Q3 2026 Harley-Davidson Earnings Conference Call - HARLEY-DAVIDSON INC

Financial Performance:

• North American retail sales grew 9% YoY (over 25,000 units), while international retail declined 3%; total global retail sales increased 5% to approximately 35,800 units.
• HDMC revenue decreased 10% YoY to $964 million due to lower wholesale shipments; HDFS revenue dropped 58% to $111 million reflecting the shift to a capital-light model.
• HDMC gross profit margin improved 173 bps to 28.1% despite raw material headwinds, driven by tariff recoveries and efficiency gains.
• HDMC operating income margin was 4.6% (including $14M restructuring); excluding restructuring, the margin was 6.0% with $58M operating income.
• HDFS adjusted EBITDA margin remained stable at 9.7% ($94M), though operating income declined due to a $301M credit loss provision benefit in the prior year.
• Consolidated net cash from operating activities was $276 million (down from $417 million); company returned $91 million in share repurchases during the quarter.
• Total cash and equivalents ended Q3 at $2.1 billion, with HDMC holding a net cash position of $1.1 billion ($1.4B cash vs. $297M debt).

Guidance and Future Outlook:

• Raised 2026 global motorcycle retail guidance to 135,500–139,000 units (up from 133,500–138,500) and wholesale shipments to 130,500–137,500 units.
• Increased 2026 HDMC operating income guidance to $25–55 million (up from $10–50 million), excluding $31 million in restructuring costs.
• HDFS operating income guidance raised to $60–70 million (from $55–75 million); capital investment guidance lowered to $140–165 million (from $175–200 million).
• Reiterated target of $350 million HDMC EBITDA for 2027 and $150 million in fixed cost savings, noting progress despite tariff headwinds.
• Full-year 2026 gross tariff costs now estimated at $105–120 million; net impact on operating income is expected to be neutral due to supplier recoveries.
• Forecast no significant gross tariff cost increases in 2027 beyond 2026 levels and anticipate no further recoveries unless tariff structures change.
• Anticipate 2027 dealer inventory levels to adjust slightly higher to support portfolio expansion with the Sprint and Sportster launches.

Business Segments and Product Lines:

• New Product Launches: The Superglide (Q2) and Deadwood (Q3) launches successfully drove brand enthusiasm, strong sell-through, and market share gains in the U.S. Softtail category.
• Upcoming Launches: The Harley-Davidson Sprint will launch internationally at EICMA and hit select markets in late Q4 2026, with broader rollout in H1 2027; the Sportster 883 is scheduled for H1 2027.
• Parts & Accessories (P&A): Segment tracking ahead of plan; leadership team expanding the 2027 portfolio to include P&A for Sprint and Sportster launches.
• Apparel & Licensing: Rebranded internally as "MotorClose"; performance is tracking ahead of beginning-of-year plans.
• Livewire: Announced conditions raising substantial doubt about its ability to continue as a going concern; withdrawn guidance and formed a restructuring committee; Harley-Davidson will not fund operating losses.

Market and Competitive Landscape:

• Gained 3 percentage points of market share in the U.S. 601+ cc market, reaching 37% share; Softtail segment saw significant share gains driven by new product mix.
• International market share improved in EMEA from 3% to 4%; growth seen in Belgium, Spain, Portugal, Italy, UK, Ireland, and Eastern Europe, though Germany and France remain under pressure.
• Asia-Pacific retail sales grew 1% YoY, led by 15% growth in Australia and New Zealand; Latin America sales declined 7% despite growth in touring and trike categories.
• MSRP realization is at a two-year high, indicating strong pricing power and demand for authentic, customizable motorcycles.

Risks and Challenges:

• Europe Performance: Market remains challenged; portfolio adjustments and missing key price points (Sprint, Sportster) are hindering recovery, though excitement is high for upcoming launches.
• Supply Chain: Ongoing supplier challenges in the U.S. continue to affect margins; team is working to improve reliability and reduce friction.
• Tariffs: Uncertainty persists with evolving policy and legal challenges; supplier reciprocal charges have increased gross tariff costs, though recoveries offset net impact.
• Livewire Restructuring: Significant strategic and financial disruption from the electric division's going concern status, though core business remains insulated.
• Macroeconomics: Subdued economic environment in Europe continues to impact regional sales performance.

Management Commentary and Tone:

• CEO Artie Salsman expressed strong confidence in the "Back to the Bricks" strategy, citing tangible proof points in dealer profitability, inventory health, and retail acceleration.
• Tone was disciplined and focused on execution, emphasizing that progress requires time but early results validate the strategic reset.
• Management highlighted dealer enthusiasm is shifting from requesting help with sell-through to requesting more inventory, a key indicator of channel health.
• CEO acknowledged significant work remains but emphasized the foundation is stronger, with a focus on 2027 readiness and the 125th anniversary celebration in 2028.

Analyst Questions and Answers:

• Inventory Levels: Confirmed dealer inventories are well-managed (down 26% YoY); profitability improvements are tracking ahead of the 2026 doubling goal.
• Sprint/Sportster Target Audience: These bikes target both new riders (leveraging Riding Academy yield improvements) and experienced riders seeking a customizable, smaller displacement option.
• Cannibalization: Management asserts negligible risk of cannibalization due to distinct price points ($6k–$10k vs. current core) and different use cases (customization vs. standard touring).
• Europe Specifics: Growth in Europe is expected to be driven by the introduction of Sprint and Sportster, which fill critical gaps in dealer mix, particularly in Germany and France.
• Tariff Impact: Clarified that the raise in operating income guidance is driven by underlying business performance, not tariff recovery; net impact remains neutral.
• Q4 Shipments: The increase in Q4 wholesale guidance relative to Q3 implies is driven by stronger-than-expected retail demand and a shift in model year timing to align inventory for 2027.

Other Key Points:

• Dealer inventory health reached a milestone: 91% of North American dealer inventory is model year 2026 product, up from 87% in Q2.
• Total retail loan originations for HDFS increased 4% YoY to $786 million in Q3; credit loss ratio improved to 3.0%.
• HDFS operating expenses decreased 1% YoY to $47 million, reflecting the shift to a capital-light model.
• CEO Artie Salsman concluded the roadshow across nine U.S. cities, reinforcing alignment with dealers on the 2027 vision and product roadmap.