There was a lot for
Harley-Davidson executives to like in the company’s third quarter results.
Sales increased by 17% from the same period in 2020 and net income was up 36%. Of course, 2020 was a bit of strange year, but the results are still impressive when compared to the company's performance over the past decade.
Total company revenue of nearly $1.37 billion was the best third quarter since 2011. Quarterly net income of $163 million was the best since 2013. And it's not just one quarter of results, either. Year-to-date revenue of $4.32 billion is the best since 2018 and net income of $628 million is the best since 2016.
“Harley-Davidson delivered a solid third quarter and we have seen many of our Hardwire strategic initiatives perform well, providing encouraging initial proof points of our five-year strategy,” said Jochen Zeitz, chairman, president and chief executive officer of Harley-Davidson. “Our teams continue to work to mitigate the impact of the ongoing supply chain challenges that our sector faces, however our performance underlines that we are on course to deliver our long-term Hardwire strategy.”
And still, the quarter could have been better. Like many companies, Harley is dealing with supply chain challenges in the form of rising material, component and logistics costs, plus shipping delays that hurt international sales.
Harley has worked to reduce dealer inventories in recent years. The third quarter of 2019 ended with 57,000 new motorcycles in dealerships worldwide, a figure that dropped to 38,000 at the end of 2020’s third quarter and 25,000 at the end of the most recent quarter.
Company executives said that inventory level is actually a little lower than they would have liked and it's possible the company missed out on some sales as a result, although they declined to identify the exact impact.
Harley did however provide a detailed breakdown of how supply chain and logistics challenges are impacting the business.
Materials and components, the largest portion of the company’s roughly $3 billion in annual cost of sales, have seen a steady increase in costs over the course of the year. The category, which covers both raw materials and purchased parts like steel and aluminum forgings, infotainment, brake systems, lighting and mufflers, started the year with a 2% to 3% cost increase over 2020. That figure climbed to 6% to 7% in the third quarter. Harley is forecasting the increase to stay at that level in the fourth quarter.
Manufacturing costs, which covers production and labor costs at plants in Wisconsin, Pennsylvania, Thailand and Brazil, have been a bit more steady, up 2% in the first quarter and then 3% in the subsequent quarters.
On the other hand, logistics costs, which includes freight and warehousing for motorcycles, parts and accessories and general merchandise, was up more than 2 times its normal level in the third quarter and that was an improvement from 2.5x in the second quarter. The company is expecting a 2x increase to remain for the fourth quarter.
Harley executives said they expect the supply chain challenges to continue into 2022. The uncertainty caused by the ongoing issues is enough that the company kept its motorcycle segment operating margin guidance at 6% to 8% for the year, even as the segment has reported an operating margin of 13.7% for the year.
"There is just still volatility that's within the supply chain today, so we're going to stick with that range for now," said Gina Goetter, chief financial officer of Harley-Davidson.
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