10-K: Harley-Davidson Navigates Economic Headwinds in 2024, Outlines Strategic Priorities for 2025

Harley-Davidson's 2024 Form 10-K reveals a challenging year marked by declining revenue and net income, alongside strategic adjustments aimed at long-term profitable growth.

Summary

• Harley-Davidson's 2024 financial results reflect a challenging economic environment, with net income attributable to Harley-Davidson, Inc. decreasing to $455.4 million from $706.6 million in 2023.
• Consolidated operating income decreased by $362.5 million compared to the prior year, primarily due to lower operating income in the HDMC segment.
• HDMC's operating income was $277.8 million in 2024, a significant decrease from $661.2 million in 2023, attributed to lower motorcycle shipments and unfavorable changes in pricing, shipment mix, and foreign currency rates.
• LiveWire's operating loss improved slightly to $109.6 million from $116.8 million, driven by lower operating expenses.
• HDFS's operating income increased to $248.4 million from $234.7 million, benefiting from higher interest income.
• Worldwide dealer retail sales of new Harley-Davidson motorcycles decreased by 7.1% in 2024, with declines in both U.S. and international markets.
• The company is addressing a potential regulatory compliance matter related to brake hose assemblies from a Tier 2 supplier and is seeking an 'inconsequentiality determination' from NHTSA.
• For 2025, the company anticipates HDMC revenue to be flat to down 5%, with a focus on managing dealer inventory and achieving cost productivity savings.
• LiveWire expects to sell 1,000 to 1,500 motorcycle units and reduce its operating loss to between $70 million and $80 million in 2025.
• HDFS projects a 10% to 15% decrease in operating income for 2025 due to lower finance receivables and higher borrowing costs.
• The company plans to repurchase approximately $1 billion of shares on a discretionary basis from the third quarter of 2024 through the end of 2026.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive aspects such as improved operating results at HDFS and LiveWire, the overall tone is neutral due to the decline in net income and challenges in the motorcycle market. The outlook for 2025 is cautiously optimistic.

Positives

• LiveWire segment operating loss decreased due primarily to lower operating expenses.
• HDFS segment operating income increased due primarily to higher interest income.
• North America retail sales of Grand American Touring motorcycles, including Trike motorcycles, increased more than 8% in 2024 compared to 2023.
• Worldwide retail inventory of new motorcycles was approximately 48,000 units at the end of 2024, which is down approximately 5% from the end of 2023.
• The Company's effective income tax rate for 2024 was a 13.9% expense compared to a 19.8% expense for 2023.
• The company expects cash used by operating activities related to the LiveWire segment to decrease approximately $45 million or 48% compared to 2024.

Negatives

• Worldwide dealer retail unit sales of Harley-Davidson motorcycles decreased 7.1% during 2024 compared to 2023.
• The Company's Harley-Davidson motorcycle U.S. market share of new 601+cc motorcycle registrations for 2024 was 37.3%, down 0.6 percentage points compared to 2023.
• The Company's Harley-Davidson motorcycle European market share of new 601+cc motorcycle registrations for 2024 was 5.0%, up 0.2 percentage points compared to 2023.
• The company expects to achieve $357 million in productivity savings by the end of 2025, below its target of $400 million.

Risks

• The company faces increasing competition and failure to compete effectively may adversely impact its business and operating results.
• The company must prevent and detect issues with its products, components purchased from suppliers and their manufacturing processes to reduce recall campaigns, warranty costs, litigation, product liability claims, delays in new model launches and regulatory investigations.
• Increased supply of and/or declining prices for used motorcycles and excess supply of new motorcycles may adversely impact retail sales of new motorcycles by the company's dealers.
• A significant cybersecurity incident or data privacy breach could disrupt the company's information technology environment and data security infrastructure, impacting its business operations, and may adversely affect the company's reputation, revenue and earnings.
• The company's motorcycle operations are dependent upon unionized labor.
• The company relies on its suppliers to obtain raw materials and provide component parts for use in the manufacture of its motorcycles.
• The company primarily sells its products at wholesale and must rely to a large extent on a network of dealers and distributors to manage the retail distribution of its products.
• Weather and weather-related events may impact retail sales by the company's dealers.
• The company incurs substantial costs with respect to employee pension and healthcare benefits.
• The company relies on third-parties to perform certain operating and administrative functions for the company.
• The company's operations are dependent upon attracting and retaining skilled employees, including skilled labor, executive officers and other senior leaders.
• The use by our employees of artificial intelligence tools or technology can adversely impact our business by posing risks to company confidential or proprietary information and could give rise to legal actions or reputational damage, or otherwise adversely affect our business.
• The company may not be able to successfully execute its business plans and strategies.
• The company may not realize the expected business benefits from LiveWire as a separate business of the company.
• International sales and operations subject the company to risks that may have a material adverse effect on its business.
• The company's success depends upon the continued strength of the Harley-Davidson brand.
• Activist shareholders or activist campaigns could cause the company to incur substantial costs, hinder the execution of the company's strategy or have other adverse impacts on the company.
• The timing and amount of the company's share repurchase strategy are subject to a number of uncertainties.
• The company's insurance coverage strategy may not be adequate to protect it from all business risks.
• The HDFS segment is exposed to credit risk on its retail and wholesale finance receivables.
• The company is exposed to market risk from changes in foreign currency exchange rates, commodity prices and interest rates.
• The HDFS segment is highly dependent on accessing capital markets to fund operations at competitive interest rates, the company's access to capital and its cost of capital are highly dependent upon its credit ratings, and any negative credit rating actions may adversely affect its earnings and results of operations.
• Changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences, may have a material adverse impact on the company's business, results of operations and outlook.
• The company must comply with governmental laws and regulations that are subject to change and involve significant costs.
• The company is subject to income and non-income based taxes in the U.S. federal and state jurisdictions and in various foreign jurisdictions.
• Many of the company's products are subject to statutory and regulatory requirements governing emissions, noise and other matters, including standards imposed by the EPA, state regulatory agencies, such as the California Air Resources Board, and regulatory agencies in certain foreign countries where the company's motorcycle products are sold.
• The company's LiveWire segment is subject to substantial regulation.
• The HDFS segment is governed by a wide range of U.S. federal and state and foreign laws that regulate financial and lending institutions, and financial services activities.
• The company's operations may be affected by greenhouse gas emissions and climate change and related regulations.
• Regulations related to materials that the company purchases to use in its products could cause the company to incur additional expenses and may have other adverse consequences.
• The company is subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and noncompliance with such laws can subject the company to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect the company's business, results of operations, financial condition and reputation.
• Changes in general economic and business conditions, tightening of credit and retail markets, political events or other factors may adversely impact dealers retail sales.
• Geopolitical conditions, including regional conflicts, terrorism, war, and international disputes could cause damage or disruption to commerce and the economy, and thus have a material adverse effect on the company's financial condition and operating results.
• The company is and may in the future become subject to legal proceedings and commercial or contractual disputes.

Future Outlook

The company expects HDMC revenue to be flat to down 5% in 2025, with worldwide dealer retail unit sales of Harley-Davidson motorcycles to be flat compared to 2024. The company expects LiveWire motorcycle sales of 1,000 to 1,500 units and a LiveWire operating loss of $70 million to $80 million in 2025. The company expects HDFS operating income to be down 10% to 15% in 2025 compared to 2024. The company expects diluted earnings per share to be flat to down 5% in 2025 compared to 2024.

Management Comments

• The reduction in shipments was consistent with the Company's plan for 2024, which included aligning wholesale and retail sales as dealers and the Company acted to adjust dealer inventory levels for the current retail environment.
• The Company believes its petitions are closely comparable to inconsequentiality petitions that have resulted in successful inconsequentiality determinations in the past.
• The Company is also confident that its position that the compliance issues are inconsequential to motor vehicle safety is strong and, therefore, no field action or recall will be necessary.

Industry Context

The motorcycle industry is impacted by general economic conditions over which motorcycle manufacturers have little control. These factors can weaken the retail environment and lead to weaker demand for discretionary purchases, such as the Company's motorcycles. Weakened economic conditions in certain business sectors and geographic areas can also result in reduced demand for the Company's products.

Comparison to Industry Standards

• The document mentions competition from companies like KTM AG, Husqvarna Motorcycles GmbH, Royal Enfield, Polaris Industries, Inc., Triumph Motorcycles Ltd., Honda Racing Corporation, Yamaha Motor Co., Ltd., Suzuki Motor Corporation, Kawasaki Motorcycle & Engine Company, Zero Motorcycles, Inc., BMW Motorrad, and others.
• It also notes competition in the electric vehicle sector from companies that are at various levels of maturity, which include several major motorcycle companies that have electric vehicles available today and other current and prospective motorcycle manufacturers that are or may be developing electric vehicles.
• The company's Harley-Davidson motorcycle U.S. market share of new 601+cc motorcycle registrations for 2024 was 37.3%, down 0.6 percentage points compared to 2023 (Source: Motorcycle Industry Council).
• The company's Harley-Davidson motorcycle European market share of new 601+cc motorcycle registrations for 2024 was 5.0%, up 0.2 percentage points compared to 2023 (Source: Management Services Helwig Schmitt GmbH).

Legal Proceedings

• On or about July 30, 2024, the Fair Trade Commission in Japan initiated an investigation into Harley-Davidson Japan KK for alleged improper activity, including setting excessive sales quotas for H-D Japans motorcycle dealers.
• In August 2024, a jury awarded approximately $288 million in damages to the plaintiffs in a product lawsuit against the Company; in November 2024, the award for damages was reduced to $81 million, and the Company intends to appeal the matter.

Related Party Transactions

• On February 14, 2024, Harley-Davidson, Inc. entered into a Convertible Delayed Draw Term Loan Agreement with LiveWire Group, Inc. and a wholly-owned subsidiary of LiveWire Group, Inc. whereby LiveWire may obtain term loans in one or more advances up to an aggregate principal amount of $100.0 million.

Stakeholder Impact

• The company strives to deliver long-term value to all stakeholders.
• The company believes that the success of The Hardwire will be realized through the well-being, engagement and empowerment of its employees.

Next Steps

• The company plans to continue to take all actions that it believes are appropriate to mitigate the potential impact of tariffs, and it plans to continue to take precautionary measures that it believes are appropriate.
• The company plans to continue to invest in product development and capability enhancements that support The Hardwire strategy.
• The company plans to repurchase approximately $1 billion of shares on a discretionary basis in aggregate from the third quarter of 2024 through the end of 2026.

Key Dates