HarleyDavidson Presentation
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Transcript of HarleyDavidson Presentation
• Company Profile
HARLEY‐DAVIDSON, INC.
• Marketing Analysis
• Accounting Analysis
• Financial Analysis
• Recommendations
• Conclusion
HARLEY‐DAVIDSON, INC.
Company Profile
• World’s leading designer and manufacturer of heavyweight (651+cc) motorcycles and related products and merchandise
• Key Operations: Harley‐Davidson Motor Company and Harley‐Davidson Financial Services
• Recent Milestoneso 2008: 105th Anniversary of Harley‐Davidsono 2009: Keith E. Wandell named President and CEO; Restructuring
Plan launchedo 2010: India selected as second international o assembly site
• Company Profile
HARLEY‐DAVIDSON, INC.
• Marketing Analysis
• Accounting Analysis
• Financial Analysis
• Recommendations
• Conclusion
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Performance MetricsHOG ACAT BC MPX PII
as of 9/30/10
EPS 0.65 0.34 ‐1.48 0.02 4.02
P/E 47.88 43.38 N/A 404.31 18.06
Price/Sales 1.46 0.39 0.44 2.51 1.07
Inventory T/O 9.20 5.40 5.10 3.30 6.80
A/R Turnover 15.70 13.40 8.00 52.70 23.80
Current Ratio 1.83 2.19 1.77 3.54 1.60
Debt/Equity 280.24 0.00 384.20 0.00 67.13
LT Debt/Assets 61.12 0.00 30.53 0.00 20.57
ROE 17.37 41.38 ‐13.82 4.71 70.45
ROA 3.71 26.00 ‐1.05 3.78 21.12
Gross Margin 36.65 29.16 22.48 16.96 25.98
Net Margin 7.44 10.13 ‐0.88 4.16 8.14
as of 12/31/10
Price/Book 3.48 1.62 6.84 2.95 11.76
Beta 2.32 2.08 3.04 1.11 1.77
EBITD Margin 15.18 5.35 ‐15.36 ‐45.16 13.00
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Performance Metrics
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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Inventory Turnover
• Inventory Turnover: increasing amount of funds tied up in inventory
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Performance Metrics
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Accounts Receivable Turnover
• Accounts Receivable Turnover: decrease due to drop in Revenues in recent years
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Performance Metrics
• LT Debt to Assets: high reliance on debt financing, increasing over time
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Debt to Assets Ratio
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Methodology and Disclosures
• Inventory Valuation: combination of both LIFO and FIFO, dependent on where materials/goods are sourced; decreasing LIFO Reserve indicates a trend to source more inventory from abroad
‐45‐40‐35‐30‐25‐20‐15‐10‐50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
$ in M
illions
Year
LIFO Reserve
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Methodology and Disclosures
Goodwill • Impairment of $28.4 million in 2009, due to significant losses and
write‐downs in HDFS’s loan portfolio; • HDFS was acquired as Eaglemark Financial Services in 1995 for $43.0
million in excess of fair value
HARLEY‐DAVIDSON, INC.
Accounting Analysis – Methodology and Disclosures
• Safety Recall Campaign Liabilities: increases over last three years due to possible increased use of foreign parts and components of lesser quality
$3.7$4.6
$6.7
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2007 2008 2009
$ in M
illions
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Safety Recall Campaign Liability
• Company Profile
HARLEY‐DAVIDSON, INC.
• Marketing Analysis
• Accounting Analysis
• Financial Analysis
• Recommendations
• Conclusion
HARLEY‐DAVIDSON, INC.
Financial Analysis—Overview (2010 Q3 vs. 2009 Q3)
Key Metrics B/W
Revenue (HDMC + HDFS) 1%
Revenue (HDMC) (2%)
Gross Profit 25%
Operating Expense 11%
EBITDA 35%
Net Income (Excl. UnusualItems) 66%
Diluted EPS (Excl. Unusual Items) 66%
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2005 2007 2009 2010Q2
EBITDA & EBIT Margins
EBITDA Margin (Excl Abnornal Items)EBIT Margin (Excl Abornmal Items)
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Profitability
EPS EPS Before Abnormal Items Sales (Revenue in $MM)
HARLEY‐DAVIDSON, INC.
Financial Analysis – Profitability
• Sales decreased to $5B, lowest since 2006
• Earnings per share has been declining, hit the lowest point in 2009
• EBITDA and EBIT margin have been declining over the years
HARLEY‐DAVIDSON, INC.
Financial Analysis – Leverage
• H‐D is highly levered o The Debt to Equity is at
246% in 2010 Q3
o The Debt to Asset Ratio is at 78% in 2010 Q3
• H‐D has been maintaining free cash flow; with a dip in 2009
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2005 2007 2009 2010Q2
Leverage Ratio
Debt to Asset ratio Debt to Equity ratio
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2005 2007 2009 2010Q2
Free Cash Flow
Free Cash Flow ($MM)
HARLEY‐DAVIDSON, INC.
Financial Analysis – Liquidity Standing
• The Current ratio has been falling since 2005. As of 2010 Q3 it was 1.8
• H‐D has been utilizing its line of credit lately: utilization rate jumped to 72% in 2009
0.000.501.001.502.002.503.003.504.00
2005 2007 2009 2010Q2
Current Ratio
Current ratio
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2005 2006 2007 2008 2009
Line of Credit Utilization
Total Available Line Of Credit ($MM) Line of credit utilization
HARLEY‐DAVIDSON, INC.Financial Analysis ‐ Valuation
• Discounted Cash Flow o Discounted by ~11% WACC o Projected Sales growth of 8.8% CAGR from 2010‐2015o Terminal growth rate of 4%o Sensitivity Analysis of the stock Price ‐ $31‐35
• As of Dec 11th , 2010 H‐D stock closed at $33.69
• The Stock is priced within acceptable range by the market
• Company Profile
HARLEY‐DAVIDSON, INC.
• Marketing Analysis
• Accounting Analysis
• Financial Analysis
• Recommendations
• Conclusion
HARLEY‐DAVIDSON, INC.
Harley‐DavidsonFinancial Services(20% Revenue)
Harley‐Davidson Motorcycles
(80% Revenue)
Bikes Trikes Parts Merchandise
Wholesale Financing Insurance Retail Financing
Marketing Analysis – Products and Services
HARLEY‐DAVIDSON, INC.
Marketing Analysis – Customer Segmentation
35
40
45
50
55
2004 2005 2006 2007 2008
Med
ian Ag
e
Year
Customer Demographics by Age
0%
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2007 2006 2005 2004 2003
Custom
ers (%)
Year
Customer Demographics by Gender
Male
Female
• Median Age: 47 (in 2008) Has increased by 6 months per year for last 20 years
• Consistent 88‐89% male ownership rate
HARLEY‐DAVIDSON, INC.
Marketing Analysis – Market Share
• International shipments have been increasing as percentage of total H‐D motorcycle shipments
2008: 32%2009: 35.2%
0
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2008 2009
Units
Year
Unit Shipments
United States
International
HARLEY‐DAVIDSON, INC.
DistributionNorth America Europe Asia Pacific Latin America
US Canada Region Region Region
Independent Distributors 0 1 3 0 0
Full Service DealershipsHD Only 389 25 52 110 16
Buell only 0 0 2 2 0
HD and Buell 282 46 315 86 18
Total 671 71 369 198 34
Non‐Traditional RetailersSecondary Retail Locations 87 3 2 4 6
Alternate Retail Outlets 83 5 8 6 15
Seasonal Retail Outlets 10 1 0 0 1
Total 180 9 10 10 22
Marketing Analysis – Distribution Channels
HARLEY‐DAVIDSON, INC.
Marketing Analysis – Competitive Positioning Strategy
Quality
Value
ASPIRATIONAL
EMOTIONAL
FUNCTIONAL
BASIC PRODUCT
• Harley Davidson Lifestyle• Freedom, Rebellion
• 1MM in HOG Brand‐Community• Sense of belonging
• High quality design and product
The HOG Mission: Making the Harley‐Davidson Dream a Way of Life
Laddered Hierarchy of customer needs
HARLEY‐DAVIDSON, INC.
Marketing Analysis – Historic Brand Meaning
HARLEY‐DAVIDSON, INC.
• Down from # 74 to # 98 in global brand ranking (Interbrand) due to:
o Aging market problemo Loss of rebellious brand imageo Negative company presso Mass‐marketing strategies
have diluted the brand
Marketing Analysis – Loss of Brand Equity
HARLEY‐DAVIDSON, INC.
REBEL
RELEVANCE
STRETCH
DIFFERENTIATION
CREDIBILITY
Symantec Brand Opportunity Framework
• Relevance: Attractive to a wider market
• Stretch: Rebellion means a wide range of things to different consumers
• Credibility: H‐D has historically stood for rebellion; category
• Differentiation: H‐D is therebel motorcycle brand
Freedom
Bad‐boy
Authenticity
American
Recommendation – Refocus Marketing Strategy around Brand
HARLEY‐DAVIDSON, INC.
• For all print, TV, and on‐line messaging channels—eliminate any images that contradict a rebellious image
• H‐D should limit the amount of low‐end apparel sold in the U.S. market
• H‐D should abandon the WE RIDEMagazine, or any other obvious “female‐oriented” marketing
Recommendation – Refocus Marketing Strategy around Brand
HARLEY‐DAVIDSON, INC.
• Rely on underground media channels, such as the Vice Magazine blog
• Avoid using TV or large‐scale events which could appear too “main‐stream”
• Utilize retro‐Americana rebellious images, which could give the brand a more classic vintage feel (i.e. James Dean more than a Hell’s Angel).
Recommendation – Market to Younger Demographic
• PBR sales are now growing at about 30% per year
• Only large‐scale domestic brewery to grow during the recession
• PBR currently priced at over $250 million dollars
HARLEY‐DAVIDSON, INC.
“Soft‐Touch” Marketing
Underground Media
Core Values
• Credibility/Authenticity
• Cynicism
• Anti‐Mainstream
• Brand Adoption
• Rebellion• Retro‐Americana
Recommendation – Market to Younger Demographic
HARLEY‐DAVIDSON, INC.
Counter Loss of Brand Equity
Manage image of consumersReduce mass‐marketing
Refocus Brand
Return to core attributes: rebellion, freedom
Market to Younger
Demographic
Utilize anti‐marketing strategiesFocus on retro models and advertising
Recommendations – Future Marketing Strategy
HARLEY‐DAVIDSON, INC.
China 56%
India24%
Japan11%
South Korea1%
Other8%
Asian Motorcycle Market Share(2009)
INDIA
Recommendation – Increase Footprint in India
• High growth potential
• Existing capital commitment
• Brand awareness
Harley‐Davidson, Inc.
0
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6,000
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14,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Units Sold
Year
Motorcycle Sales Volume(India)
2005 ‐ 2009 CAPR5.5%
2010 ‐ 2014 CAPR5.1%
Projected Unit Sales(thousands)2010 = 9,849 2011 = 10,351 2012 = 10,879 2013 = 11,434 2014 = 12,017
Recommendation – Increase Footprint in India
HARLEY‐DAVIDSON, INC.
0
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Unit Sales
India Expansion
International
Domestic
Year 2010 2011 2012 2013 2014
Unit Sales 200 500 2,000 5,000 8,000
Recommendation – Increase Footprint in India
Recommendation – Increase Footprint in India
HARLEY‐DAVIDSON, INC. India
CurrentChandigarhNew DelhiMumbai
Hyderabad Bengaluru
ProposedKolkataChennai
AhmedabadPuneSuratKanpurJaipur
LucknowNagpurPatna
HARLEY‐DAVIDSON, INC.
Grow Market Share
Grow dealer networkSmaller bikes, lower cost
Source Locally
Market research to protect brandPurchase parts/materials locally
Build On Production Capability
Expand CKD facility as demand growsFeasibility of manufacturing locally, brand and costs
Recommendations – Future in India
• Company Profile
HARLEY‐DAVIDSON, INC.
• Marketing Analysis
• Accounting Analysis
• Financial Analysis
• Recommendations
• Conclusion
HARLEY‐DAVIDSON, INC.Conclusion – The road ahead…
Refocus Brand => Harley‐Davidson’s core asset
Strategic Expansion to India
Short and Long Term Growth
HARLEY‐DAVIDSON, INC.
Questions?
HARLEY‐DAVIDSON, INC.
Appendices
HARLEY‐DAVIDSON, INC.DCF Sensitivity Analysis
HARLEY‐DAVIDSON, INC.Weighted Average Cost of Capital
HARLEY‐DAVIDSON, INC.