A strong fourth-quarter 2012 capped a year of gains for Harley-Davidson Inc. (NYSE: HOG), marked by solid growth in earnings and retail new motorcycle sales.

Fourth-quarter income from continuing operations was $70.6 million on consolidated revenue of $1.17 billion, compared to income from continuing operations in the year-ago period of $54.6 million on consolidated revenue of $1.18 billion. Fourth-quarter 2012 earnings per share were $0.31, up 29.2 percent compared to EPS of $0.24 in the year-ago quarter.

For the full year, Harley-Davidson income from continuing operations was $623.9 million on consolidated revenue of $5.58 billion, compared to full-year 2011 income from continuing operations of $548.1 million on consolidated revenue of $5.31 billion. Full-year 2012 EPS was $2.72, up 16.7 percent from EPS of $2.33 in 2011.

Worldwide retail sales of new Harley-Davidson motorcycles grew 7.5 percent in the quarter and 6.2 percent for the full year, compared to the year-ago periods.

“Thanks to the outstanding efforts of our employees, dealers and suppliers, Harley-Davidson achieved its growth and restructuring goals in 2012,” said Keith Wandell, chairman, president and chief executive officer. 

“The ambitious restructuring of our manufacturing operations, aimed at delivering better responsiveness for customers and greater operating efficiency, is now largely behind us,” said Wandell. “Motorcycle sales grew in 2012, fueled by exceptional products and retail experiences. Together with our dealers, we grew sales to U.S. outreach customers faster than to core customers, grew U.S. market share and continued to expand internationally.

“Harley-Davidson’s purpose is to fulfill the dreams of personal freedom for people around the world. Through our strategy, we believe the company is poised to deliver on that purpose like never before,” he concluded.

Retail Harley-Davidson Motorcycle Sales

For the full year 2012, retail unit sales of new Harley-Davidson motorcycles grew 6.2 percent worldwide, with increases of 6.6 percent in the U.S. and 5.6 percent internationally compared to 2011. Dealers sold 249,849 new Harley-Davidson motorcycles worldwide in 2012, with retail unit sales up 39.2 percent in the Latin America region, 14.3 percent in the Asia Pacific region and 6.2 percent in the North America region (U.S. and Canada) and down 3.0 percent in the EMEA region compared to 2011.

In the fourth quarter, retail sales of new Harley-Davidson motorcycles increased 7.5 percent worldwide, compared to the prior-year period, with unit sales up 8.4 percent in the U.S. and up 6.3 percent in international markets. Dealers sold 43,405 new Harley-Davidson motorcycles worldwide in the quarter, with retail unit sales up 23.5 percent in the Latin America region, 14.8 percent in the Asia Pacific region and 7.3 percent in the North America region and down 3.3 percent in the EMEA region compared to last year’s fourth quarter.

Industry-wide U.S. heavyweight new motorcycle (651cc-plus) retail unit sales increased 4.0 percent in 2012 compared to 2011.
 
Harley-Davidson Motorcycles and Related Products Segment Results

Fourth-Quarter Results: Fourth-quarter operating income from motorcycles and related products was $53.1 million, a 49.4 percent increase compared to operating income of $35.6 million in the year-ago period. Operating income in the quarter benefited from lower restructuring costs and higher gross margin compared to the prior-year period.

Revenue from motorcycles during the fourth quarter of 2012 of $771.1 million was down 2.6% percent compared to the year-ago period. The company shipped 47,067 motorcycles to dealers and distributors worldwide during the quarter. In the year-ago period, the company shipped 50,730 motorcycles. Fourth-quarter shipments were in line with guidance and consistent with the company’s previously announced plans for lower shipments in the quarter related to the implementation of seasonal surge production at York in the first half of 2013. The company believes surge production will provide the flexibility to produce more motorcycles closer to customer demand during the prime selling season.

Revenue from motorcycle parts and accessories totaled $161.6 million during the quarter, up 0.2 percent, and revenue from general merchandise, which includes MotorClothes apparel and accessories, was $74.0 million, up 6.8 percent, compared to the year-ago period.

Gross margin was 31.8 percent in the fourth quarter of 2012, compared to 31.2 percent in the fourth quarter of 2011. Fourth-quarter operating margin from motorcycles and related products was 5.3 percent, compared to operating margin of 3.5 percent in last year’s fourth quarter.

Twelve-Month Results: For the full year 2012, the company shipped 247,625 motorcycles to dealers and distributors, a 6.2 percent increase compared to 2011. Full-year revenue from motorcycles grew 5.9 percent to $3.76 billion, revenue from parts and accessories grew 5.3 percent to $859.9 million and revenue from general merchandise grew 9.2 percent to $299.4 million, compared to 2011. Gross margin for the full year was 34.8 percent and operating margin was 14.5 percent, compared to 33.4 percent and 12.0 percent respectively in 2011.

Financial Services Segment Results

Operating income from financial services was $63.0 million in the fourth quarter of 2012, a 10.9 percent increase compared to operating income of $56.8 million in last year’s fourth quarter. Full-year 2012 operating income from financial services was $284.7 million, a 5.9 percent increase compared to operating income of $268.8 million in 2011. Results for the fourth quarter and full year reflect continued improvement in credit loss performance year over year and lower interest expense.

Guidance

Harley-Davidson expects to ship 259,000 to 264,000 motorcycles to dealers and distributors worldwide in 2013, an approximate 4.5 percent to 6.5 percent increase from 2012. In the first quarter of 2013, the company expects to ship 71,000 to 76,000 motorcycles, an approximate increase of 10 percent to 18 percent from the year-ago period. The company’s first-quarter shipment plan reflects the implementation of surge production at York in the first half of 2013. The company expects full-year 2013 gross margin of 35.25 percent to 36.25 percent. The company expects capital expenditures of $200 million to $220 million in 2013.

Restructuring Update

In 2012, Harley-Davidson realized savings of $280 million from restructuring activities initiated since early 2009. Restructuring charges were $1.6 million in the fourth quarter of 2012 and $28.5 million for the full year. Upon the completion of restructuring in 2013, Harley-Davidson expects restructuring activities initiated since 2009 to result in one-time overall costs of approximately $495 million, including approximately $13 million in 2013. The Company expects savings of approximately $305 million in 2013 from restructuring activities initiated since 2009, rising to annual ongoing savings of approximately $320 million beginning in 2014.

Income Tax Rate

For the full year 2012, Harley-Davidson’s effective tax rate was 35.1 percent compared to 30.9 percent in 2011. The 2011 effective tax rate benefited from a change in Wisconsin tax law associated with certain net operating losses, the favorable settlement of an IRS audit and the benefit of the federal Research and Development Tax Credit. In 2013, the company expects its full-year effective tax rate from continuing operations will be approximately 34.8 percent.

Cash Flow

Cash and marketable securities totaled $1.20 billion at year-end 2012, compared to $1.68 billion at year-end 2011. In 2012, Harley-Davidson generated $793.1 million of cash provided by operating activities of continuing operations, compared to $885.3 million in 2011. On a discretionary basis, the company repurchased 1.2 million shares of Harley-Davidson Inc. common stock during the fourth quarter of 2012 at a cost of $53.4 million. For the full year 2012, Harley-Davidson repurchased 6.5 million shares of its common stock at a cost of $299.6 million. At the end of 2012, there were approximately 226 million shares of Harley-Davidson common stock outstanding and 14.5 million shares remaining on board-approved share repurchase authorizations. In January 2013, Harley-Davidson made a $175 million voluntary contribution to its pension plans.