10-Q: Harley-Davidson Q2 Earnings Decline Amid Soft Demand

Harley-Davidson reports a significant drop in Q2 net income and motorcycle shipments, driven by soft retail demand and challenging macroeconomic conditions, while announcing a major HDFS transaction and new term loan.

Summary

• Net income attributable to Harley-Davidson, Inc. for Q2 2025 was $107.6 million ($0.88 diluted EPS), a 50.7% decrease from $218.3 million ($1.63 diluted EPS) in Q2 2024.
• HDMC segment operating income decreased by $136.6 million to $61.3 million in Q2 2025, primarily due to planned lower motorcycle shipments and softer retail demand.
• LiveWire segment operating loss improved to $18.7 million in Q2 2025 from $28.2 million in Q2 2024, attributed to cost reduction actions.
• HDFS segment operating income slightly decreased by $1.6 million to $69.8 million in Q2 2025, due to lower interest income partially offset by a lower provision for credit losses.
• Worldwide retail sales of new Harley-Davidson motorcycles declined 15.5% in Q2 2025 compared to Q2 2024, with North America down 17.0%, EMEA down 4.9%, and Asia-Pacific down 21.4%.
• Worldwide motorcycle unit shipments decreased by 27.8% to 35,837 units in Q2 2025.
• The company expects to sell the majority of HDFS's existing retail finance receivables (over $5 billion) and approximately two-thirds of future retail loan originations, which is expected to reduce HDFS debt by over $4 billion and make approximately $1 billion in cash available to the company.
• A new term loan facility of $450.0 million was drawn on July 24, 2025, maturing July 1, 2027, with proceeds used to pay down maturing senior notes.
• The company plans $500 million in discretionary share repurchases in the second half of 2025, as part of a larger $1 billion repurchase plan through the end of 2026.
• A reduction of approximately 10% in 2025 year-end dealer inventory of new Harley-Davidson motorcycles is expected compared to the end of 2024.
• HDFS operating income is projected to be approximately $525 million to $550 million for 2025, including a $275 million to $300 million benefit from the HDFS transaction.
• LiveWire segment operating loss is expected to be approximately $59 million to $69 million in 2025, with total cash usage of approximately $50 million to $60 million.
• The company achieved $48 million in productivity savings in H1 2025 and targets $100 million annually in 2025 and 2026, totaling $457 million by the end of 2026.
• Capital investments for 2025 are expected to be in the range of $200 million to $225 million.

Sentiment

Score: 3

Explanation: The company's core motorcycle business is facing significant headwinds, evidenced by substantial declines in Q2 net income, operating income, retail sales, and shipments. While the HDFS transaction is expected to provide a near-term cash infusion and operating income benefit, it represents a restructuring of a key segment, and the long-term impact on HDFS's recurring income stream needs careful monitoring. Rising credit losses and delinquency rates in the financial services segment are concerning. Persistent macroeconomic challenges, including high interest rates and depressed consumer sentiment, continue to weigh on discretionary purchases. Furthermore, the company faces ongoing risks from tariffs, potential large-scale product recalls (with significant estimated costs if they materialize), and the uncertain path of the LiveWire EV segment. The decline in market share in both the U.S. and Europe suggests competitive pressures or a weakening brand appeal in the current environment.

Positives

• LiveWire operating loss decreased by $9.5 million in Q2 2025 due to cost reduction actions.
• HDFS provision for credit losses decreased by $6.3 million in Q2 2025 due to a favorable change in the allowance for credit losses.
• The company expects North American retail sales in the second half of 2025 to grow compared to the same period last year.
• The strategic HDFS transaction is expected to generate approximately $1 billion in cash for the company and reduce HDFS debt by over $4 billion.
• The HDFS transaction is expected to result in a benefit to operating income of $275 million to $300 million in the second half of 2025.
• The company plans significant discretionary share repurchases of $500 million in the second half of 2025, part of a $1 billion plan through 2026.
• The company continues its multi-year cost productivity initiative, achieving $48 million in H1 2025 and targeting $100 million annually in 2025 and 2026.
• A new term loan facility of $450 million was secured to pay down maturing senior notes, maintaining liquidity.
• Access to the Canadian Conduit facility was restored and credit loss thresholds increased in June 2025.

Negatives

• Net income attributable to Harley-Davidson, Inc. decreased by 50.7% in Q2 2025 to $107.6 million.
• Diluted EPS decreased by 46.0% in Q2 2025 to $0.88.
• HDMC segment operating income decreased by 69.0% in Q2 2025, driven by planned lower motorcycle shipments and softer than expected retail demand.
• Worldwide retail sales of new Harley-Davidson motorcycles declined 15.5% in Q2 2025.
• North American retail sales were down 17.0%, Asia-Pacific down 21.4%, and EMEA down 4.9% in Q2 2025.
• Worldwide motorcycle unit shipments decreased by 27.8% in Q2 2025.
• U.S. retail sales were negatively impacted by depressed consumer sentiment and high interest rates.
• HDFS interest income was lower in Q2 2025 due to lower average outstanding finance receivables at a higher average yield.
• Annualized credit losses on retail motorcycle loans increased to 3.25% at June 30, 2025, from 3.12% at June 30, 2024.
• The 30-day delinquency rate for retail motorcycle loans increased to 4.34% at June 30, 2025, from 3.92% at June 30, 2024.
• Manufacturing and other costs were negatively impacted by unfavorable manufacturing leverage due to lower production and shipment volumes, as well as higher tariff and logistics costs.
• U.S. market share of new 601+cc motorcycles decreased to 33.8% in H1 2025 from 38.5% in H1 2024.
• European market share of new 601+cc motorcycles decreased to 3.2% in H1 2025 from 4.5% in H1 2024.
• LiveWire motorcycle unit shipments decreased by 65.2% in Q2 2025.
• LiveWire segment operating loss is expected to be $59 million to $69 million in 2025.
• The company was temporarily unable to draw on the Canadian Conduit as of March 31, 2025, due to elevated credit losses, though access was restored in June.

Risks

• New or increased tariffs by the U.S. and retaliatory tariffs by foreign countries (e.g., China, Mexico, Canada, EU) could materially increase costs of raw materials, components, and finished products, and affect sales prices, with an estimated potential impact of $50 million to $85 million in 2025.
• Heightened interest rates adversely impact HDFS's interest income margin due to higher cost of funds and negatively affect consumer discretionary purchases by increasing borrowing costs and impacting financing availability.
• Supply chain and logistics issues, including quality problems (e.g., brake hose assemblies from Proterial Cable America, Inc.), unexpected interruptions, raw material shortages, and increased logistics costs.
• Potential for future quality or non-compliance issues, recall campaigns, regulatory investigations, increased warranty costs, or litigation related to brake hose assemblies, with estimated costs ranging from $140 million to $450 million if a field action or recall is required.
• Depressed consumer sentiment and economic uncertainty are adversely impacting retail sales.
• The company faces competition from existing and new competitors, impacting its ability to benefit from market opportunities.
• The prices for and supply of used motorcycles may negatively impact retail sales of new motorcycles.
• Dealers may experience difficulties in operating their businesses and selling motorcycles due to challenges in obtaining capital, changing economic conditions, or consumer demand.
• Uncertainty regarding LiveWire's ability to execute its plans, demand for electric vehicles, and slower EV adoption than anticipated due to lack of government incentives, less favorable regulatory environment, and slow charging infrastructure expansion.
• HDFS segment results could be negatively affected by higher funding costs and increased difficulty in raising funding in capital markets.
• The company is subject to lawsuits and other claims, including a product liability matter with an $81 million award for damages.
• An investigation by the Japan Fair Trade Commission (FTC) into Harley-Davidson Japan KK for alleged improper activity, including setting excessive sales quotas.
• The company's ability to attract and retain skilled employees, executive officers, and senior leaders, including the upcoming CEO transition, is critical for future success.
• Risk of ransomware attacks, cybersecurity incidents, and data privacy breaches.
• Managing issues related to climate change and related regulations.

Future Outlook

The company expects North American retail sales to grow in the second half of 2025 and anticipates a reduction of approximately 10% in 2025 year-end dealer inventory. HDFS operating income is projected to be $525 million to $550 million for 2025, including a significant benefit from the HDFS transaction. LiveWire is expected to incur an operating loss of $59 million to $69 million and use $50 million to $60 million in cash in 2025. The company aims for annual productivity savings of $100 million in 2025 and 2026, totaling $457 million by the end of 2026. Capital investments are planned at $200 million to $225 million for 2025. The company intends to repurchase $500 million in shares in the second half of 2025, part of a larger $1 billion plan through 2026. The company is evaluating all options for its investment in LiveWire and does not plan additional investments beyond the $100 million Convertible Term Loan.

Management Comments

• "The Company is encouraged by retail results in North America at the start of July 2025 and expects North American retail sales in the second half of 2025 to grow compared to the same period last year."
• "The Company plans to continue its multi-year cost productivity initiative to eliminate incremental cost."
• "The Company remains committed to its plan to repurchase approximately $1 billion of shares on a discretionary basis in aggregate from the third quarter of 2024 through the end of 2026 including $500 million of discretionary share repurchases in the second half of 2025, assuming the HDFS Transaction successfully closes."
• "The Company believes headwinds facing the broader powersports and discretionary leisure industries are even more complicated in the electric vehicle (EV) segment of the market."
• "The Company believes indicators point to a much later EV adoption than the Company originally anticipated given a lack of government incentives and a notably less favorable regulatory environment, combined with a slower expansion of charging infrastructure."
• "The Company is evaluating all options for its investment in LiveWire while LiveWire will continue evaluating all options for its business, including seeking external capital if and when needed."
• "The Company does not plan to make additional investments in LiveWire beyond availability under the Convertible Term Loan of up to $100 million."
• "The Company is 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 filing highlights a challenging macroeconomic environment with persistently high interest rates and muted consumer confidence, which are significantly impacting discretionary purchases like motorcycles. The company's market share in 601+cc motorcycles declined in both the U.S. and Europe. The electric vehicle (EV) segment, particularly for LiveWire, faces headwinds due to slower-than-anticipated EV adoption, a lack of government incentives, a less favorable regulatory environment, and slow expansion of charging infrastructure.

Comparison to Industry Standards

• U.S. market share of new 601+cc motorcycles decreased to 33.8% in H1 2025 from 38.5% in H1 2024.
• European market share of new 601+cc motorcycles decreased to 3.2% in H1 2025 from 4.5% in H1 2024.
• Industry new motorcycle registrations in the United States decreased by 10.1% in H1 2025.
• Industry new motorcycle registrations in Europe decreased by 14.9% in H1 2025.

Management Changes

Corporate Governance

Legal Proceedings

• A product liability lawsuit resulted in a jury award of approximately $288 million in August 2024, which was reduced to $81 million in November 2024. The company has accrued for its estimated loss and an asset for expected insurance proceeds.
• Ongoing regulatory compliance matter with Proterial Cable America, Inc. (PCA) and NHTSA regarding non-compliant brake hose assemblies. The company believes the issues are inconsequential to motor vehicle safety and expects no material costs or recall, but a potential field action or recall could cost $140 million to $450 million.
• The Japan Fair Trade Commission (FTC) initiated an investigation into Harley-Davidson Japan KK for alleged improper activity, including setting excessive sales quotas. The company does not expect material future costs from this matter.

Related Party Transactions

• Harley-Davidson, Inc. has a support agreement with Harley-Davidson Financial Services Inc. to provide financial support if needed to maintain fixed-charge coverage and minimum net worth, though no amount has ever been provided.
• Harley-Davidson, Inc. entered into a Convertible Delayed Draw Term Loan Agreement with LiveWire Group, Inc. for up to $100.0 million, with no draws as of June 30, 2025.

Stakeholder Impact

• Shareholders: Experienced decreased net income and EPS, but the company continues discretionary share repurchases and dividend payments. Potential for dilution exists if the LiveWire Convertible Term Loan converts to equity.
• Employees: The company noted lower people costs in HDMC and mentioned a CEO search and eventual transition, along with efforts to eliminate personnel duplication and inefficiencies. Share-based compensation plans remain active.
• Customers: Higher interest rates are adversely impacting consumer discretionary purchases and the affordability of financing. Retail credit losses and delinquency rates have increased. New product introductions are planned to stimulate demand.
• Suppliers: A Tier 2 supplier's quality issues led to production suspensions and potential recall costs, with the company indicating it would seek full recovery from suppliers if a recall occurs.
• Creditors: The company maintained compliance with financial covenants and secured a new term loan. The HDFS transaction is expected to significantly reduce HDFS debt, impacting creditors of that segment.

Next Steps

• The company expects to sell the majority of HDFS's existing retail finance receivables and two-thirds of future retail loan originations in the second half of 2025.
• Proceeds from the HDFS transaction are expected to be used to pay down the $450 million term loan debt and execute discretionary share repurchases of $500 million in the second half of 2025.
• The company plans to continue its multi-year cost productivity initiative, targeting $100 million in annual savings in 2025 and 2026.
• The company plans to introduce a new small displacement motorcycle and an iconic classic cruiser starting next year.
• The company plans to shift the timing of its annual new model year launch from January to the preceding fall, starting with certain models this year.
• LiveWire plans to launch production versions of two concept mini-motorcycles.
• LiveWire will continue evaluating all options for its business, including seeking external capital if and when needed.
• The company will continue to monitor future economic trends and conditions.
• The company will continue to evaluate and update estimates regarding potential brake hose assembly recall costs.
• The company will seek full recovery from its suppliers if a material field action or recall related to brake hose assemblies is required.
• The company expects to fund remaining finance receivables originations with unsecured debt, commercial paper, conduit facilities, bank facilities, securitizations, and brokered certificates of deposit.
• The company intends to repay unsecured commercial paper as it matures with additional unsecured commercial paper or through other means.

Key Dates

Recommendation

The company's core motorcycle business is facing significant headwinds, evidenced by substantial declines in Q2 net income, operating income, retail sales, and shipments. While the HDFS transaction is expected to provide a near-term cash infusion and operating income benefit, it represents a restructuring of a key segment, and the long-term impact on HDFS's recurring income stream needs careful monitoring. Rising credit losses and delinquency rates in the financial services segment are concerning. Persistent macroeconomic challenges, including high interest rates and depressed consumer sentiment, continue to weigh on discretionary purchases. Furthermore, the company faces ongoing risks from tariffs, potential large-scale product recalls (with significant estimated costs if they materialize), and the uncertain path of the LiveWire EV segment. The decline in market share in both the U.S. and Europe suggests competitive pressures or a weakening brand appeal in the current environment. Given these multiple headwinds and the significant underperformance in the core business, a seasoned investor would likely recommend selling the stock, or at least holding off on new investments, until there is clear evidence of a sustained turnaround in retail demand, market share, and profitability, and a clearer resolution of the major outstanding risks.

Keywords

Harley-Davidson, Motorcycles, Financial Services, HDFS, LiveWire, SEC Filing, Quarterly Report, Earnings, Revenue, Net Income, Shipments, Retail Sales, Tariffs, Interest Rates, Credit Losses, Share Repurchase, Debt, Term Loan, Capital Allocation, Supply Chain, Recall, EV, Electric Motorcycles, Financial Performance, Corporate Governance