Q3 2024 Harley Davidson Inc Earnings Call
Thank you for standing by and welcome to the Harley Davidson 'twenty 'twenty, four third quarter, Investor and Analyst Conference call.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to Shawn Collins.
Please go ahead.
Thank you. Good morning. This is Shawn Collins, the director of Investor Relations at Harley Davidson.
To access the slides supporting today's call on the Internet at the Harley Davidson Investor Relations website.
and our core categories, that we know our customers and dealers love with the right ones to both feel the heart of their culture and business for years to come.
Speaker Change: Thank you and I'll hand over to Karim.
Karim: Thanks to you and good morning everyone. In truth, we, the market proves to be challenging for EV products with power and anti-Siberied adoption to meet global political and economic and so-called.
Karim: In this context, here today, live while you're retail, go on-world and a quick motorcycle in the US and any other brand in the market.
Karim: Within the 50 plus HP, onboard release segment, live wear continually the speedy position in a quarter and in 2024 with 69% of the attention, the update.
Karim: In 23, LIGO Air has several older-nodder-ball exposure exams, including the Delmar being awarded at the best 2024 electric bike by MCN September.
Karim: In addition, this August 3rd, we enjoyed the global moment for the S2 Denmark, making liveway on Household Night.
Karim: Despite retail, outpacing wholesale for sales consecutive order with the average short of our expectation.
Karim: As a result, we are revising a foodier guidance to 600,000 motorcycle units, operating last guidance remained unchanged for the foodier.
Unknown Executive: Our focus is on right-sizing the business, given the market's environments, delivering the best city products out there, with a unique, live-wire look, sound, and feel, and preparing for future growth as TV market expense. Looking ahead, we expect to diligently manage expenses and significantly improve our TV motorcycle products. We do think cash burned the expected 40% next year compared to 2024.
Karim: Our focus is on right-sizing the business, given the market's environments, delivering the best elite products out there with a unique, nicer look, sound and feel, and preparing for future growth as easy market expense.
Karim: i
Karim: Looking ahead, we expect to diligently manage expensive and significantly improve our EV motorcycle products cost. With using cash burned by an expected 40% next year compared to 2024.
Unknown Executive: As she has already been taken this year in anticipation of 2020, with the completed centralization of all our operations in Milwaukee and the moves to Juneau, other year. We also streamed lines of organization leading to an approximately 30% discount reduction heading into 2025 compared to the start of 2024. Recognizing that the performance of our existing products are free, is directly to enthusiasts. Live-wire is also, as to me, looking at expanding its market and increasing overall access to easy exchange.
Karim: As she has already been taken this year in anticipation of 2020, with the completed centralization of all our operations in Milwaukee and the moves to Juno's other year.
Karim: We were so streamlined or organisation leading to an approximately 30% hit count reduction, heading into 2025 compared to the start of 2024.
Karim: Recognizing that the performance of our existing products are free is directly to enthusiasm. Livewire is also aptifiably looking at expanding its more addressable market and increasing overall access to the easy exchange.
Unknown Executive: To that, I'm pleased to concern that we are planning to announce a new product segment at X-Men November, that we believe we're bringing additional revenue streams to the company in the mid-Jender, while meaningfully expanding our current address in good luck.
Karim: Today I'm pleased to concern that we are planning to announce a new product segment at Ekma in November that we believe we're bringing additional revenue streams to the company in the mid-Jender, while meaning fully expanding our current address in Good Mark.
Unknown Executive: Thank you for all.
Unknown Executive: Thank you, and now, I'm heading over to China.
Karim: Thank you for watching.
Karim: Thank you and our family of our future.
Unknown Executive: Thank you, Karim, and good morning to all. I plan to start on page four of the presentation, where I will briefly summarize the consolidated financial result for the third quarter of 2024. Consolidated revenue in the third quarter was down 26%, driven by HG and C revenue down 32% and partially offset by HGFS revenue growth of 10%. Consolidated operating income in the third quarter was $106 million. Down 49% from the prior year period, driven by a decrease of $120 million at HG and C. At HGFS, operating income was up $17 million, while the operating loss of the LiveWire segment was up by $1 million compared to a year ago.
Speaker Change: Thank you Karim, and good morning to all. I plan to start on page 4 of the presentation where I will briefly summarize the consolidated financial result for the third quarter of 2024.
Speaker Change: Consolidated revenue in the third quarter was down 26% driven by HDMC revenue down 32% and partially offset by HDSS revenue growth of 10%.
Speaker Change: Consolidated operating income in the third quarter was $106 million, down 49% from the prior year period, given by a decrease of $120 million at HGMC.
Speaker Change: at HGFS, operating income was up $17 million, while the operating loss at the LiveWire segment was up by $1 million, compared to a year ago.
Unknown Executive: The consolidated operating margin in the third quarter was 9.2%, which compares to 13.5% in the prior year period, where HGMC operating income margin was down 720 basis points year over year, and HGFS operating margin was improved by 410 basis points. I plan to go into further detail on each business segment's profit and loss drivers in the next section. Third quarter earnings per share was 91 cents, which is down 34% from $1.38 last year. As we put the page to our year-to-date results, total consolidated HCI revenue $4.5 billion was down 6% compared to last year. The components of this work at HGMC revenue decreased by 9%; at HGFS revenue increased by 11%; and a LiveWire revenue declined by 30%.
Speaker Change: The consolidated operating margin in the third quarter was 9.2% which compares to 13.5% in the prior year period, where HCMC operating income margin was down 720 basis points year over year.
Speaker Change: and HTFS operating margin was improved by 410 basis points.
Speaker Change: I plan to go into further detail on each business segment's profit and loss drivers in the next section.
Speaker Change: Third quarter earnings per share was 91 cents, which is down 34% from $1.38 last year.
Speaker Change: As we put the page to our year-to-day results, total consolidated HCI revenue of $4.5 billion, with down 6% compared to last year.
Speaker Change: The components of this work at HCMC revenue decreased by 9%, at HCFS revenue increased by 11%, and their live revenue declined by 30%.
Unknown Executive: Total consolidated HCI operating income was $610 million, which was $19 million lower than the prior year. The components of this work at HGMC operating income of $491 million was 30% lower than prior year, reflecting an operating margin of 13.3% in the year-to-day period. At HGFS, operating income of $22 million increased by 14% in the year-to-date period. And that LiveWire, an operating loss of $83 million was in line with our expectations. Year to date earnings per share was $4.27, down 8%, and compares to $4.65 in the same period in 2023. As Yoke said in his introductory comments, in Q3, the global consumer has seemingly taken a pause from big-ticket consumer discretionary funds based on different dynamics in each region.
Speaker Change: Total consolidated HDI operating income was $610 million, which was $199 million lower than the prior year.
Speaker Change: The components of this word at HPMC, operating income $491 billion was 30% lower than prior year, reflecting an operating margin of 13.3% in the year today period.
Speaker Change: at HTFS, operating income of $22 million, increased by 14% in the year-to-date period. And at LiveWire, an operating loss of $83 million was in line with our expectations.
Speaker Change: Here today earnings per share was $4.27 down to 8% and compared to $4.65 in the same period in 2023.
Speaker Change: As you'll consider the introductory comments, in Q3, the global consumer has seemingly taken a pause from big ticket consumer discretionary spend based on different dynamics in
Unknown Executive: As Yoke mentioned, dealer inventory at the end of Q3 is down by 13% relative to the end of Q2 of this year as we focus on reducing inventory levels in the second half of 2024, both domestically and internationally. We are prioritizing support for our dealers in their attempts to reduce their inventory for the remainder of 24. We expect dealer inventory to be down around 20% from the end of Q3 to 24 levels, so that dealers will come into 2025 with inventory at similar levels to the start of 2024. We look forward to a healthier 2025 environment, where, as Yoke mentioned earlier, we are focused on improving profitability throughout the Harley Davidson dealer network and partnering more heavily with our dealers to develop and grow our grassroots marketing activations.
Speaker Change: As Jochen mentioned, dealer inventory at the end of Q3 is down by 13% relative to the end of Q2 of this year. As we focus on reducing inventory levels in the second half of 2024, both domestically and internationally.
Speaker Change: We are prioritizing support for our dealers in their attempts to reduce their inventory for the remainder of 24. We expect dealer inventory to be down around 20% from the end of Q320 core levels.
Speaker Change: So that dealers will come into 2020 by with inventory at similar levels to the start of 2024.
Speaker Change: We look forward to a healthier 2025 environment, where as Jochen mentioned earlier, we are focused on improving profitability throughout the Harley Davidson dealer network and partnering more heavily with our dealers to develop and grow our grassroots marketing activations.
Unknown Executive: We continue to prioritize availability and inventory, touring, tried, Softail and CVO motorcycles. We will talk further about our expectations for those retail and wholesale motorcycles for the balance of 2024 in just a few minutes. Looking at revenue, HTMC revenue decreased by 32% in Q3. This was largely a result of the 39% decrease in wholesale units shipped in Q3, where we shipped 27.5 thousand motorcycles in Q3 of 24 versus shipping 45.3 thousand motorcycles in Q3 of 23. 32 points of decline was as a result of decreased wholesale volume at HTMC, where motorcycle shipments down 39% in the quarter were meaningfully lower than retail sales of motorcycles.
Speaker Change: We continue to prioritize availability and inventory, touring, trite, soft tail and CVO motorcycles. We will talk further about our expectations for those retail and wholesale motorcycles for the balance of 2024 in just a few minutes.
Speaker Change: i
Speaker Change: Looking at revenue, HDFC revenue decreased by 32% in Q3.
Speaker Change: This was largely a result of the 39% decrease in wholesale units shipped in Q3, where we shipped 27.5,000 motorcycles in Q3 of 24 versus shipping 45.3,000 motorcycles in Q3 of 23.
Speaker Change: focusing on the key drivers for the court from a revenue contribution standpoint.
Speaker Change: 32 points of decline was as a result of decreased wholesale volume at HGMC, where motorcycle shipments, down 39% in the quarter, were meaningfully lower than retail sales of motorcycles.
Unknown Executive: One point of growth came from pricing, which includes the net impact of pricing actions on 2024 model year motorcycles and overall sales incentives. One point of decline came from mix as we compared to the prior year introduction of all new CBO motorcycles focus more on touring shipments in the first half of the year, and we round out the rest of the motorcycle portfolio shipments in the second half of the year, and finally for an exchange was largely flat in the third quarter. In Q3, HTMC gross margin was 30.1%, which compares to 31.7% in the prior year.
Speaker Change: One point of growth came from pricing, which includes the net impact of pricing actions on 2024 model year motorcycles and overall failed incentives.
Speaker Change: One point of decline came from mix, as we compare to the prior year introduction of all new CBO motorcycles.
Speaker Change: Focus more on touring shipments in the first half of the year, and we round out the rest of the motorcycle portfolio in shipments in the second half of the year.
Speaker Change: and finally, for an exchange was largely flat in the third quarter.
Speaker Change: In Q3, HVMC Gross Margin was 30.1% which compares to 31.7% in the prior year.
Unknown Executive: The decrease of 160 basis points was driven by the negative impacts from lower volumes and negative operating leverage. There were some positives in the quarter, including favorable net pricing, favorable for an exchange, including hedging and lower raw material and supply chain management costs as we begin to accelerate our manufacturing supply chain savings, which helps offset the 2% rate of inflation. On the operating expense side, expenses were $27 million lower relative to higher year, or 11%, as we continue to maintain overall cost discipline and increase our efforts to manage off expert activity at HTMC. HTMC operating income was $55 million, which was $120 million lower than prior year due to the significant reduction in wholesale.
Speaker Change: The decrease of 160 base of coins was driven by the negative impacts from lower volumes and negative operating leverage.
Speaker Change: There were some positives in the quote, including favorable net pricing, favorable for an exchange, including hedging, and lower raw material and supply chain management costs as we begin to accelerate our manufacturing supply chain savings, which helps offset the 2% rate of inflation in the quarter.
Speaker Change: On the operating expense side, expenses were $27 million lower relative to prior year or 11% as we continue to maintain overall cost discipline and increase our efforts to manage op-ex for activity at HDMC.
Speaker Change: HCMC operating income was $55 million, which was $120 million lower than prior year due to the significant reduction in wholesale.
Unknown Executive: HTMC operating margin came in at 6.3% in Q3, from 13.5% in the prior year. For the year-to-date period, HTMC gross margin was 31.3%, which compares to 34.2% in the prior year. The decrease of 290 basis points was driven by the negative impacts from lower volumes, negative operating leverage, moderate inflation, and less favorable net pricing, which includes overall sales incentives. These impacts were partially offset by the positive impacts from favorable motorcycle mix and lower raw material cost and lower supply chain manufacturing, which I will discuss more deeply in comments rearing productivity. Lastly, in the first nine months, operating expenses were lower by $13 million or 2%, as we maintain overall cost discipline due to actions that we began to take in the late Q2 of this year.
Speaker Change: HGMC operating margin came in at 6.3% in Q3.
Speaker Change: from 13.5% in the prior year.
Speaker Change: For the year-to-date period, HDMC Grossmargin was 31.3% which compares to 34.2% in the prior years.
Speaker Change: The decrease of 290 basis points was driven by the negative impacts from lower volumes, negative operating leverage, moderate inflation, and less favorable net pricing, which includes overall failed incentives.
Speaker Change: The impact we're partially offset by the positive impacts from favorable motorcycle mix and lower raw material costs and lower supply chain and manufacturing, which I will discuss more deeply in common triggering productivity.
Speaker Change: Last week, in the first nine months, operating expenses were lower by $13 million or 2% as we may take over all cost discipline due to actions that we began to take in the late Q2 of this year.
Unknown Executive: HCMC operating income was $491 million, which was $214 million lower than prior year. HCMC operating margin was 13.3 percent through the first nine months, compared to 17.4 percent in the prior year period.
Speaker Change: HCMC operating income was $491 million, which was $214 million lower than prior year. HCMC operating margin was 13.3% through the first nine months compared to 17.4% in the prior year period.
Unknown Executive: Before we turn to the next slide, as I didn't in July, let me give a brief update on our strategy. We are expecting to drive a $400 million improvement in productivity. As a reminder, we are now excluding the impact of leverage by holding our previously communicated multiyear target of $400 million. Excluding the impact of leverage, we delivered approximately $24 million in 2022 and $123 million in 2023. In 2024, we have delivered $84 million through Q3 of this year.
Speaker Change: Before we turn to the next slide.
Speaker Change: As I didn't July, let me give a brief update on our productivity task program. One of the initiatives identified as part of the hard-wired strategy, we are expecting to drive a $400 million improvement in productivity.
Speaker Change: As a reminder, we are now excluding the impact of leverage while holding our previously communicated multi-year target of $400 million.
Speaker Change: Excluding the impact of leverage, we delivered approximately 24 million dollars in 2022 and 123 million dollars in 2023.
Speaker Change: In 2024, we have delivered $84 million through Q3 in this year.
Unknown Executive: Turning to slide 10 now and the financial services segment. At Harley-Davidson Financial Services, Q3 revenue increased by $26 million or 10 percent, driven by higher retail and commercial finance receivables, as well as higher average yields, as the portfolio continues to reset over time with changes in Fed-based interest rates, which is currently driving higher interest income. HCFS operating income was $77 million, up $17 million, or up 29 percent compared to last year. The Q3 increase was driven by higher interest income and lower provision for credit losses, which were partially offset by increased borrowing costs, while operating expenses were largely flat.
Speaker Change: Turning to slide 10 now in the Financial Services segment.
Speaker Change: At Harley-Davidson Financial Services, Q3 revenue increased by $26 million or 10% driven by higher retail and commercial finance receivable.
Speaker Change: As well as higher average yields as the portfolio continues to reset over time with changes in front-based interest rates, which is currently driving higher interest income.
Speaker Change: HTFS operating income was $77 million. Up $17 million, you're up 29% compared to last year.
Speaker Change: The Q3 increase was driven by higher interest income and lower provision for credit losses, which were partially offset by increased borrowing costs.
Unknown Executive: Total interest expense was up $10 million or up 12 percent versus the prior year. The increase was driven by higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt. In Q3, HCFS's annualized retail credit loss ratio was 3.1, which compares to an annualized retail credit loss ratio of 2.7 percent in Q3 of 2023. The increase in credit losses was driven by several factors relating to the current macroeconomic environment and the related customer and industry dynamics. In addition, the retail allowance for credit losses for the third quarter came in at 5.5 percent.
Speaker Change: While operating expenses were largely flat.
Speaker Change: Total Interest Extents is up 10 million dollars or up 12% versus the prior year.
Speaker Change: The increase was driven by a higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt.
Speaker Change: In Q3, HCFS is annualized retail credit law ratio is 3.1% which compares to an annualized retail credit law ratio of 2.7% in Q3 of 2023.
Speaker Change: The increasing credit losses, which are being by several factors relating to the current macroeconomic environment and the related customer and industry dynamics.
Speaker Change: In addition, the retail allowance for Karim Loss is for the third quarter, came in at 5.5% Virtually flat compared to 5.4% at both prior year and Q2 of 2020 board.
Unknown Executive: Virtually flat compared to 5.4 percent at both prior year end and Q2 of 2024. This reflects our best estimate of the current and future retail ending environment. Total retail loan originations in Q3 were down 11 percent, while commercial financing activities were up 18 percent to $1.2 billion. Total quarter-end net financing receivables, including both retail loans and commercial financing, was $7.8 billion, which was up 2 percent versus prior year. Turning to slide 11 and to year-to-date result to the HCFS, revenue increased by $74 million or 11 percent. HCFS operating income with $202 million of $25 million, or up 14% compared to last year.
Speaker Change: This reflects our best estimate of the current and future retail and main environment.
Speaker Change: Total retail loan originations in Q3 with down 11% while commercial financing activities were up 18% to $1.2 billion.
Speaker Change: Total quarter-end, and that financing receivables, including both retail loans and commercial financing, with $7.8 billion, which was up 2% versus prior year.
Speaker Change: Turning to slide 11 and to hear today results at HGFS, revenue increased by $74 million or 11%.
Speaker Change: HGFS operating income with $22 million of $25 million for up 14% compared to last year.
Unknown Executive: The year-to-date increase was driven by higher interest income, which more than offset higher borrowing costs, higher provision for credit losses, and higher operating expenses. For the LiveWire segment, electric motorcycles revenue increased in the third quarter of 2024, compared to the prior year period due to higher unit sales of EV motorcycles in the quarter. As static, the electric balance by business, revenue was down compared to the prior year, which we expected due to a reduction in third-party branded distributor volumes. Selling administrative and engineering expenses were down $2 million, or down 6%, in Q3 compared to prior year.
Speaker Change: The year-to-date increase was driven by higher interest income, which more than offset higher by our own costs, higher pervading for credit losses, and higher operating expenses.
Speaker Change: For the live-wider segment, electric motor cycles revenue increased in the third quarter of 2024, compared to the prior year period due to higher unit sales of EV motor cycles in the quarter.
Speaker Change: and Stasik, the Electric Balance Light Business, revenue was down compared to the prior year, which we expect in due to a reduction in third party brand and distributor volumes.
Speaker Change: Selling administrative and engineering expenses were down $2 million, or down $6% in Q3 compared to prior year.
Unknown Executive: LiveWire operating loss of $26 million, $1 million more than a year. A year ago was in line with our expectations as LiveWire continued to invest in new motorcycle models and also actioned initiatives to reduce the overall cost of sales for EV motorcycles. For the year-to-date results of the LiveWire segment, revenue was $16 million, down 30% from the prior year as a result of lower revenue at stake. For the year-to-date period, LiveWire sold 374 electric motorcycles, which is a triple-digit increase over the prior year period. For the period, LiveWire operating loss was $83 million, which was in line with our expectations.
Speaker Change: Livewire operating loss of $26 million, $1 million more than a year ago, was in line with our expectations as livewire continued to invest in new motorcycle models and also action-d initiatives to reduce the overall cost of sales for EV motorcycles.
Speaker Change: For the year-to-date results in the live-wired segment, revenue is $16 million, down 30% from the prior year, as a result of lower revenue-exphasic.
Speaker Change: For the year-to-date period, live wire sold 374 electric motorcycles, which is a triple-digit increase over the prior year period.
Speaker Change: For the period, live wire operating loss was $83 million.
Unknown Executive: Wrapping up with consolidated Harley Davidson in financial results, we delivered $931 million of operating cash flow in the first nine months of 2024, which was up from $707 million in the same period last year. The increase in operating cash flow was influenced by positive changes in working capital as we focus on tight inventory management, as well as a change in wholesale finance receivables. Total cash and cash equivalence ended at $2.2 billion, which was $366 million higher than at the end of Q3 prior year. This consolidated cash number includes $88 million at LiveWire. Additionally, as part of our capital allocation strategy, and in line with our commitment to return capital to our shareholders, in Q3, we bought back $4 million shares of our stock at a cost of $150 million.
Speaker Change: which was in line with our expectations.
Speaker Change: Repping up with consolidated Harley Davidson in financial results, we delivered $931 million of operating cash flow.
Speaker Change: in the first nine months of 2024, which was up from $777 million in the same period last year.
Speaker Change: The increase in operating cash flow was influenced by positive change in working capital, as we focus on tight inventory management, as well as the change in wholesale finance receivables.
Speaker Change: Total cash and cash equivalents ended at $2.2 billion, which was $366 million higher than at the end of Q3 prior year. This consolidated cash number includes $88 million at Lyeblier.
Speaker Change: Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders, in Q3 we've got back 4 million shares of our stock at a cost of $150 million.
Unknown Executive: This brings our total amount of shares bought back in the nine months of 2024 to 9.5 million shares of Harley Davidson common stock at a total value of $350 million, which is 7% of shares outstanding at the beginning of 2024. This compares to 6.1 million shares at a cost of $226 million in the first nine months of 2023.
Speaker Change: This brings our total amount of shares bought back in the nine months of 2024 to 9.5 million shares of Harley-Davidson Commonstock at a total value of $350 million, which is 7% of shares outstanding at the beginning of 2024.
Speaker Change: This compares to 6.1 million shares at a cost of $226 million in the first nine months of 2023.
Unknown Executive: Given the lower than expected retail demand we experienced in the first nine months of the year, which we expect to continue into Q4, we are revising our full year 2024 out. At HEMC, we continue to expect that retail units sold and wholesale unit shipments will be broadly balanced by the end of 2024, and we now expect retail and wholesale to be in the range of 149,000 to 153,000 units, which is a change from 163,000 to 168,000 units at Q2 earnings. We expect retail to be in the range of down 68% for the full year, which is a change from slap to up 3% for the full year, and we expect wholesale shipments to be in the range of down 16 to 17% for the full year, which is a change from down 7 to 10% for the full year.
Speaker Change: Given the lower than expected retail demand, we experienced in the first nine months of the year, which we expect to continue into Q4, we are revising our full year 2020 Flora Outlook.
Speaker Change: At HMC, we continue to expect the Retail Unit Soles and Whole Fail Unit Shipments will be broadly balanced by the end of 2024, and we now expect Retail of Whole Fail to be in the range of 149,253,000 units.
Speaker Change: which is a change from 163,168,000 units at Q2 earnings.
Speaker Change: We expect a retail to be in the range of down 68% for the full year, which is a change from flat to up 3% for the whole year.
Speaker Change: and we expect wholesale shipments to be in the range of down 16 to 17 percent for the full year, which is a change from down 7 to 10 percent for the full year.
Unknown Executive: These lower revised top line inputs result in a change to our full year HDNC revenue and HDNC operating income targets. We now expect revenue to be down in the range of 14 to 16% for the full year, which is a change from down 5 to 9% for the full year at Q2 earnings. We now expect operating income margin to come in between 7.5 and 8.5% for the full year, which is a change from 10.6 to 11.6% for the full year that we had previously guided to. The downward revision is due to production and wholesale reductions and the resulting impact of leverage.
Speaker Change: These lower revised top line inputs results in a change to our full year HGNC revenue and HGNC operating in Comparatives.
Speaker Change: We now expect revenue to be down in the range of 14 to 16 percent for the full year, which is a change from down 5 to 9 percent for the full year at Q2 earnings.
Speaker Change: We now expect operating income margin to come in between 7 and a half and 8 and a half percent for the whole year, which is a change from 10.6 to 11.6 percent range for the whole year that we had previously guided to.
Speaker Change: The downward revision is due to production and wholesale reductions and the resulting impact of leverage.
Unknown Executive: We believe these reductions are positioned the company more appropriately for 2025.
Speaker Change: We believe these reduction is positioned the company more appropriately for 2025.
Unknown Executive: At HDFS, guidance for the full year of 2024 is revised upward, where we now expect operating income to be up 5 to 10% for the full year, which is a change from flat to up 5% for the full year at Q2 earnings.
Speaker Change: At HDFS, guidance for the full year of 2024 is revised upward, where we now expect operating income to be up 5 to 10% for the full year, which is a change from flat to up 5% for the full year at Q2 earnings.
Unknown Executive: At LiveWire, guidance for full year 2024 is revised. We now expect to deliver between 600 and 1,000 electric motorcycle units, while operating loss in the range of 105 to 115 million dollars is unchanged. And we continue to expect capital investment in the range of 225 to 250 million dollars, which is unchanged. As a reminder, our capital allocation priorities remain to fund profitable growth of the hardwired initiatives, which includes the capital expenditure, paying dividends, and continuing to execute discretionary share repurchases, as outlined in the previous quarter. We feel this highlights our operating discipline, overall cash flow generation, and the long-term earnings power, and is supported by our continued commitment to deliver a 15% HDMC operating income margin by the end of 2025.
Speaker Change: At LiveWire, guidance for full year 2024 is revised. We now expect deliver between 600 and 1000 electric motorcycle units. While operating loss in the range of 15 million dollars is unchanged.
Speaker Change: and we continue to expect capital investment in the range of $225 to $250 million which is unchanged.
Speaker Change: As a reminder, our capital allocation priorities remain to fund profitable growth of the hard-wired initiatives, which includes the capital expenditure.
Speaker Change: Pay in dividends and continuing to execute discretionary share reproductions as outlined in the previous quarter.
Speaker Change: We field a tie-lights tower operating discipline, overall cash flow generation, and the long-term earnings power, and is supported by our continued commitment to deliver a 15% HGMC operating income margin by the end of 2025.
Unknown Executive: And with that, we will open it up to Q&A. Thank you.
Speaker Change: and with that we will open it up to Kigonei.
Unknown Executive: As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key. We also ask that you limit yourself to one question and return to the queue for additional questions. Thank you.
Speaker Change: i
Speaker Change: Thank you. As a reminder to ask a question, please press star one on your telephone keypad, to withdraw your question, press the pound key. We also ask that you limit yourselves to one question and return to the queue for additional questions. Thank you.
Craig Kennison: Your first question comes from Craig, Kenneth, and with Baird. Please go ahead. Hey, good morning. Thanks for taking my question. Yoke, and I'm wondering if you could share any themes that may have come up through your recent dealer conversations and what your message is to dealers. It feels like that has changed a little bit. Yes, thanks, Craig. Obviously, and understandably, dealer profitability is front of mind. And as you've seen this week, it's a tough time for the industry as much as it is for any discretionary business, whether that you are in the marine business, RV business, or motorcycles.
Speaker Change: Your first question comes from Craig Kennethon with Bear. Please go ahead.
Craig Kennethon: Hey, good morning. Thanks for taking my question. Jochen, I'm wondering if you could share any themes.
Craig Kennethon: That may have come up through your recent dealer conversations and what your message is to dealers. It feels like that has changed a little bit.
Craig Kennethon: Thanks, Craig.
Craig Kennethon: Basically, an undascentably de-la-prophet ability is from the mind.
Speaker Change: And as you've seen this week, it's a tough time for the industry as much as it is for any discretionary business, whether you are in the marine business, RV business or motorcycle.
Unknown Executive: We held, as you mentioned, our annual dealer form in October. And it was a really good, aromatic opportunity to engage with our dealers, obviously, in it to the many interactions that we have throughout the year with our leadership team. And at the forum, we presented the way in which we, as a motor company, are going to support the network in 25. And I think the outcome is probably what the dealers came away feeling good about. What is in store for our collective life? And overwhelmingly rated the outcomes and the success of the forum, with almost 75% rating it very good to exceptional.
Speaker Change: We held, as you mentioned, our annual dealer formula of sober.
Speaker Change: and it was a really good baromaton opportunity to engage with our dealers, obviously, in the many interactions that we have throughout the year with our leadership team.
Speaker Change: And at the forum, we presented the way in which we as a motor company are going to support the network in 25 and I think the outcome is probably what...
Speaker Change: The last came away feeling, put about what is in store for us, collect. I've...
Speaker Change: An overwhelmingly rated the outcomes and the success of the forum with almost 75% rating is very good to exceptional.
Unknown Executive: That's a good indication of a network, even the very difficult environment that we're in with dealer profitability, obviously, at a level that we don't want to seek going forward. So the measures we put, a new product line up for the next year, and particularly the co-marketing investments that we're going to make in addition to other internal measures that we forum will be up next year in a strong forward. I mentioned earlier, there's a lot of strength in the single brand network, and we are proud to have our network in the industry and want to make sure it continues a most profitable network as well.
Speaker Change: That's a good indication of an...
Speaker Change: The network, even the very difficult environment that we're in with dealer profitability, obviously at the level that we don't want to see going forward. So the measures we put.
Speaker Change: and new product line up for the next year and particularly the co-marketing investments that we're going to make in addition to other internal measures that we...
Speaker Change: Forum.
Unknown Executive: And we're working hard. And that said, I would say other networks are probably more challenged for a network yet, but say that we will certainly continue to work very hard LCD network in terms of profitability.
Speaker Change: and that said I would say other networks are probably more challenged for a network risk.
Speaker Change: but say that we will certainly continue to work very hard.
Speaker Change: LCT on network in terms of profitability.
Megan Alexander: Our next question comes from Megan Alexander with Morgan Stanley. Hi, good morning. Thanks for taking our question. I wanted to ask a couple of questions, if that's okay, on retail. The down 13% in 3Q, obviously, I think there was some well-telegraphed noise, particularly, you know, perhaps in August. You know, I think you talked about maybe July off to an okay start last quarter. So first, can you just talk about maybe the trend of retail over the third quarter, how you exited the third quarter, and then, you know, how that informed your outlook for 4Q. Obviously, a wide range, you know, for the fourth quarter seems to be implied, but looks relatively similar, I guess, to what you reported in 3Q.
Speaker Change: Our next question comes from Megan Alexander with Morgan Stanley.
Megan Alexander: Hi, good morning, thanks for taking our question.
Megan Alexander: I want to ask a couple of questions if that's okay on retail. The down 13% in 3Q, obviously I think there was some well telegraphed noise, particularly perhaps in August. I think you talked about maybe July off to it.
Megan Alexander: In okay start last quarter, so first can you just talk about maybe the trend of retail over the third quarter.
Megan Alexander: How you exited the third quarter and then, you know, how that informed your outlook for 4Q. Obviously a wide range, you know.
Megan Alexander: For the fourth quarter seems to be implied, but looks relatively similar, I guess, to what you reported in three cue. So maybe you can just kind of help us understand the puts and takes around that.
Unknown Executive: So maybe you can just kind of help us understand the puts and takes around that.
Unknown Executive: So, Megan, so few three started out with a strong July, and we ended weaker than expected, especially in late September, which we think is pretty much in line with what we heard from Moist Sir and Power Sports competitors and industries as a whole, and not just played by Mr. Glow. So we believe and we assume that the greater macro and geopolitical uncertainty expected with changes in interest rates, especially North America and India, as well as the upcoming U.S. elections and whether events are in the U.S.
Speaker Change: So, few three started out with a strong July and we ended week-end and expect, especially in late September, which we think is pretty much in line with what we've heard from most.
Speaker Change: and Power Sports competitors and industries as a whole and not just the first, but the globe.
Speaker Change: So we believe and we assume that the greater marker in geopolitical uncertainty expected would change us in interest rates, especially in North America and in India, as well as the upcoming US elections, and where the events are in the US.
Speaker Change: Indocity.
Speaker Change: The End
Speaker Change: Our next question comes from Game's Heartament with City.
Unknown Executive: Hey, good morning.
James Hardiman: Thanks for taking my question. So it sounds like the general outlook here for 24 assumes retail in line with wholesale. I guess, in light of the retail weakness, why do you think that's still the right target at this point?
Speaker Change: Hey, good morning. Thanks for taking my question.
Speaker Change: It sounds like the general outlook here for 24 assumes.
Speaker Change: Retail in line with wholesale. I guess in light of the retail weakness, why do you think that still the right?
Unknown Executive: And I guess, you know, the bigger question is, as we think about 2025, what's your level of confidence that you won't have to de-stock even more as we look to next year? Sure.
Speaker Change: The right target at this point. And I guess, you know, the bigger question is, as we think about 2025, what's your level of confidence that you won't have to to these thoughts even more as we look to next year?
Jonathan Root: Hi, James. This is Jonathan. Happy to start out and take this one. So I think, as it sounds like, your questions are really primarily around dealer inventory. How that relates to retail. So I think a good question in there. Dealer inventory at the end of Q3 is down by about 13% relative to the end of Q2. We will continue to focus on continuing to reduce dealer inventory levels in the final quarter of 24. So, as we look at that, the question that obviously you probably ask is where will you be? Well, we aim to be down about another 20% from today's levels, which gets us to about the same levels as the end of last year.
Speaker Change: The End
Speaker Change: Sure, Hi, James, this is Jonathan, happy to start out and take this one. So I think it's...
Speaker Change: It sounds like your questions are really primarily around.
Speaker Change: Dealer inventory, how that relates to retail. So I think a good question in there. Dealer inventory at the end of Q3 is down by about 13% relative to the end of Q2.
Speaker Change: We will continue to focus on continuing to reduce dealer inventory levels in the final quarter of 24. So as we look at that, the question that obviously probably asks is where will you be? Well we aim to be down about another 20%.
Speaker Change: from today's levels which gets us to about the same levels as the end of last year.
Unknown Executive: Certainly, from our standpoint, we continue to prioritize availability, inventory of touring, trike, soft tail, and CVO motorcycles. We look at our core categories, and we know that our core categories are key to the hardware strategy. They're key to the share growth that we've seen within the industry. So we want to make sure that our dealers are appropriately positioned to keep that going. And then, again, as you referenced, you do have our commitment that we really are, by the end of the year, ensuring that we're doing all that we can to get retail and wholesale to move in alignment.
Speaker Change: Certainly, from our standpoint, we continued to prioritize availability inventory of touring, trich soft tail and CBO motorcycles.
Speaker Change: We look at our core categories and we know that our core categories are key to the hard-wired strategy.
Speaker Change: They're key to the shared growth that we've seen within the industry. So we want to make sure that our dealers are appropriately positioned to keep that going.
Speaker Change: and then again as you reference, you do have our commitment but...
Speaker Change: that we really are by the end of the year, ensuring that we're doing all that we can to get retail and wholesale to move an alignment, which is something that we've talked about since the beginning of the year as part of our 2024 guidance. So hope that helps.
Unknown Executive: Which is something that we've talked about since the beginning of the year as part of our 2024 guidance. So hope that helps.
Unknown Executive: Well, I don't know if I have time for, I don't even know a follow up here, but I guess that my question is, why is that the right level, right? I think flat inventories for a year in which retail is going to be down, mid single digits, normally in that sort of environment, we would assume that inventories would need to come down even further, right, versus the start of the year to keep those inventory turns. Flat. And so does this create an incremental. Potential overhang, as we think about reductions for next year. Yeah, James, I don't know if you can hear me better.
Speaker Change: Well, I don't know if I have John Furr, I don't even know a follow-up here, but I guess that my question is, why is that?
Speaker Change: The right level, right? He's flat inventories for a year in which retail is going to be down in mid-singled digits. Normally in that sort of environment, we would assume that inventories would need to come down even further, right, versus the start of the year to keep those inventories turned.
Speaker Change: and so does this create an incremental.
Speaker Change: Attention all overhang as we think about reductions for next year.
Unknown Executive: I think I've had some issues with the line here. We don't think so. And we believe that we will be, although we've seen a week or third quarter, we believe that the adjustments we are making this year and the shipments that we are planning in the four quarters of next year will address that in the right way. So we feel confident that this is the right thing to do, and the pretty significant adjustment throughout the year. Thank you.
Speaker Change: Yes, I don't know if you can give me better things to have had some issues with the line here. We don't think so and we believe that we will be
Speaker Change: Although we've seen a week at the third quarter we believe that the adjustments we are making this year and the shipments that we're planning in the fourth quarters of next year.
Speaker Change: will address that in the right way. So we can't forget that this is the right thing to do and it's really significant adjustment throughout the year.
Joseph Altobello: Our next question comes from Joseph Altobello with Raymond James. Thanks. Hey, good morning. Just follow up on James's question. So if I have my math rate, you ended 2023 with 49,000 bikes in the channel. And you're anticipating retail this year of 163,000 to 178,000 bikes. Now you're saying you're going to end the this year at 49,000 bikes in the channel, flat year of a year. And I can't imagine you're anticipating that same retail level next year. So how do we score those two numbers? All right. Thanks, Joe.
Speaker Change: God, thank you.
Speaker Change: Our next question comes from Joseph Altadelow with Raymond James.
Joseph Altadelow: Thanks, hey, good morning. Just follow up on James's question. So if I have my math rate, you ended 2023 with 49,000 bikes in the channel and you are anticipating a retail this year of 163, 178,000 bikes.
Speaker Change: Now you're saying you're going to end this year.
Speaker Change: at 49,000 bikes in the channel flat year, and I can't imagine you're anticipating.
Speaker Change: That same retail level next year, so how do we score those two numbers?
Unknown Executive: So, as you know, we probably don't want to get too much into 2025 at this point. So I don't think, you know, we certainly feel like this probably isn't the right time to be giving full 25 guidance on where we're going. But overall, as we think about, you know, what we've laid out and where we're going, we obviously expect that we're going to be in the range of 150,000 to 153,000 retail units and the same from an overall wholesale unit perspective. So moving those two in alignment. And we think positioning our dealers pretty well for where we're ending the year and then where we're beginning to one of 25.
Speaker Change: All right, thanks Joe. So it is...
Speaker Change: We probably don't want to get too much into 2025 at this point. So I don't think we certainly feel like this probably isn't the right time to be giving full 25 guidance on where we're going. But overall, as we think about...
Speaker Change: What we've laid out and where we're going, we obviously expect that we're going to be in the range of 150 to 153,000.
Speaker Change: Retail Units, and the same from an overall full-scale unit perspective.
Speaker Change: So moving those to an alignment and we think positioning our dealers pretty well for where we're ending the year and then where we're beginning Q1 of 25.
Unknown Executive: And, you know, again, we don't want to get too far into 2025. But as we do move into that period, you probably will see some adjustments in terms of the way that we end up distributing throughout the quarters.
Speaker Change: And again, we don't want to get too far into 2025, but as we do move into that period, you probably will see some adjustments in terms of the way that we end up distributing throughout the quarters.
Unknown Executive: So there's in 2025 that we'll make sure that we are covering in more detail with next quarter's earnings. Okay. Let's help. Maybe just to follow up, you mentioned the cadence of retail in the quarter. Any pick up in October, post and said rate cuts.
Speaker Change: In 2025, we'll make sure that we are covering in more detail with next quarters earnings.
Speaker Change: Okay, let's help. Maybe just to follow up, you mentioned the cadence of retail in the quarter. Any pickup in October, post the fed's rate cut.
Unknown Executive: Yeah, well, as we said previously, we are, you know, going to be proven and, as an overall best practice, I'm not going to comment on the running quarter in that case on October retail until we release Q3, and we will continue with this practice in the future. Just coming back to your inventory question. I think what you should bear in mind is that the big change in touring. Obviously, it's not going to happen again. We have, you know, fantastic touring bikes in the market, and we'll carry them over into the new year. So bear that in mind in terms of the quality and the inventory that we're carrying over, rather than having an old platform that gets carried into the new year.
Speaker Change: I'm still the real
Speaker Change: We have, well, as we said previously, we are going to be proven and as an award, we'll be expected. I'm not going to comment on the running quarter in that case on October retail.
Speaker Change: and until we release Q3 and we will continue with this practice in the future. Just coming back to your inventory question, I think what you should bear in mind is that the big change in touring.
Speaker Change: Obviously, it's not going to happen again. We have fantastic touring bikes in the market and we'll carry them over into the new year.
Speaker Change: So bear that in mind in terms of the quality and the inventory that we're carrying over rather than having an old platform that gets carried into the new year. We have a new platform carrying into the new year. So the quality of the touring inventory is a lot better than it was previous year. So as a qualifying factor as well to bear in mind.
Unknown Executive: We have the new platform carrying into the new year. So the quality of the touring inventory is a lot better than it was the previous year. So as a qualifying factor as well to bear in mind.
Unknown Executive: Okay, super, thank you.
Robin Farley: Our next question comes from Robin Farley with UBS. Great, thanks.
Speaker Change: Okay, super thank you.
Speaker Change: Our next question comes from Robin, Farley with UBS.
Unknown Executive: I guess I have a similar question about slapping right inventory level, and I don't know what you can tell us about your expectations for things turning around for next year, Raquel. But maybe I'll throw in a second question just in case there's nothing more to add for that first one. It fits in on the life wire business. Obviously, it's a challenging environment for electric vehicle sales broadly. I guess just thinking about your commitment to that business long term, is there a point at which, if it doesn't meet your expectations for another year, you know, we think about your sort of multi-year plan, a point at which you would reevaluate, you know, how long it might take to be profitable there and kind of how long you'd be willing to.
Robin Farley: Great thanks. I guess I had similar question about slapping right inventory level and I don't.
Robin Farley: Now what you can tell us about your expectations for turning around for next year in retail. They're going to be able to throw in a second question just in case there's nothing more to add. So that first one is the life-wire business.
Robin Farley: Obviously, it's challenging, environmental, electric, fake, self, probably. I guess just thinking about your commitment to that business long term, is the point at which.
Speaker Change: If it doesn't meet your expectations for another year, you know, we think about your sort of multi-year plan, a point at which you would re-valuate.
Speaker Change: You know how long it might take to be profitable there and kind of how long you'd be willing to.
Unknown Executive: You have those additional losses, I guess, to try to get a sense of, you know, if the, if you didn't hit these targets, are you fine with sort of similar losses to this year and for how long just thinking about it like that. Thank you. Yeah, thanks, Robin. I think in terms of 25 expectations, there's not much more I can add other than re-emphasize it. We're really working very hard to set our face up for solid 25, and we are positive in our ability to make sound progress in the new year. Now, call that cautiously optimistic. You know, we think that the combination of our best in class products and best in class dealer network are too powerful pairing for success.
Speaker Change: have those additional losses, because to try to get a sense of, you know, if you didn't hit these targets, are you fine with sort of similar losses to this year and for how long? Just thinking about it like that. Thank you.
Speaker Change: Thanks Robin, I think in terms of 25 expectations there's not much more I can add other than re-emphasize it.
Speaker Change: We're really working very hard to set our sets up for solar 25 and we are positive in our ability to make sound progress in the new year. Now call that cautiously optimistic.
Speaker Change: We think that the combination of our best-in-class products and best-in-class dealers network are a true powerful pairing for success, but of course.
Unknown Executive: But of course, we have to be mindful that external factors, including interest rate reductions and improved consumer confidence, are required to provide the industry with a need of tailwind, tailwind that we've not had for a couple of years now. So our focus, in addition, of course, is to continue our cost control measures, our cost productivity gains. Jonathan highlighted them. And we expect to achieve our goal of productivity gains in total of $400 million, combined with a tight capital allocation, and we continue to believe that we have the right strategy, especially compared to others in the market, and that the decisions we've made early on in 2021 to invest in innovation and in our core categories that we know, you know, our customers, our dealer favor have been the right decision.
Speaker Change: We have to be mindful that external factors including interest rate reductions and improved consumer confidence are required to provide the industry with an e-detailment, a tailwind that we have not had for a couple of years now.
Speaker Change: Our focus in addition of course is to continue our course control measures, our course productivity gains, Jonathan highlighted them and we expect to achieve our goal of productivity gains in total of $400 million.
Speaker Change: Compined with the Thai capital allocation and we continue to believe that we have the right strategy, especially compared to others in the market. And the decisions we've made early on in 2021 to invest in innovation and in our core categories.
Speaker Change: We know our customers, our dealer, favour, have been the right decision. So I think that's as much colour as I can give for 25.
Unknown Executive: So I think that's as much color as I can give for 25 in terms of live wire. I think we have taken or live wire has taken under Korean leadership significant actions and has reduced our cash burn significantly going into next year. He mentioned that we are that we are taking the cash burn down by 40% next year. The operating costs are coming down. We're working; the team is working very hard to improve margin and manufacturing costs so that we can get to a much lower number of units that need to be settled in order to achieve a great, even positive growth profit margin.
Speaker Change: In terms of live wire, we have taken our live wire, has taken under Karim's leadership to significant actions and has reduced.
Speaker Change: Our Kesheburn significantly going into next year. He mentioned that we are taking the Kesheburn down by 40% next year. The operating costs are coming down. We're working the team is working very hard to improve.
Speaker Change: and Manifaction course so that we can get to a much lower number of units that need to be
Karim Donnez: So the actions I've been taken and to go away, if you want to repeat them, please do. But we do believe at this point in time, given what we know, that it is important to continue to invest, but very prudently for sure, in comparison to when we started this adventure and the EV adoption was a very different one, certainly in auto and also in other spaces. We believe that it is important to position us and Live Wire as a leader in electrification of the sport to ensure that how it is at the appropriate time has access to this technology whenever that might be.
Speaker Change: The actions I've been taken, and to go away if you want to repeat them, please do. But we do believe at this point in time, given what we know that it is important to continue to invest but very prudently for sure.
Speaker Change: in comparison to when we started this adventure and the EV adoption was a very different one, a certain in order to know what's in other spaces.
Speaker Change: We believe that it is important to position us and live via as a leader in electrification of the sport in to ensure that Hollywood is an ethyl property time has access to this technology. Whenever that might be, but of course, we take one year at a time and see how business develops for now, these are the make actions we are taking.
Unknown Executive: But of course, we take one year at a time and see how business develops for now. These are the actions that we are taking. Okay, great. Thank you.
Frederick Wightman: Our next question comes from Fred Wightman with Wolf Research. Hey guys, good morning, Jonathan. I think you made a comment to sort of reaffirming that 15% operating margin target for 25. I'm wondering if you could just help us think about the big sort of building blocks from this year's operating margin performance. I know that there's a lot of due average from the lower volumes, but if you could just sort of help us think about the chunky pieces to get to that mid-teens target. That'd be helpful. Thanks. Okay, sounds good. And good morning, Fred. So I think good question around 15% oh margin we've talked about that by the end of 2025.
Speaker Change: Okay, great, thank you.
Speaker Change: Our next question comes from Fred Whiteman with Wolf Research.
Fred Whiteman: Hey guys, good morning Jonathan, I think you made a comment to reaffirming that 15% operating margin target for 25. I'm wondering if you could just help us think about the big sort of building blocks from this year's operating margin performance. I know that there's a lot of...
Fred Whiteman: Do you leverage from the lower volumes but if you could just sort of help us think about the chunky pieces to get to that mid-team target that would be helpful. Thanks.
Speaker Change: Sounds good. And good morning, Fred. So I think good question around 15% Oh, I'm Argyn, we've talked about that by the end of 2025. So, you know, thank you.
Unknown Executive: So you know think think sort of full year 2026. We are pretty pleased with the actions that we're taking and the way that we're managing things inside of the four walls of Harley and how that really drives some improvement. This year certainly is unusual in terms of how much we're taking down shipments in the second half of the year. We also have some, you know, I think we've talked about this a little bit probably more this year than we ever thought that we would in terms of some of the differences between production and wholesale. And so as we move forward into 2025 and 2026, we begin to line up the relationship between production, wholesale, and retail.
Speaker Change: Thanks to Art of Full Year 2020-6
Speaker Change: We are pretty pleased with the actions that we're taking and the way that we're managing things inside of the...
Speaker Change: Four walls of Harley and how that really drives an improvement.
Speaker Change: This year certainly is unusual in terms of how much we're taking down shipments in the second half of the year.
Speaker Change: We also have some, you know, I think we've talked about this a little bit, probably more this year than we ever thought that we would in terms of some of the differences between production and wholesale.
Speaker Change: and so as we move forward into 2025 and 2026.
Speaker Change: We begin to line up.
Speaker Change: The relationship between production.
Unknown Executive: So, with that, you obviously see some of the benefits that we enjoy from a leverage standpoint. So there's a pretty meaningful impact from that standpoint. Cost productivity for us is something that we feel really drives the pretty significant amount of improvement. So you obviously have our commitment to $400 million of cost productivity. And, as you may recall from earlier in this year, we actually removed leverage from that calculation. So that's like a real $400 million, not something that dependent upon units. So you stack those two in order to see improvement. And then, in addition, as we have portfolio changes and product changes and tweaks, there are some things that we think we can do pretty surgically from a pricing standpoint for that health.
Speaker Change: Olsale and retail. So with that, you obviously see some of the benefits that we enjoy from a leverage standpoint. So there's a pretty meaningful impact from that standpoint. Cost productivity for us.
Speaker Change: is something that we feel really drives a pretty significant amount of improvement.
Speaker Change: So you obviously have our commitment to $400 million of cost productivity and as you may recall from earlier in this year, we actually removed leverage from that calculation so that's like a real $400 million, not something.
Speaker Change: Dependent Upon Unit, so you stack those two in order to see improvement. And then in addition, as we have portfolio changes and product changes and tweaks, there are some things that we think we can do pretty surgically from a pricing standpoint for that help.
Unknown Executive: And then the other piece that I would just touch on is, you know, we have pretty strong operating discipline around off X, and you actually see that really show up in this quarter. So with some of the actions that we took last quarter, that you end up kind of seeing hitting the P and L in a positive way within this quarter. You see off X down $27 million, for example, in Q3, so down 11% due to the actions that we took.
Speaker Change: and then the other piece that I would just touch on is, you know, we have pretty strong operating discipline around Opx
Speaker Change: and you actually see that really show up in this quarter. So with some of the actions that we took last quarter, the UN up kind of seeing hitting the P&L in a positive way within this quarter.
Speaker Change: You see, OPEC down $27 million for example, into $3, so down 11% due to the actions that we took. So I think if you look across the TNL, there are a number of contributing factors that give us confidence in the 15% OI margin target.
Unknown Executive: So I think if you look across the P and L, there are a number of contributing factors that give us confidence in that 15% Oh, I margin target. Okay, thanks. And then the income; there were a couple of mentions about dealer support. I'm wondering, is when you say that, are you just talking about the cut to shipments helping dealers out, or is there actually a different mechanism for that. Well, there are many measures that we have taken to set our dealers up for a successful twenty-five, and in my speech I mentioned the significant marketing investment as a marketing development fund that will benefit the dealers on the ground as they execute in twenty-five.
Speaker Change: Okay, thanks. And then the, there were a couple of mentions about dealer support. I'm wondering, is, when you say that, or are you just talking about the cut to shipments, helping dealers out or is there actually a different mechanism for that?
Speaker Change: Well there are many measures that we have taken to set our steel as up for a successful 25.
Speaker Change: and in my speech I mentioned the significant marketing investment as a marketing development fund that will benefit the dealers on the ground as they execute in 25.
Speaker Change: and many other initiatives that we are.
Speaker Change: That we have presented to our network including, you know, retail target for next year that are achievable from our perspective, adjustments to how we digitally drive more traffic and leads to our network.
Speaker Change: How we see the evolution of our fuel fertility upgrade evolving over the next couple of years. So there were a number of activities that are not chopped.
Speaker Change: based around in the reduction of course, it's critical.
Unknown Executive: We feel that with rates coming down and all the other activities that we've announced, the dealer network should be able to see a strong improvement in overall profitability in twenty-five. In addition, of course, to the product that we've launched at the same time as well.
Speaker Change: as well, especially going into next year. We feel that, you know, with rates coming down and all the other activities that we've announced, the dealer network should be able to see a strong improvement in overall profitability in 25.
Unknown Executive: Great, thanks.
Speaker Change: in addition of course to the product as we've launched at the same time as well. Great thanks.
Alexander Perry: Our next question comes from Alex Perry with Bank of America. Hi, thanks for taking my questions here. I just wanted to ask how we should be thinking about, you know, HDMC gross margins in the fourth quarter. We'd be leveraging promo's work down dealer inventory and then a little bit of the follow up from the last quarter.
Speaker Change: Our next question comes from Alex Perry with Bank of America.
Alex Perry: Hi, thanks for taking my questions here. I just wanted to ask how we should be thinking about
Alex Perry: H.D.M.C. Gross Marriages in the fourth quarter, we'd be, you know, leveraging.
Alex Perry: Pro-Most worked on dealer inventory and then a little bit of the follow-up from the last quarter. Any help on sort of how we should be thinking about Gross Margin's.
Unknown Executive: Any help on sort of how we should be thinking about gross margins for next year, especially given some of the production shifts that you've announced and taking some increase costs out of the business. Thanks. Let me start briefly on promo's; you know, right now we are offering select promotion of support mainly. However, in the way of interest rate assistance in a manner that we believe is in line with the market in our core markets.
Alex Perry: for next year, especially given some of the production shifts that you've announced and taking some increase costs out of business. Thanks.
Speaker Change: That may start briefly on ProMot. Right now, we are offering select promotion support, mainly however in the way of interest rate assistance.
Speaker Change: In the manner that we believe is in line with the market, in our core markets or ever we are less promotion than our competition, where our competitors are often promoted, more aggressive. But that said we want to make sure that we achieve our retail targets for the fourth quarter.
Unknown Executive: However, we are less promotion than our competition, where our promote competitors are offering promotions that are more aggressive. But that said, we want to make sure that we achieve our retail targets for the fourth quarter, and Jonathan can highlight some of the promise we're having in market right now. Yeah, okay, thanks, Yoke, and good morning, Alex. So I think for my, you know, Alex, do you think about the, as you think about Q4, a couple of pieces, as you asked the question around margin and what does margin look like in Q4, we have a pretty sizable reduction in the wholesale shipment.
Speaker Change: and Jonathan can highlight some of the problems we have in market right now.
Speaker Change: Yeah, okay, thanks, Jochen, and Good Morning, Alex. So I think for my, you know, Alex, do you think about the, as you think about Q4, a couple of pieces, as you asked, but question around margin and what does margin look like in Q4?
Unknown Executive: So obviously, we've provided you with where we think retail and wholesale are going to range, and you can see from that that it's a pretty sizable cut in shipment. So Q4 margin will certainly be quite challenged as we go through what we take a look at answering the question around promos as we go through and we take a look at promos. What we have seen from, is that from a consumer perspective, we feel like our consumers are more responsive to rate promos than anything else. A number of our competitors have rate promos and cash out there.
Speaker Change: We have a pretty sizable reduction in the wholesale shipment. So obviously we've provided you with where we think retail and wholesale are going to range. And you can see from that that it's a pretty sizable cut in shipment.
Speaker Change: As we go through it, we take a look at answering the question around promo. As we go through it, we take a look at promo.
Speaker Change: What we have seen from a consumer perspective, we feel like our consumers are more responsive to rate from over anything else.
Speaker Change: A number of our competitors have rate promos and cash out there. We've been pretty thoughtful in terms of really being focused in on primarily rate promos, particularly if you look at what we have from a current model year standpoint.
Unknown Executive: We've been pretty thoughtful in terms of really being focused in on primarily rate promos, particularly if you look at what we have from a current model year standpoint. So we'll continue with some form of that perhaps as we look at the balance of the year to make sure that we are again supporting our dealers at retail. We feel like it's critical to ensure that we're giving them campaigns that allow them to drive consumer traffic, help close sales, and kind of deliver something that's fair to our consumers and good for our dealers. And so I think you'll see a continuation of much of what we've been doing.
Speaker Change: So we'll continue with some form of that perhaps.
Speaker Change: As we look at the balance of the year to make sure that we are, again, supporting our dealers at retail. We feel like it's critical to ensure that we're giving them campaigns that allow them to drive consumer traffic.
Speaker Change: Health Closed Fails and kind of deliver something that's fair to our consumers and good for our dealers. And so I think you'll see a continuation of much of what we've been doing.
Unknown Executive: Perfect, very helpful, best of all going forward.
Noah Zatzkin: Our next question comes from Noah Zatzkin with KeyBank. Hi, thanks for taking my question. I guess first just on live wire, massive, but to find a point on it. But I think you made the comment that you're kind of working to stem Casper by 40% next year.
Speaker Change: Perfect, very helpful, best luck going forward.
Speaker Change: Our next question comes from Noah's Appskin with Keybank.
Speaker Change: Hi, thanks for taking my questions.
Speaker Change: I guess first just on live wire, massive but too fine to point on it.
Speaker Change: I think you made the comment that you're kind of working to stem past, burn by 40% next year. Is it fair to assume that that translates directly to operating expenses, you know, meaning just trying to figure out if there's a potential for 40 to 50 million dollars kind of less loss from live-wired next year?
Unknown Executive: Is it fair to assume that that translates directly to operating expenses, you know, meeting, just trying to figure out if there's a potential for 40 to 50 million dollars, kind of less loss from live wire next year. Sure, so I can I can start and then cream can jump in. So I think Cream is very, very focused on how he's managing the live wire business pretty, pretty tightly. There's a little bit of a difference between what you see from a cash perspective and where you end up seeing their operating income. As obviously there's some depreciation and some compensation-related elements that's flowing to that side of the equation.
Speaker Change: Sure, so I can start and then Karim can jump in. So I think Karim is very very focused on how he's managing the live-wire business.
Speaker Change: Pretty tightly. There's a little bit of a difference between what you see from a cash perspective and where you end up seeing their operating income as obviously there's some depreciation and some compensation related elements that flow into.
Karim Donnez: Marieville handed over to you for the, for the, to paint a little color on some of that. But I think Noah, the critical, the critical thing is that Casper and represents one part of their P&L. In addition, they do have some depreciations they work through, as well as some compensation-related elements, but with that cream. Yeah, thanks so. So, as you know, as an explain yes, the cash burn obviously has a direct impact in the operating loss performance of next year. So we do expect a significant reduction in operating loss as well next year. Having said this, we've taken most of the actions already to be set up for a significant reduction next year, with relocated entirely the lab from California to be working.
Speaker Change: That side of the equation, a tree won't hand it over to you for the...
Speaker Change: for the, I'll, I'll, I'll paint a little color on some of that.
Speaker Change: But I think, Noah, the critical thing is that cash burn represents one part of their DNL. In addition, they do have some depreciations, they work through as well as some compensation related elements. But with that, Karim.
Speaker Change: and thanks for watching.
Speaker Change: and Jonathan Excellenz, Jan Pekachburn, Overseas, has a direct impact in the operating law performance of Mexico, so we do expect to significance production in operating law as well as next year. Having said this, we've taken most of the actions already to be set up for a significant reduction in Mexico, with a relocated entirely the lab from California to Milwaukee. We don't have anything left in California at this point, which
Unknown Executive: We don't have anything anything left in California at this point, which obviously was a fairly expensive place to operate from. And we've reduced our overall workforce by 30% compared to the beginning of the year. It's everything is done now with streamlined organization in a way that we still keep a key focus on innovation and make sure that we can continue working and introducing products that are fit for market.
Speaker Change: Obviously, it was a fairly expensive place to operate from. And we've reduced our overall workforce by 30% compared to the beginning of the year. Everything is done now. We streamlined our...
Speaker Change: Organization in a way that we did keep focus on innovation and ensure that we can continue working and introducing products that are fit for market.
Unknown Executive: One of them will be announced in 10 days at ECMA. And again, we believe that those products will significantly expand the horizons for life. So we recognize the test area environment we're under right now, but it is not true for all segments. And if you look at different types of events, there should be pockets of good, good traction in the market, especially in Europe. So more to come on this one, but the overall library of business right now is already set up for 25 to have a very significant reduction in cash, but an operating loss compared to the 2024 performance.
Speaker Change: One of them would be announced in 10 days at Ekma and again we believe that those products will significantly expand the horizons for life or anything. So we recognize the test-eview environment where I'm there right now, but it is much true for old segments.
Speaker Change: and if you look at different type of e-re segments, that actually a pocket of...
Speaker Change: Good good traction and easy market especially in Europe. So, more to come on this one.
Speaker Change: The overall library of business right now is already set up for 25 to have a very significant reduction in cash burden operating last compared to the 2024 performance.
Unknown Executive: Thank you.
Unknown Executive: If I could just squeeze maybe one more in on HDFS, I guess first how you feel about the health of the book and then obviously nice performance this quarter, how are you thinking about kind of the interplay between expected recuts and the ability to drive growth there next year? Thanks. So as we look at what we're seeing from a 2024 perspective, the consumer certainly is a little bit stressed. The HDFS team is doing a wonderful job of managing losses, managing the consumer and ensuring that they stay sort of on track, which I think you see with fairly limited change in our reserve.
Speaker Change: Thank you. If I could just squeeze maybe one more in on HDSF. I guess first, how you feel about the health of the book, and then obviously nice performance this quarter. How are you thinking about kind of the interplay between expected re-cuts and the ability to drive growth there next year? Thanks.
Speaker Change: Great question, Noah. So we'll start with this year and then move into...
Speaker Change: The quick question on next year. So as we look at what we're seeing from a 2024 perspective, consumer is a little bit stressed. The HTFF team.
Speaker Change: is...
Speaker Change: is doing a wonderful job of managing losses, managing the consumer and ensuring that they sort of on track, which I think you see with a fairly limited change in our reserve. So we are virtually flat in reserves versus prior quarter and prior year.
Unknown Executive: And we are virtually flat in reserves versus prior quarter and prior year. So the outlook I think from a consumer health standpoint is pretty good. That's what allows us to increase our outlook on the HDFS business for the year.
Speaker Change: So the outlook I think for me.
Speaker Change: Consumers health standpoint is pretty good. That's what allows us to increase our outlook on the HTFS business for the year.
Unknown Executive: As we move into 2025, as we've talked about, we're probably not ready to guide in detail on 2025 yet, but we are in an interesting place where I think we'll probably see we're actually working through budget and things of that nature. So speaking a little bit off the cost, but we're in a place where I think we will end up seeing a little bit of the death portfolio resetting before we have an equivalent reset in the retail portfolio. So things have moved in a really nice direction for 2024. I think we get a little bit of a challenging 2025 in front of us before we move forward into subsequent years, but more to come on that front. But I don't expect that 2025 for HDFS will look as strong as 2024.
Speaker Change: As we move into 2025, as we've talked about we're probably not ready to guide in detail on 2025 yet.
Speaker Change: but we are in an interesting place where I think...
Speaker Change: We'll probably see, we're actually working through budget and things of that nature, so speaking a little bit off the cuff, but
Speaker Change: We're in a place where I think we will end up seeing a little bit of the death portfolio resetting before we have an equivalent reset in the retail portfolio. So things have moved in a really nice direction.
Speaker Change: For 2024, I think we get a little bit of a challenging 2025 in front of us.
Speaker Change: Before we move forward into the subsequent years, but more to come on that front, but I don't expect that 2025 for HDFS will look as strong as 2024.
Unknown Executive: Thank you.
David Macgregor: Our next question comes from David McGregor with Longbow Research.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David McGregor with Longbow Research.
Unknown Executive: Good morning. Thanks for taking the questions. I guess, you know, pretty disruptive quarter from a weather standpoint. What do you think that did to your retail numbers? Is there any way to parse out how much that down 13 might have been attributable to just disruptive weather? And then secondly, I just love to get your sense, and I realize it's still a little bit early to be talking about 2025, but how are you thinking about motor company market share in 2025?
David McGregor: Good morning, thanks for taking the questions.
David McGregor: I guess pretty disruptive quarter from a weather standpoint. What do you think that did to your retail numbers? Is there any way to parse out how much that down 13 might have been attributable to just disruptive weather? Secondly, I'd love to get your sense and I realize it's still a little bit early to be talking about 2025, but how are you thinking about motor company market share in 20-25?
Unknown Executive: Thanks. David, weather has certainly led to a tougher retail environment, especially towards the end of September. That's when also a lane hit on the East Coast, and we saw some impact, significant impact towards the end with dealers and having to close their dealership to prepare and not being able to open immediately thereafter. So that certainly has been an impact in the US, not so much internationally, but certainly in the US.
David McGregor: and the
David McGregor: David Weather has certainly led to a...
David: and a tougher retail environment, especially to what's the end of September.
David: That's when also Helene hit on the East Coast and we saw some impact.
David: Techno-fagan Impact towards the end with dealers and crew having to close their dealership to prepare and not being able to open.
David: Immediately after, so that certainly has been an impact in the US, not so much internationally, but certainly in the US.
Unknown Executive: Another market share? Well, we're not going to really comment much more on 25 at this point in time. We feel we have a strong product line up for next year in touring to continue. Our CVO segment, as I mentioned earlier, has been doing particularly strong. We've seen double-digit growth throughout the quarters in our strong CVO touring offering, including a CVO that we've offered in the venture touring market. We have a good lineup for next year, but beyond that, I think we'll have to wait until February before we can give some indication. We certainly believe that we are well positioned to defend market share.
David: Another Market here.
Speaker Change: Well, we're not going to really comment much more on 25 at this point in time. We feel we have a strong product line up for next year, in touring to continue.
Speaker Change: Our CVO segment, as I mentioned earlier, has been doing particularly strong, we've seen double digit growth throughout the quarters in our strong CVO touring, including a CVO that we've offered in the venture touring market.
Speaker Change: We have a good line up for next year, but beyond that, I think we'll have to wait until February before we can give some indication. We certainly believe that we are well positioned to defend market share.
Unknown Executive: There may be gain in some segments, but we shall see, of course; that's also impact by the overall environment. As you've seen, we've taken market share in touring and have been most quarters up and outperformed the industry significantly in that segment, which is a great indication of innovation as part of our hardware strategy, really having a positive effect, even in tough times. So, we continue to be confident that other innovations that we have in the pipeline for 25 will have a similar positive effect going forward, in addition to additional actions that we're taking together with our dealer network to make sure that they're ready for it and we generate leads and traffic to the dealer network.
Speaker Change: may be gaining some segments but we shall see in the course that also impact the overall environment as we have seen in the market in touring and has been most quarters up.
Speaker Change: and out the form the industry significantly in that segment which is a great indication of.
Speaker Change: Innovation as part of our hardware strategy really having a positive effect even in tough times. So we continue to be confident that other innovations that we have in the pipeline for 25 will have a similar positive effect going forward in addition to.
Speaker Change: Additional actions we take in together with our dealer network to make sure that they are ready for it and will generate leads and traffic to the dealer network.
Unknown Executive: Thanks very much.
Tristan Thomas: Our next question comes from Tristan Thomas Martin with Female Capital Markets. Hey, good morning. A question about your broader product portfolio, like you pointed out, you got a lot of success with the up there's touring. I was just wondering, given some of the headwinds for big ticket items, which is kind of general consumer portability concerns.
Speaker Change: Thanks very much.
Speaker Change: Our next question comes from Tristan Thomas Martin with BMO Capital Markets.
Speaker Change: Hey, good morning. A question about your broader product portfolio. When you point out you got a lot of success with the update story. I was just wondering, given some of the headwinds for the big ticket items, which is kind of general consumer affordability concerns. There's already thoughts maybe you agree with me. I'm really busy naming some more for you, thanks.
Unknown Executive: Is there any thoughts maybe you revisit revisiting some more affordable bikes. Could you repeat that? Revisit what I'm sorry. More affordable bikes for things, maybe under 10 grand, for example. Yeah, we are, we're not going to talk about pricing of our entry level product next year, but rest assured we are addressing that in particular with our red mix products going into 25. But with that said, we need to wait until the new year until the price list.
Speaker Change: Could you repeat that revisit watch? I'm sorry.
Speaker Change: More Affordable Bike.
Speaker Change: with things made yonder 10 grand for example.
Speaker Change: Yeah, we'll live.
Speaker Change: We are not going to talk about pricing of our entry level product next year, but rest assured we are addressing that in particular with our red-max product going into 25, but with that said, we need to wait until the new year until the price is sold.
Jaime Katz: Our final question comes from Jamie Katz with Morningstar. Hi, thank you for taking my questions. Good morning. I'm hoping you can clarify your market share comments. I believe you had said that you gained 4% market share, but when you look on slide 6 in your deck, it looks like both year over year and sequentially the market share in total touring cruiser has not increased 4%. So what exactly have you gained market share in? Well, we've gained market share primarily in the touring segment, which was the primary focus of our new product line up this year. Throughout the every quarter, we've outperformed the industry significantly in terms of market share.
Speaker Change: Bye!
Speaker Change: Our final question comes from Jamie Caps with Morningstar.
Jamie Caps: Hi, thank you for taking my questions. Good morning. I'm hoping you can clarify your market share comments. I believe you had said that you being 4% market share, but when you look on slide 6 in your deck, it looks like both year over year and sequentially the market share in
Jamie Caps: Total touring, creator has not increased for percent. So what exactly have you gained market share in?
Speaker Change: Where we gained market share primarily in the touring segment which was the primary focus of our new product line-up this year.
Speaker Change: throughout every quarter we've out performed the industry significantly in terms of market share. The overall and then if you look at the overall business, our...
Unknown Executive: The overall, and then if you look at the overall business, our retail sales were down less than the overall industry, so even in the big context, the overall context, we've improved market share slightly. But that then considers all the segments, but from a touring perspective, in every quarter we've been doing better, significantly better than the market. Yeah, I understand that. It just on the slides; it doesn't indicate that. It just indicates, you know, 73% market share is quarter, and 73 last quarter.
Speaker Change: Our retail sales were down less than the overall industry, so even in the big context, the overall context with.
Speaker Change: Improved, Marketshire, slightly, but that then considers all the segments, but from a too introspective and every quarter we've been doing better significantly better than the market.
Speaker Change: Intuaries.
Speaker Change: Yes, I understand that it's just on the slides it doesn't indicate that it just indicates, you know, 73% market share is quarter and 73 last quarter. The other question I have is on.
Unknown Executive: The other question I have is on sort of reassessing the structural operating profile of the business. It's been quite a while since there's been a big change, but it's clear that the level of shipments is significantly different than maybe it would have been a decade ago. So what sort of trigger would you look forward to think about whether or not your, maybe your capacity or labor utilization or manufacturing footprint should really be re-evaluated on a much higher level. Thanks. Well, rest assured that we are looking at that constantly, and as when the process of, you know, putting our budget together, this is a key consideration, of course, which is why we've emphasized so much that OPEX and cost productivity are key drivers.
Speaker Change: sort of reassessing the structural operating profile of the business. It's been quite a while since there's been a big change, but it's clear that the level of shipments is significantly different.
Speaker Change: and then maybe it would have been a decade ago.
Speaker Change: What sort of trigger would you look for to think about whether or not your capacity or labor utilization or manufacturing footprint should really be re-evaluated on a much higher level.
Speaker Change: Well, rest assured that we are looking at that constantly and as when the process of putting our budget together, this is a key consideration of course.
Speaker Change: which is why we've emphasized so much that Opx and Cosperactivity RT driver and we're going to make sure that we're basing those operations on a conservative outlook going forward.
Unknown Executive: And we're going to make sure that we are basing those operations on a conservative outlook going forward. So that will be the case. We have made adjustments to our OPEX base already over the last 18 months, and we will continue to do so with an anticipated market environment that has certainly been challenged this year. No question about it. That said, I think what we have in our plans for next year is realistic, conservative, and that makes us be confident, as Jonathan highlighted, that with the cost productivity measures that we are taking and tied OPEX structure going into next year, we will see the improvement that we want to see in order to achieve our hardware stage two goals in terms of operating market.
Speaker Change: So that will be the case. We have made adjustments to our open space already.
Speaker Change: Over the last 18 months and we were going to do so with an anticipated marked environment that has certainly been the question about it.
Speaker Change: That's it. I think what we have in our plans for next year is realistic, conservative and that makes us be confident as Jonathan.
Speaker Change: Hi, Liza, that with the cost productivity measures that we are taking and tight-opics structure going into next year we will see the improvement that we want to see in order to achieve our hard-wired stage 2 goals.
Unknown Executive: And Jamie, I would just add that obviously we remain very, very committed to delivering the $400 million in cost productivity, and that certainly doesn't come without a great deal of work on the side of things, you know, relative to ensuring that we have everything optimized from a manufacturing perspective. So we appreciate the relationship that we have with our unions. We think that they have displayed, you know, a level of flexibility and support that we certainly are appreciative of. And I think together we partnered to drive something that we feel is very sustainable in the future.
Speaker Change: in terms of operating margin.
Speaker Change: Jamie, I would just add that obviously we remain very, very committed to delivering the $400 million in cost productivity and that certainly doesn't come without a great deal of work on the side of things.
Speaker Change: Relative to ensuring that we have everything optimized from a manufacturing perspective.
Speaker Change: So we appreciate the relationship that we have with our unions we think that they have displayed, you know, a level of flexibility and support that we certainly are appreciative of.
Speaker Change: And I think together we partnered to drive something that we feel is very sustainable in the future and again, you know, you have our strong commitment to delivering the $400 million that we've been talking about.
Unknown Executive: And again, you know, you have our strong commitment to delivering the $400 million that we've been talking about. Consider the color.
Unknown Executive: There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect. Thank you.
Speaker Change: and fit color.
Speaker Change: There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.