year, reinforcing the enduring power of the brand.”
While top and bottom line results were down for Harley, there were some bright spots.
Worldwide retail sales were up 3% in the quarter, excluding LiveWire, including a 1% increase in North America, a 24% increase in Asia Pacific and a 4% increase in Latin America.
The big question for the company heading into the second half of the year is what the right level of inventory will be. Company leadership said that in 2019, inventory levels were too high. The company has since taken efforts to become “more prudent” when it comes to inventory levels in order to drive desirability for Harley products.
“We are in a much healthier position than we were last year and then we have been for a couple of years, quite frankly, as we enter the height of the riding season,” said Edel O’Sullivan, chief commercial officer. “We feel comfortable that we have the right levels to support the riding season in the all-critical Q2 and Q3, while remaining below what we think were damaging levels of inventory in prior years, 2019 and before that.”
Gross profit margin at HDMC was also up 4 percentage points to 34.8% behind improved cost productivity and shipment mix, helping to offset reduced volumes and the impact of foreign currency.
However, selling, administrative and engineering expense was up nearly 27%, an increase of $47 million, cutting into operating margins, which dipped 60 basis points to 16.2%.
