Harley-Davidson, Inc.

Harley-Davidson, Inc. - Financial and Strategic Analysis Review

Publication Date: 26-Dec-2013 Reference Code: GDAUT29887FSA

Company Snapshot
Key Information
Harley-Davidson, Inc., Key Information Web Address www.harley-davidson.com Financial year-end December Number of Employees 5,800 NYSE HOG
Source : GlobalData

Company Overview
Harley-Davidson, Inc. (Harley-Davidson) is a manufacturer of heavyweight motorcycles. Harley-Davidson is the parent company of the group of companies including Harley-Davidson Motor Company (HDMC) and Harley-Davidson Financial Services (HDFS). The company provides wholesale and retail financing and insurance programs principally to its dealers and customers. The company operates in two business segments, namely, the Motorcycles and Related Products (Motorcycles) segment and the Financial Services segment. Harley-Davidson undertakes building its position in the marketplace through new product launches, restructuring initiatives and strategic alliances.

Key Ratios
Harley-Davidson, Inc., Key Ratios P/E EV/EBITDA Return on Equity (%) Debt/Equity Operating profit margin (%) Dividend Yield 25.43 20.24 24.39 199.51 17.92 0.01

SWOT Analysis
Harley-Davidson, Inc., SWOT Analysis Strengths Weaknesses Operational Efficiency Strong Brand Image Broad Product and Service Portfolio Opportunities Emerging Markets Threats Competitive Landscape Procurement of Raw Materials New Emission Standards for Two Wheelers Product Recalls/Issues Dependence on the US Market

Note: Above ratios are based on share price as of 24-Dec-2013 Source : GlobalData

Share Data
Harley-Davidson, Inc., Share Data Price (USD) as on 24-Dec-2013 EPS (USD) Book value per share (USD) Shares Outstanding (in million)
Source : GlobalData

69.22 2.72 11.31 229.23

Focused Research and Development Activities New Product Launches

Source : GlobalData

Performance Chart
Harley-Davidson, Inc., Performance Chart (2008 - 2012)

Financial Performance
The company reported revenues of (U.S. Dollars) USD 5,580.51 million during the fiscal year ended December 2012, an increase of 5.06% over 2011. The operating profit of the company was USD 1,000.18 million during the fiscal year 2012, an increase of 20.51% over 2011. The net profit of the company was USD 623.93 million during the fiscal year 2012, an increase of 4.14% over 2011.

Source : GlobalData

Harley-Davidson, Inc.- Financial and Strategic Analysis Review

Reference Code: GDAUT29887FSA Page 1

Harley-Davidson, Inc. Harley-Davidson, Inc. - SWOT Analysis

SWOT Analysis - Overview
Harley-Davidson, Inc. (Harley-Davidson) designs, manufactures, and sells heavyweight motorcycles. The company markets its products in North America, Europe, Asia/Pacific and Latin America. The companys strong brand image, coupled with its wide range of products, helps it to be a front-runner in the industry. Nonetheless, emerging markets, especially Asian markets, and launch of new models could ensure a strong future for the company. New emission standards for two wheelers and the prevailing competition could negatively impact the companys growth.

Harley-Davidson, Inc. - Strengths Strength - Operational Efficiency

The company reported strong operational efficiency with decreased cost and increased margins in 2012. Harley Davidsons revenue stood at $5,580.51m, showing an increase of 5.1% over $5,311.71m in 2011. Its operating income increased to $1000.18m in 2012, indicating 20.5% growth over $829.97m in 2011. The company reported increased operating margin of 17.92% in 2012, as compared to 15.62% in 2011. The operating margin has increased 229 basis points (bps) over 2011 which may indicate management's high focus on improving profitability. The increased operating margin may indicate efficient cost management or a strong pricing strategy by the company. On the other hand, the company reduced its operating cost as percentage of sales to 82.07% in 2012 from 84.37% in 2011. Decreasing cost improves the margin of the company.

Strength - Strong Brand Image

Harley-Davidson owns one of the strongest brands in the world, which helps it attract and retain a loyal customer base. The company established a strong brand image with its motorcycles achieving iconic status and being ranked among the worlds most valuable brands. Harley-Davidson has been continuously ranked among the top 100 global brands in the world. The company holds 55.7% share in the US heavyweight market; and is ranked #1 or #2 in the heavyweight motorcycle market share in nine countries across Europe. Harley-Davidsons motorcycles are known for their traditional styling, design simplicity, durability and quality. The company achieved industry recognition for its high quality, best design, robust performance and unflinching customer confidence, loyalty and trust of its products and services. The Harley-Davidson brand has significantly contributed to the success of the company by building strong market recognition and a loyal customer base.

Strength - Broad Product and Service Portfolio

Harley-Davidson offers a broad array of products and services through its two business segments, namely, the Motorcycles & Related Products segment and the Financial Services segment. The company offers a variety of products in the motorcycle segment to cater to the various needs of its customer base. Harley-Davidson designs, manufactures and sells heavyweight touring, custom and performance motorcycles, besides a line of motorcycle parts, accessories, general merchandise and related services. Harley-Davidson is well known for its unique motorcycles. Its subsidiary, Harley-Davidson Motor Company (HDMC), manufactures five families of motorcycles, namely, Touring, Dyna, Softail, Sportster and V-Rod. These models are distinguished by their frame, engine, suspension, and other characteristics. The company shipped 247,625 motorcycles in the fiscal year ended December 2012, comprising 40.2% Touring motorcycle units, 38.9% Custom motorcycle units, and 20.9% Sportster motorcycle units. Through Harley-Davidson Financial Services (HDFS), the company offers a package of wholesale and retail financial services for its products, providing it a competitive edge in the motorcycles business in the US and Canada regions. HDFS provides wholesale financial services to Harley-Davidson motorcycle dealers, including floor plan and open account financing of motorcycles and motorcycle parts and accessories. These specific services provide a competitive edge to the company in capturing a higher market share and enhancing its bottom line.

Harley-Davidson, Inc. - Weaknesses Weakness - Product Recalls/Issues

Product recalls/issues not only affects the companys current revenue, but could also affect its long-term performance by reducing customer confidence. In October 2013, the company voluntarily recalled more than 29,000 of its 2014 touring motorcycles due to problem in hydraulic clutch system. It Recalled models include 25,185 touring motorcycles and 3,861 Custom Vehicle Operations and Trikes built between May 3 and October 14, 2013. In February 2012, Harley-Davidson launched a repair service campaign to fix faulty brakes in about 1,228 units of 12 models, including the Road King and the Electra Glide Ultra Classic. In October 2011, the company initiated a world-wide recall affecting over 308,000 units of its Touring, CVO Touring and Trike motorbikes. The company made this recall owing to a potentially dangerous glitch with their braking systems, where in the problem with a switch on the bikes could cause the brake lights to stop working, or may even cause the rear brakes to fail. Such recalls would hamper Harley-Davidsons brand image and have a significant impact on its product sales.

Weakness - Dependence on the US Market

Harley-Davidson focuses predominantly on the US and generates a major part of its revenue from that market, which could increase its business risk. For the fiscal year ended December 2012, the US region derived 68.1% of the companys total revenue, followed by Europe with 14.4%, others with 5.1%, Japan with 5%, Canada and Australia accounted for 3.8% each. As a result, the companys operations are more susceptible to regional factors which include changes in the economy, weather conditions, demographics and population, as compared to the more geographically balanced competitors. Any adverse conditions in the US economy could adversely affect the company's results of operations.

Harley-Davidson, Inc.- Financial and Strategic Analysis Review

Reference Code: GDAUT29887FSA Page 2

Harley-Davidson, Inc.
Harley-Davidson, Inc. - Opportunities Opportunity - Emerging Markets
The company's presence in emerging economies such as India could prove to be very beneficial to the company. In November 2013, the company announced to manufacture Street motorcycles in India with low price range, aiming towards the young audience offering good city performance. Similarly, the company is considering an entry into the 250-300cc bike segment. According to analyst, the motorcycle demand is expected to reach more than 20 million in India by 2020. In India, only 6% of the total population has motorcycles. Similarly, market penetration in Indonesia, Brazil, Vietnam, Thailand and Taiwan are 20.8%, 7.6%, 29.6%, 25.4% and 62.4% respectively. Therefore, these markets offer huge potential for growth. Passenger vehicles accounted for 16% of the total number of vehicles sold in India. This was due to the easy availability of the loans to customers, and the growing number of people in the earning population segment in the country. With competition at its peak and markets getting saturated, the company can look out for new growth avenues in these regions.

Opportunity - Focused Research and Development Activities

Harley-Davidson has a strong research and development unit that facilitates innovation and attracts industry attention. Its Product Development Center (PDC) undertakes the development of new and better quality products. The company spent $137.3m, $145.4m, $136.2m, $143.1m and $163.5m in the fiscal years ended December 2012, 2011, 2010, 2009 and 2008 respectively on research and development activities. Harley-Davidsons continuous focus on R&D helped the company in launching innovative products such as Softail motorcycles with 1584 cc engine with new features such as new hand controls, a larger odometer, and an anti-lock braking system option. Continuous research and development activity enables the company to maintain a leading position in custom and touring motorcycle market and develop products for the performance segment. Focused R&D activities enable the company to offer innovative products and improve its operational performance.

Opportunity - New Product Launches

Harley-Davidson could benefit from its new product launches. The company intends to explore new methods to enhance its value by introducing new products, which provide an edge over other players in the market. In November 2013, the company introduced Project RUSHMORE by revealing two new Dark Custom motorcycles designed for young urban riders around the world. In August 2013, the company introduced two new Boom! Box infotainment systems, which offers quality audio through radio, satellite and external sources; Bluetooth connectivity to external mobile phones; voice recognition and text-to-speech technology; and GPS navigation, plus support for intercom and CB communications. In February 2012, Harley-Davidson launched two new motorcycle models, namely, the Seventy-Two and the Softail Slim, further strengthening its heavyweight custom offerings. In July 2011, the company offered its customers a H-D1, a comprehensive set of customization tools. In January 2011, the company introduced new Softail motorcycles with 1584 cc engine and through its Touring motorcycles line, the company introduced Electra Glide Classic, Road King, Road King Classic, Ultra Classic Electra Glide and Electra Glide Ultra Limited touring bikes. The companys 2010 models include nine new domestic models of heavyweight motorcycles. New model launches could help the company sustain its leadership position in the highly competitive automotive industry.

Harley-Davidson, Inc. - Threats Threat - Competitive Landscape

Harley-Davidson manufactures motorcycles in the US, Canada, Europe, and Asia. Many of the companys competitors have more diversified businesses and they may compete in the automotive market or all segments of the motorcycle market. Its motorcycle retail prices are generally higher than that of its competitors. If price becomes a crucial factor for consumers in the heavyweight motorcycle market, Harley-Davidson would be at a competitive disadvantage. Moreover, its financial services operations face stiff competition from various banks, insurance companies and other financial institutions that may have access to additional sources of capital at more competitive rates and terms, particularly for borrowers in higher credit tiers. The companys failure to address and respond to these competitive pressures worldwide would have a material adverse effect on its market share.

Threat - Procurement of Raw Materials

Harley-Davidson relies on suppliers to obtain raw materials and provide components for use in manufacturing its motorcycles. It depends on a single supplier for certain of its raw materials. Such a situation makes the companys business dependent on the ability of the supplier to deliver the ordered raw materials in time. The rising input costs could also have a major impact on the operational costs of Harley-Davidson. Increasing pressure of the costs of commodities leads to capacity constraints, lower production and financial distress to raw material suppliers. In case of a delay in receiving the raw materials, product delivery to its customers could also get delayed, which impacts its business and customer relations.

Threat - New Emission Standards for Two Wheelers

Harley-Davidson could face increased challenges in its two wheeler business due to the stringent emission standards. According to Dealernews.com, motorcycle industry stakeholders in Europe announced plans to increase 3 emission standards to more stringent 5 standards by 2015. Association des Constructeurs Europeens de Motorcycles (ACEM) is likely to introduce 3 standard for mopeds and 4 standard for motorcycles by 2012. It also proposed the introduction of more stringent emission test cycle, and 5 standard for motorcycles by 2015. Such implementations might require the company to redesign its vehicles, which could result in increased operating costs. Failure to comply with the standards could result in penalties and affect its profit margins.

NOTE:

Harley-Davidson, Inc.- Financial and Strategic Analysis Review

Reference Code: GDAUT29887FSA Page 3

Harley-Davidson, Inc.
* Sector average represents top companies within the specified sector The above strategic analysis is based on in-house research and reflects the publishers opinion only

Harley-Davidson, Inc.- Financial and Strategic Analysis Review

Reference Code: GDAUT29887FSA Page 4