Q4 2024 Harley Davidson Inc Earnings Call
Thank you for standing by and welcome to the Harley Davidson 'twenty 'twenty, four fourth quarter, Investor and Analyst Conference call.
Please be advised that today's conference is being recorded.
Speaker Change: Now I'd like to hand, the conference over to Shawn Collins. Thank you. Please go ahead Sir.
Speaker Change: Thank you good morning.
Speaker Change: This is Shawn Collins, the director of Investor Relations at Harley Davidson you can access the slides supporting today's call Gargle Internet.
Speaker Change: Harley Davidson Investor Relations website.
Speaker Change: As you might expect our comments will include forward looking statements that are subject to risks that could cause actual results to be materially different those.
Speaker Change: Risks include among others matters, we have noted in today's earnings release.
Speaker Change: And in our latest filings with the SEC.
Speaker Change: Joining me for this morning's call are pardon.
Speaker Change: Harley Davidson Chief Executive Officer Yogurts.
Jonathan Route: Also chief Financial Officer, Jonathan Route.
Jonathan Route: And we have likewise, chief Executive Officer Corinne goodness.
Jonathan Route: With that let me turn it over to our CEO Yoga tights yoga.
Speaker Change: Thank you Sean good morning, everyone and thank you for joining today's call.
Speaker Change: In the fourth year of our hardware strategy, we saw outperformance being significantly impacted by continued cyclical headwinds for discretionary products.
Speaker Change: The high interest rate environment affecting consumer confidence.
Speaker Change: Aiding affordability issues for our customers.
Speaker Change: While we were unable to achieve our original guidance of 24, given the overall environment. We continued to make progress in the execution of the key elements of our strategic plan that we believe will set the business up best for future profitable growth when the market turns.
Speaker Change: That said in the fourth quarter, the macro environment contributed to a decline of 15% in global retail sales.
Speaker Change: Seasonally lowest quarter of the year with North America, posting a 13% decline.
Speaker Change: The international region declining a combined 17%.
Speaker Change: For the full year, we ended 24 with a global retail sales decline of 7%.
Speaker Change: In the face of industry headwinds the launch of our new model year, 'twenty fourth Street glide and load glide touring motorcycles contributed to near 5% growth in the U S touring segment.
And drove Harley davidson's share to almost 75% an increase of three 5% since 2023.
Speaker Change: It's worth noting that over the year Harley Davidson was the only manufacturer to gain meaningful touring segment market share in the U S with our share of the overall at 601, plus PC market being slightly up based on the segment that we compete in.
Speaker Change: Nearly 12 months after the launch of our model year 2000 and for touring motorcycles. We continued to receive very positive feedback from customers media and data.
Speaker Change: December cycle was voted the CBO road glide is T. The best crews of 24.
So in December motorcycle Dot Com voted the street glide the best bag of 24.
Speaker Change: The launch the touring motorcycles. It was one of the primary product strategy within our profit focus pillow hotwire.
Speaker Change: And our volume and financial results would have been particularly impacted negatively without them.
Speaker Change: Through the fourth quarter, we continued to trim inventory by reducing motorcycle production wholesale significantly ending the year slightly below 23 year end levels.
Speaker Change: We believe this has set us up well for further significant inventory reduction, especially in the first half of the year that Jonathan who will walk you through in a little bit.
Speaker Change: Providing more detail on our delivery against our hardware pillars for the year.
Speaker Change: Profit focus we've continued to emphasize our core products, while investing in key product segments for the future.
Speaker Change: These actions are underpinned by our belief that focusing on our most profitable categories and geographies emphasizing innovation and evolving the customer experience with our dealers continue to yield benefits to the business and set the business up for long term value creation.
Speaker Change: But if all can be seen as a year of two halves.
Speaker Change: Retail sales of the touring segment goes up 18% in the first half of the year led by the redesigned Turing platform in North America.
Speaker Change: Despite the decline of 4% for overall retail sales in North America for the full year retail sales of the touring segment finished the year up more than 8%.
Speaker Change: As mentioned earlier, we've taken share within touring with Harley Davidson, achieving 74, 5% market share in the touring segment in the U S. The highest number since 2019.
Speaker Change: Turing is the heart of Harley Davidson in our mission of the timeless pursuit of adventure.
Speaker Change: Remember back in 2020, there was no plan for touring north or any other core product segment.
Speaker Change: We quickly took the decision to change that with touring becoming part of the first pillar of our Aqua strategic plan.
Speaker Change: Through 'twenty four we continued to invest in our strongest and most profitable motorcycle segment. We are planning for more impactful new products to the market every year from here on that were originated as part of our strategy.
Speaker Change: It's important to recognize that the decisions we've taken as part of our hardware strategy have allowed us to reestablish our profitability, while ensuring we have the right product pipeline for years to come.
Speaker Change: Without the hotwire and its priorities, we would currently be faced with a portfolio of uncompetitive product.
Speaker Change: Vast majority of our motorcycles achieving negative operating income margin.
Speaker Change: The motor company likely having little to no profitability.
Speaker Change: Selective expansion redefinition underpins, our desire to win in attractive markets and motorcycle segments, where we are focused on building our leadership.
Speaker Change: We are investing and have ambitions for our entry level motorcycle operating in select markets and the small cruiser segment starting next year.
Speaker Change: Adventure touring was also a new segment for the company aligned to the strategic initiatives.
Speaker Change: We believe the segment is future growth potential for us and we are committed to continue to innovate with the platform.
Speaker Change: A proof point being the recently launched Pan America is key that will be landing in dealership shortly.
Speaker Change: Ahead of its debut in the Marvel Studios Thunderbolts film premiering may 2nd.
Speaker Change: Turning to growth beyond bites, we are committed to creating products services and experiences that inspire our customers to discover adventure and leave the Harley Davidson lifestyle.
Speaker Change: 24 store build out of compute capabilities for cost compared to tariffs.
Speaker Change: Ensuring that our dealers are able to access the best in customer cloud from Harley Davidson.
Speaker Change: Looking ahead, we expect for these capability to reach our international network. This year.
Speaker Change: Leveraging the power of the Harley Davidson brand in 'twenty four we're also proud to partner with champion for the second time in the company's history.
Speaker Change: Looking forward, we will continue to look for brand collaborations that would connect with our customers and communities. While at the same time expanding on our licensing opportunities globally as a brand.
Speaker Change: Creating integrated customer experiences ensures our customers have a seamless experience with our brands.
Speaker Change: 24, we've continued our digital investments, adding more impactful features and benefits of new models combined with an all new digital experience on HDD calm focused in improving engagement recapture and ultimately with the intention of driving more traffic to our dealers.
Speaker Change: These efforts led to a 177% increase in the number of engagements with motorcycle pages for the model year 'twenty five loans.
Speaker Change: Turning to the physical experience that is integral to the brand we've continued to invest in our experiences and offering by strengthening our events across the globe and better aligning our efforts with those opposed to use it.
Speaker Change: 24, we held our second annual homecoming event in Milwaukee with over 60000 riders tens and more enthusiastic joining us to celebrate the holiday rich and Brad.
Speaker Change: We're looking forward to homecoming 25, this July with an incredible talent lineup.
Speaker Change: The Harley Davidson riding Academy or <unk> is an important initiative for the company operating in 225 dealerships across 43 states, making it the largest rider training network in the U S and the only nationwide rider licensing programs sponsored by a motorcycle manufacturer.
Speaker Change: When if all we were proud to hit 1 million riders trained celebrating the 20 <unk> anniversary this year.
Speaker Change: Promoting rider education and training for both experienced a new riders is an important part of the overall riding ecosystem.
Speaker Change: Harley Davidson, we're committed to building ridership in deepening our connection with customers ultimately reinforcing our position as the most desirable motorcycle brand in the world.
Speaker Change: Turning to cost productivity is recovered with Q3 earnings we've taken further steps to tighten opex across the organization without negatively impacting demand driving initiatives for our core segments.
Speaker Change: One example of this difficult choices, we've made in head count.
Speaker Change: Comparing end of Q4 2004 to the end of Q4, 'twenty three salaried head count is down by 7%.
Speaker Change: By 'twenty four includes increased severance expense.
Speaker Change: Rate favorability will display itself more fully in 'twenty five.
Speaker Change: In addition, Jonathan will cover our cost productivity performance for the year and we continue to execute very well in that area.
Speaker Change: Since announcing that focus we achieved $257 million in productivity savings.
Speaker Change: Cost productivity continued to be a positive contributor to cash flow.
Speaker Change: We remain pleased with the cash flow generation of Harley Davidson delivering operating cash flow well over $1 billion in 'twenty four nearly a 40% increase from prior year.
Speaker Change: 25%, we plan to display further progress across the P&L, we believe opex productivity will allow us to run with flat to slightly down opex, even after an increased focus and marketing.
Speaker Change: New product investments.
Speaker Change: Additionally, we expect our cost productivity target to deliver approximately $100 million of additional savings in 'twenty five.
Speaker Change: I would like to now comment on our new model year launch.
Speaker Change: But the 25 model year campaign, we revealed all new and refreshed motorcycles for this year's lineup with products released sitting squarely within our product focus and selective expansion strategic focus.
Speaker Change: Harley Davidson cruiser motorcycles lineup includes six new models with significantly improved performance in technology.
Speaker Change: Additionally for 2005, we updated the powerful sports the S model with.
Speaker Change: So its 26th year, we introduced the collection of limited production CBO motorcycle that includes four modules.
Speaker Change: Firstly, new for this year are the street glide ultra fully equipped long haul touring model complementing our nuclear in lineup as well as the previously mentioned Pan America 12, 50 S T venture sport Motorcycling.
Speaker Change: Both incredible machines with visor down, suggesting that the Harley Davidson Street glide ultra might be the most capable American too around the market.
Speaker Change: We also continue to be excited about the adventure sport category and its application to racing.
Speaker Change: January we celebrated junket virus extraordinary performance in the Africa equal rates what is it.
Speaker Change: <unk> first place in the 1000 Cc plus categories.
Speaker Change: This win is a groundbreaking breakthrough moment that showcases the Harley Davidson Pan America capability and versatility in a class of its own.
Speaker Change: Additionally, we were pleased to see <unk> settled and Harley Davidson rider Corey West take the 2000 and for Super Hooligan Championship on its rates prepared Pan America, 12, 50, showing the versatility of the platform.
Speaker Change: Performance in rates and continue to be key differentiators across our product portfolio and we will continue to expand on our rating efforts in the U S and beyond.
Speaker Change: To support our model year launch, we've adapted our marketing approach specifically to drive dealership traffic and improve alignment on key messages within our dealer channel rather than spending significant funds on teaching and pushing the global launch as we did before.
Speaker Change: For this reason, we launched the marketing development fund new initiatives designed to drive leads foot traffic and customer transactions and conversions in our network.
Speaker Change: Driven by a desire to complement dealer marketing spend adding additional financial support from the motor Company. We believe the marketing development funds will not only strengthen collaborations between the motor company and the dealer network, but also post the effective change management to drive growth.
Speaker Change: This commitment valid Davidson represents the single largest market in the investment on behalf of the company on a per unit and absolute basis in our history.
Speaker Change: While it has only just been launched we've seen strong uptake through the network.
Speaker Change: As we said previously the health of the dealer network remains critical.
Speaker Change: Taken many steps throughout 2000 and for to support the network through this challenging environment. We were taking further actions into 'twenty five to continue our support for the network.
Speaker Change: Jonathan will provide more detail on guidance, we are realistic and cautious not having reliable thickness yet in either direction as we start the year.
Speaker Change: And our guidance to flat retail sales for the year.
This performance skew towards the second half.
Speaker Change: I know that the decisions, we've made and the bold actions, we have taken as part of our hardware strategy of continuing to strengthen our foundation for the future.
Speaker Change: The industry has faced many headwinds over the past couple of years impacting at all levels from OPM to dealer to customer.
Speaker Change: We believe we are best positioned to take advantage of any uptick in consumption.
Speaker Change: Additionally, we will continue to explore any and all opportunities for transformational change and we are committed to achieving our hardware profit targets over time soon as we are seeing tailwind and consumption of discretionary products in the two wheel and overall power sports industry.
Speaker Change: Assuming a slightly improved outlook in 2006, we expect to deliver solid improvement in margin performance.
Speaker Change: The actions that we've taken for coupled with expectations for 'twenty five 'twenty six we expect to balance retail production and wholesale.
Speaker Change: We now expect that this will allow us to deliver double digit margin in 'twenty six climbing to our 15% target in the years following due to a combination of factors, including expected slight volume growth supported through exciting product portfolio launches every year.
Speaker Change: Lastly, tariffs on everybody's mind.
Speaker Change: Not having a clear view of what is to come when and for how long we have not yet incorporated any new tariffs in our outlook.
Speaker Change: We believe we have and are continuing to take all possible actions to mitigate the impact of tariffs and we'll continue to take precautionary measures where possible.
Speaker Change: That said, we've not production in Canada, Mexico, and 100% of our box and our core product segments are manufactured in the U S.
Speaker Change: Those motorcycles manufactured in our U S plants and in partnership with our skilled union workforce account for the vast majority of our profits in the U S business and most of our sourcing also being U S centric.
Speaker Change: We'll provide more detail once we have a more complete tariff picture.
Speaker Change: Any discriminatory terrorist against Harley Davidson, our great American iPhone returning in Europe, we plan to fight aggressively with all means available and called for a reciprocal treatment for all motorcycles imported into the U S.
Speaker Change: Thank you and I'll now hand, it over to Karen for more detail on light oil.
Karen: Thanks, Joanne good morning, everyone.
Karen: Nigeria concluded 20 pool with an operating loss of $110 million 612, <unk> unit, both within the range of our revised guidance.
Karen: The electric motorcycle segments.
Karen: <unk> global retail performance grew by <unk>, 6% year over year with library of maintaining our leadership position with a 65% market share in the U S 50, plus horsepower on road EV.
Karen: Turning to our PC segment.
Karen: Despite the decrease in Stacy total unit sales in 'twenty pool, driven largely by reduced sales to third party distributors.
Karen: U S market so significant growth.
Karen: <unk> recorded a 21% increase in sales.
Karen: And a 20% increase in U S online.
Karen: Strategic initiatives implemented during the year enabled the company to achieve a cash burn below target for 2012.
Karen: We expect these efforts to reduce 2025 total cash used by operating and investing activities, probably about 40%, which we expect to be 60 million O&M.
Karen: Looking ahead to 'twenty five Niobrara entered the year with pro models in the market, including <unk> two platform.
Karen: <unk> has announced that they can find useful.
Karen: <unk> tweaked maxis crew during the first half was 26 with a primary focus on the European market.
Karen: The company's commitment to innovation and market expansion will be evident right now new products on both the electric motorcycles and facing segments designed to appeal to a broader global customer base.
Karen: We believe these initiatives positioning the company to enter new market segments and enhance our competitive edge.
John: Now I'll hand, it over to John.
John: Thank you Karim and good morning to all.
John: I plan to start on page four of the presentation, where I will briefly summarize the financial results for the fourth quarter and full year 2024.
John: Subsequently I will go into further detail on each business segment.
John: Let me start with consolidated financial results for the fourth quarter of 2024 consolidated revenue in Q4 was down 35% driven mainly by HDMI revenue being down four 7%.
John: And partially offset by HTS, that's revenue growth of 4%.
Consolidated operating loss in Q4 was $193 million, which compares to an operating loss of $21 million in Q4 of 2023.
John: This was driven by an operating loss of $214 million at.
John: At <unk> <unk>.
John: <unk> operating income of $46 million was unfavorable by $12 million relative to a year ago.
John: The operating loss at <unk> was $26 million, which was in line with our expectations and $9 million favorable relative to a year ago.
As a reminder, we expected the fourth quarter to be a reduced quarter from a profit standpoint at the Harley Davidson Motor Company segment.
John: This is a result of the inter.
John: <unk> reduced wholesale shipments in Q4 as part of preparation for the new model year product launch in January of this year.
John: Our commitment to not go out with dealer inventory year over year.
John: Again I plan to go into further detail on each business segment profit and loss dragged us in the next section.
John: <unk> Q4 earnings per share was a loss of 93, which is down from a profit of 18 cents in Q4 of 2023.
John: Turning to full year 2020 for financial results on page five.
John: Holidayed revenue of $5 2 billion.
John: It was 11% lower compared to last year, while consolidated operating income of $417 million was 47% lower than last year.
John: Full year 2024 consolidated revenue performance was as follows <unk> revenue decreased by 15% at <unk> revenue increased by 9% and at <unk> revenue declined by 10, 1%.
John: Full year 2024, consolidated operating income of $417 million compares to $779 million, our consolidated operating income for 2023.
John: Business segment performance was as follows.
John: At <unk> operating income of $278 million was 58% lower than prior year.
John: At <unk> operating income of $248 million was 6% higher than prior year.
John: Likewise, an operating loss of $110 million or 6% favorable to prior year.
John: For the full year 2024 earnings per share was $3 importing pork.
John: And compares to $4 87 in 2023.
John: Now turning to page six and <unk> retail performance.
Speaker Change: As Johan already mentioned in Q4 global retail sales of new motorcycles were down 15% versus the prior year.
Speaker Change: This is a continuation of the trend that began at the start of Q3 and continued to play out through the second half of 2024, where we saw an increasingly difficult global market environment, and our and other big ticket discretionary sectors.
Speaker Change: Macroeconomic uncertainty.
Speaker Change: Inflationary pressures and the pressure of high interest rates affected both our industry and our customers, especially in our core markets.
Speaker Change: In North America, Q4, retail sales declined by 13%, while international retail sales, excluding Canada declined by 17% year over year.
Speaker Change: In EMEA Q4, retail sales declined by 7% driven by weakness in Germany and the surrounding region.
Speaker Change: EMEA continued to be adversely impacted by overall macroeconomic conditions.
For the full year 2020 for EMEA retail sales were down 11%, where a majority of the retail weakness was it non motorcycles.
Speaker Change: Touring category was up 10% on the year.
Speaker Change: In Asia Pacific Q4, retail sales declined by 26% as the region has remained weak since the second half of 2023.
Speaker Change: The Q4 retail sales decline was driven by weakness in Japan, and China, with Australia, and New Zealand turning in a positive Q4.
Speaker Change: For the full year 2020 for Asia Pacific retail sales were down 18% with market characteristics broadly consistent with that seen in Q4.
Speaker Change: The softness was most acute in Japan, and China, whereas both Australia, and New Zealand as well as India were up modestly.
Speaker Change: In Latin America, Q4, retail sales declined by 7% for both Brazil, our largest Latin American markets and Mexico were down while other Latin American countries were up year over year in Q4 for.
Speaker Change: For the full year 2020 for Latin American retail sales were flat, where Brazil was down marginally and Mexico was up marginally.
Speaker Change: For the full year 2024, global retail sales of new motorcycles were down 7% versus the prior year for North America retail sales declined by 4% and international retail sales declined by 13%.
Speaker Change: Dealer inventory at the end of Q4 was down by 19% sequentially relative to the end of Q3 as we executed on our plan to reduce inventory levels in the second half of 2024, both domestically and internationally.
Speaker Change: Dealer inventory globally was at a level.
Speaker Change: We ended the prior year.
Speaker Change: Specifically, Harley Davidson dealer inventory levels were down over 4% year over year.
Speaker Change: We continue to prioritize support for our dealers as we start 2025, and the upcoming spring riding season and work to balance dealer inventory at helping at appropriate levels.
Speaker Change: We are investing in our grassroots marketing Activations, which we expect will reap benefits and improved dealer and motor company profitability, beginning in 2025, and the last thing beyond <unk>.
Speaker Change: Also as Johan mentioned, we are pleased with the initial reaction to the redesign Softgel motorcycles, we will talk further about our expectations for both retail and wholesale motorcycles for the full year of 2025, and just a few minutes.
Speaker Change: Now turning to page seven and <unk> revenue performance.
Speaker Change: In Q4, <unk> revenue decreased by 47% coming in at $420 million, which was driven largely by a 53% decrease in wholesale units shipped.
Speaker Change: Looking closer at the key drivers for Q4.
43 points of decline was as a result of decreased wholesale volume in HTM, CE, where motorcycle shipments were down meaningfully when compared with retail sales of motorcycles specifically.
Speaker Change: Specifically, we shipped less in house and other cycles when did in Q4 prior year.
Speaker Change: We delivered 14000 motorcycles in Q4 24 relative to 30000 in Q4 of 2023.
Speaker Change: In Q4, our wholesale shipment increase was even more pronounced than the typical impacts as we work to reduce dealer inventory levels by yearend.
Speaker Change: Five points of growth came from pricing, which includes the net impact of pricing actions in 2020 Ford model year motorcycles.
Speaker Change: And overall sales with incentives.
Speaker Change: Nine points of the decline came from mix as we are more focused on touring shipments in the first half of the year and we rounded out the rest of the motorcycle portfolio in shipments in the second half of the year and finally foreign exchange was largely flat in Q4.
Speaker Change: For the full year of 2024, <unk> revenue decreased by 15% coming in at $4 $1 billion.
Speaker Change: Looking more closely at the key drivers for full year 2024.
Speaker Change: 15 points of decline, which came from decreased wholesale volume at H D and C, which was driven by an overall decrease in wholesale motorcycle unit shipments as we prioritize appropriate inventory levels and driving improved financial outcomes for our dealer partners.
Speaker Change: One point of decline, which came from pricing net of incentives, reflecting difficult year over year comparisons in the first half.
Speaker Change: And actions to help support retail and mid 2024 calendar year for the remaining 2023 model years dealer inventory.
Speaker Change: Mix contributed a little more than one point of growth as we continue to prioritize our most profitable models and markets, especially in the first half of 2024, and finally foreign exchange, which resulted in an $18 million headwind or less than 50 basis points of decline.
Speaker Change: Strengthening for the full year.
Speaker Change: Now turning to page eight and <unk> margin performance in Q4, <unk> gross profit came in at a loss of $3 million compared to a gross profit of $181 million or 22, 9% gross margin in Q4 of 2023.
Speaker Change: Again, Q4 is typically our lowest gross margin quarter of the year.
Speaker Change: The year over year decrease was driven by the negative impact from significantly lower volumes unfavorable mix unfavorable foreign exchange, including hedging and negative operating leverage.
Speaker Change: There were some positives in the quarter, including.
Speaker Change: Favorable net pricing and lower raw material and supply chain management costs.
Speaker Change: In Q4 operating expenses totaled $210 million.
Which was $15 million lower compared to prior year or 7% lower as we continued to maintain overall cost discipline and increase our efforts to manage opex productivity at <unk>.
Speaker Change: In Q4, <unk> had an operating loss of $214 million, which compares to an operating loss of $44 million in the prior year period.
Speaker Change: Turning our attention to the full year 2020 important margins.
Speaker Change: For the full year 2024, <unk> gross margin was 28%, which compares to 32, 3% from the prior year.
Speaker Change: The decrease of 430 basis points was driven by the negative impacts from lower volumes.
Speaker Change: Unfavorable net pricing unfavorable mix, which was largely driven by increased costs related to our new touring motorcycles.
Speaker Change: And <unk> more than offsetting favorable family mix. Additionally, we experienced the benefit in the first half of the year from shipping higher margin CEO products in 2024, which reversed in the second half as we lapped the introduction of our tour and Ceos in 2023.
Speaker Change: Our hard wire to profit focus has produced meaningful margin expansion since 2020, but was muted in 2024, as we invested behind our core products segments and lapped higher comparison periods.
Speaker Change: Unfavorable foreign exchange, including hedging and negative operating leverage.
Speaker Change: These impacts were partially offset by the positive impacts from lower raw material costs and lower logistics expenses as we executed well against our cost productivity targets, which helped to offset the 2% rate of inflation seen during the full year 2024.
Speaker Change: Lastly for the full year of 2020 for operating expenses came in at $877 million, which were lower by $28 million as we maintained overall cost discipline due to actions that we began to taper in late Q2 of 2024.
Speaker Change: Full year 2024, <unk> operating income was $278 million, which was $383 million lower than prior year due to the factors mentioned previously.
Speaker Change: For the full year 2024, <unk> operating margin was six 7%, which compares to 13, 6% for the full year 2023.
Speaker Change: Before we turn to the next slide as I did in October let me give a brief update on our productivity and cost program.
Speaker Change: One of the initiatives identified as part of the hardline a strategy, where we were expecting to drive $400 million.
Speaker Change: Prudent and productivity by 2025.
Speaker Change: As a reminder, we are now excluding the impact of leverage while holding our previously communicated multiyear target of $400 million.
Speaker Change: Excluding the impact of leverage we delivered approximately $24 million in 2022 and $123 million in 2023.
Speaker Change: In 2024, we delivered a further $110 million for the full year.
Speaker Change: This is a total of $257 million to date, we expect to achieve another $100 million in 2025, and again in 2026 exceeding our hardwired dollar target by over 10%, but doing so one year later than anticipated.
Speaker Change: Now turning to slide nine and 10 in the financial services segment.
Speaker Change: Harley Davidson financial services Q4 revenue came in at $257 million, an increase of $11 million or 4% compared to last year.
Speaker Change: The Q4 increase was driven by lower retail finance receivables at higher average loans as the portfolio continued to reset overtime with higher interest rates driving higher interest income.
Speaker Change: <unk> operating income was $46 million down 20% compared to the prior year.
Speaker Change: The Q4 decline was driven by a higher provision for credit losses, and higher borrowing costs, which were partially offset by higher interest income.
Speaker Change: Operating expenses were largely flat.
Speaker Change: The provision for credit loss expense was $16 million higher primarily as a result of an unfavorable reserve change and slightly higher realized credit losses.
Speaker Change: The reserve change was $13 million unfavorable as compared to Q4 of 2023, primarily on an increase in the retail and reserve rate to ensure we are well positioned for subsequent periods.
Speaker Change: Total interest expense was up $6 million or up 7% 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.
Speaker Change: For the full year of 2024, Hff's revenue was $1 billion up 9% from prior year.
Speaker Change: While <unk> operating income was $248 million up 6% from prior year.
Speaker Change: The full year 2024 operating income margin was 24%.
Speaker Change: Now turning to slide 11.
Speaker Change: At the end of 2024, H DFS is annualized retail credit loss ratio was three 3%, which compares to an annualized retail credit loss ratio of 3% at the end of 2023.
Speaker Change: The increase in retail credit losses was driven by several factors connected to the macroeconomic environment and related to customer and industry dynamics.
Speaker Change: Across the portfolio, we have seen that more loans have become delinquent as customers have been impacted by higher back payments and general inflationary pressures.
Speaker Change: The average loss increased due to higher loan balances and continuing normalization of used bike prices, which have led to lower recovery values at auction.
Speaker Change: That said, we believe we have begun to see stabilization in used after many quarters of decline following a rapid value escalation in the period immediately following COVID-19.
Speaker Change: The retail allowance for credit losses for Q4, 2020 quarter ticked up to five 7%. This is up from five 5% in Q3 2024 and up from five 4% at year end of 'twenty three.
Speaker Change: This reflects our best estimate.
Speaker Change: Current and future retail lending environment.
Speaker Change: Total retail loan originations in Q4 were down 16%, while commercial financing activities were down 5% to $1 billion.
Speaker Change: Total quarter end net financing receivables, including both the retail loans and commercial financing was $7 3 billion or.
A 3% decline versus prior year end.
Speaker Change: Now turning to slide 13.
Speaker Change: Likewise segment electric motorcycles revenue decrease in the fourth quarter of 2024 compared to the prior year period due to lower unit sales really motorcycles in the quarter.
Speaker Change: As basic electric balance that business revenue was up modestly compared to the prior year.
Speaker Change: Selling administrative and engineering expenses were down $9 million or down 31% in Q4 compared to prior year.
Speaker Change: Fourth quarter library, our operating loss of $26 million $9 million less than a year ago was in line with our expectations as LIBOR has continued to invest in new motorcycle models.
Speaker Change: <unk> continues to action initiatives to reduce the overall cost of sales crazy motorcycles.
Speaker Change: For the full year 2024 results at the Library segment revenue was $26 million down 31% from the prior year.
Speaker Change: For the full year 2024 period, Likewise sold 612 electric motorcycles, which compares to 660 <unk> commodity cycles in 2023.
Speaker Change: The period Livewire operating loss was $110 million, which was in line with our expectations.
Speaker Change: Now turning to slide 14.
Speaker Change: Wrapping up with consolidated Harley Davidson, Inc. Financial results, we delivered $1 $1 billion of operating cash flow in 2024, which was an increase of $309 million and up from $755 million in 2023.
Speaker Change: The increase in operating cash flow was influenced by a favorable change in wholesale finance receivables.
Speaker Change: And by positive changes in working capital as we continued to focus on cost productivity and tight inventory management, including over a 20% reduction in finished goods inventory.
Speaker Change: Total cash and cash equivalents ended at $1 6 billion.
Speaker Change: Which was $66 million higher than a year ago.
Speaker Change: This consolidated cash number includes $64 million at LIBOR.
Speaker Change: Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders. In Q4, we bought back 3 million shares of our stock at a cost of $100 million.
Speaker Change: This brings our total amount of shares bought back in full year of 2024 to $12 5 million shares of Harley Davidson common stock at a total value of $450 million, which is 9% of shares outstanding at the beginning of 2024.
Speaker Change: Since the company announced a $1 billion share repurchase plan on July 25th 2024, we have repurchased seven 1 million shares at a cost of $250 million.
Speaker Change: Now turning to slide 16.
Speaker Change: As we look to our financial outlook for 'twenty five we remain pleased with our leading market share position.
Speaker Change: New model year, 'twenty, five launch, including an important new entrants in the Pan American family, all coupled with our still new and redesigned Turing lineup.
Speaker Change: Yet as Johan already mentioned, we are mindful of overall macroeconomic uncertainty and softness and high ticket consumer discretionary spend particularly after the second half of 'twenty for a slowdown.
Speaker Change: At <unk>, we expect our retail units could be flat in 2025% with positive performance skewed towards the second half as Jochen mentioned.
Speaker Change: We expect wholesale units to be flat to down 5% in 2025, as we continue to be mindful of dealer inventory management.
Speaker Change: We expect global inventory levels to come down by more than 10% by the end of 2025.
Speaker Change: The impact of this will be most evident in the first half, where we expect a reduction of more than 30%.
Speaker Change: As a result, we expect <unk> revenue to be flat to down 5%.
We expect revenue to align with the timing of wholesale shipments and year over year revenue comparisons will exhibit a different seasonal cadence versus prior year. As we are not building inventory for all of their touring as was done in 2024.
Speaker Change: We expect operating income margin to come in between 7% and 8% the.
Speaker Change: The drivers of our margin performance expectations include.
Speaker Change: Slightly negative operating leverage due to lower volumes.
Speaker Change: Effects headwind from unfavorable shifts in foreign currency mix, which we expect to be slightly unfavorable due to higher overall portfolio makeup of the new South Wales.
Speaker Change: Pricing as.
Speaker Change: As we continue to fine tune our pricing strategy.
Speaker Change: The operating expense down due to the full year benefit of lower head count and anticipated warranty sales.
Speaker Change: In addition at the earnings per share level, we expect EPS to be flat to down 5% relative to $3 44.
Speaker Change: Recorded in 2024.
Speaker Change: The drivers of this include tax rate, which was unusually low in 2024 due to one time impacts from tax credits and reduced withholding taxes on earnings we expect to be repatriated.
Speaker Change: Interest income down year over year, as we lap higher short term interest rates.
Speaker Change: Other income lower pension income and lapping gains on changes in LIBOR and warrant value in 2024.
Speaker Change: And EPS will benefit from lower weighted average shares outstanding as well.
Speaker Change: At <unk>, we expect operating income to be down 10% to 15% in 2025.
Speaker Change: This forecast is based on higher borrowing costs year over year as we refinance a portion of the portfolio and a higher interest rate environment.
Speaker Change: Our stable loss rates as consumers settle into the existing macroeconomic backdrop, where lower tier credit continue to experience some stress, but offset with recent levels of higher prime mix origination.
Speaker Change: And lower asset because we reduced dealer inventory wholesale levels driving lower commercial balances.
Speaker Change: And as retail levels decreased due to lower origination volume in recent years.
Speaker Change: A lot of player library is forecast to unit sales of between 1500 units.
Speaker Change: And an operating loss in the range of 70 million to $80 million.
Speaker Change: Actions were taken in 2024 to reduce 25 total cash used by operating and investing activities.
Speaker Change: For 2025, we expect this will be a reduction of approximately 40% and the spend of $60 million or less.
Speaker Change: And lastly for total HDI, we expect capital investments in the range of $225 million to $250 million.
Speaker Change: This is the same forecast as in 2024 and 2023.
Speaker Change: We plan to continue to invest in product development and capability enhancements.
Speaker Change: Our investment focus remains driven by corporate product innovation investments in manufacturing to automate and reduce costs as part of our productivity journey as.
Speaker Change: As well as planned investments for LIBOR.
Speaker Change: As a reminder, our capital allocation priorities remain to fund profitable growth hardware initiatives, which includes the capital expenditures.
Speaker Change: Paying dividends and continuing to execute discretionary share repurchases.
Speaker Change: As covered previously and the three year period.
Speaker Change: <unk> thousand 22 through 24, we returned $1 $4 billion in capital to our shareholders, including $1 1 billion of shares repurchased.
Speaker Change: As we begin 2025, we are planning to buy back $350 million of our common shares demonstrating our ongoing commitment to delivering $1 billion in share repurchases as announced in July.
Speaker Change: And with that we will open it up to Q&A.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone keypad.
Speaker Change: Sorry, your question Pest Star one again.
Speaker Change: Also ask that you limit yourself to one question and return to the queue for additional questions. Thank you.
Speaker Change: Our first question will come from Megan Clark from Morgan Stanley. Please go ahead. Your line is open.
Megan Clark: Alright, thanks, very much good morning, thanks for taking our question.
Jonathan Route: Jonathan lot of helpful detail there.
Jonathan Route: So thank you appreciate it wanted to just follow up on your commentary around.
Jonathan Route: The first quarter in particular, and just how to think about the cadence of the year overall.
I think you mentioned, you're expecting an inventory reduction of more than 30% in the first quarter.
Jonathan Route: And.
Jonathan Route: From a revenue comparison perspective, youre not going to be building dealer inventory for touring as you did in 24 or so maybe a hard comparison on touring still taking some shipments out of the channel. So can you just maybe put a finer point on on what that means for your expectations for the first quarter.
Jonathan Route: Okay.
Jonathan Route: Sure. So, we'll probably talk more I think in sort of front half and back half of the year, rather than get into quarters, specifically, but making your questions.
Jonathan Route: I think it really good one that we feel is important to make sure that you do have an understanding on but as we look at where dealer.
Jonathan Route: Dealer inventory globally kind of land.
Jonathan Route: Across 2025, we expect to end the year down.
Jonathan Route: 10% or a little bit over from a total dealer inventory perspective.
Jonathan Route: As we think about what that looks like across the across the quarters.
Jonathan Route: Again front half would be down a little over 30%.
Jonathan Route: And so obviously as we as we flow through that and think about some of the dealer impacts related to that we have dealers who run the year down probably about 35 call. It 35 ish percent.
Jonathan Route: Average across the entire year.
Jonathan Route: But obviously it kind of trails off because of the actions that we took in 2024 to bring down inventory in.
Jonathan Route: In Q4.
Jonathan Route: So with that you see a more pronounced decrease in inventory in in the front half than the back half, so 30% plus and then 10% plus kind of a year and as.
Jonathan Route: As we think about the wholesale related impacts to that it does mean that.
Jonathan Route: Half of the year wholesale will be will be down.
Jonathan Route: Versus where we were in 2024, so front half probably down in the.
Jonathan Route: Yeah.
Jonathan Route: Double digit kind of double digit range from a percentage standpoint.
Jonathan Route: And then as we move toward the back half of the year up quite a bit in the back half in order to make sure that we end the year appropriately positioned from an inventory standpoint.
Okay.
Speaker Change: Our next question comes from Joe also about Oh from Raymond James. Please go ahead. Your line is open.
Joe: Thanks, Hey, guys good morning.
Speaker Change: I'm trying to squeeze in a couple of questions. If I could I guess first on the on the quarter.
Speaker Change: Where was the big margin surprise because revenue was was in line shipments were maybe slightly below expectations. So first question is where the big margin surprise was in Q4, and then maybe to follow up on that the retail outlook for flat in 25, maybe youre thinking there given that you are lapping a tour.
Speaker Change: We refresh this year thanks.
Speaker Change: Alright, Thanks, Joe I can start with I'll start with the sort of margin piece from a Q4 perspective, and then and then between yoga and I will cover the retail piece so.
Speaker Change: The Q4 margin.
Speaker Change: We have a we have a margin walk that I think with page eight of the deck and as you take a look at that from a full year perspective.
Speaker Change: You can see the impacts associated with volume as well as sort of manufacturing and other related expense.
Speaker Change: So were pretty pleased in terms of some of the positives that we delivered on I think you heard yoga's commentary my commentary around productivity and the productivity that we drove in 2024 I think that overall.
Speaker Change: The good news, but as we think about some of the things from a 2024 perspective, obviously, we were we were a little bit off from an overall retail perspective.
Speaker Change: We made the commitment that we would manage retail and wholesale in alignment with each other throughout the year. So as we got to the back part of 2024, there were a number of down days that we that we use to manage inventory and make sure that we're managing production in the right way.
Speaker Change: We also had a little bit of cost associated with retooling for new soft tail and kind of getting everything aligned from a.
Speaker Change: Overall line rate design perspective within there and then obviously the volume that I just talked about that hits from an absorption or deleverage perspective, so as we add up those elements that kind of creates that.
Speaker Change: <unk> in terms of the overall mix from an operating income margin standpoint.
Speaker Change: And then Youll can do you want to take Joes question from our retail outlook standpoint too.
Speaker Change: I think if you look at the first and the second half of last year, we had a stronger performance in the first half versus the second half.
Speaker Change: Just because the only because of the Turing launch, but in general we've seen a drop off in the second half, which is pretty much in line with what other industries or related industries have seen. So therefore, we expect a better performance in the second half versus the first half.
Speaker Change: We also think from a macroeconomic point of view, it's probably going to be more choppy first half into the second half.
Speaker Change: You mentioned the Turing launch I think what's important to notice that we have beyond touring.
Speaker Change: A lot of innovation in our product lineup, which is reflected in our guidance.
Speaker Change: And then the touring product that we've launched is still.
Speaker Change: Very new to many of our customers. So we have $1 6 million doing right is just across the United States.
Speaker Change: With last year's sales of new touring bikes.
Speaker Change: We still have a customer base.
Speaker Change: <unk> 95 per cent that haven't looked to purchase our product. This means that's $1 5 million that can potentially upgrade.
Speaker Change: With the new product platform.
And if you look at previous launches that were not as comprehensive in terms of remodel. Our Turing launch now is that benefit came over several years not just the first year.
Speaker Change: And data shows that 30% of our customers are very aware of our new Turing product features but that makes 70% that are not fully aware yet so there's definitely.
Speaker Change: A lot of potential in the coming years to convince customers and some are just holding off and don't want to buy the first generation and willing to familiarize themselves more so we still think Turing has opportunity for growth in the future for sure in this platform should run for many years given that it's all new compared to our rushmore products in the <unk>.
Speaker Change: Pos.
Speaker Change: But in terms of comps certainly we believe the first half was going to be slower than the second half.
Speaker Change: Right.
Speaker Change: Our next question comes from James Hardiman from Citi. Please go ahead. Your line is open.
James Hardiman: Hey, good morning, Thanks for taking my question so.
James Hardiman: Maybe help with the margin bridge Youre guiding.
James Hardiman: Revenues to be flat to down modestly, but operating margin to be up.
James Hardiman: I mean, it looks like on the Opex front.
James Hardiman: It sounds like Thats going to basically track revenues, so maybe pretty flat as a percentage of sales so I assume.
James Hardiman: The model gross margins should be up pretty materially.
James Hardiman: <unk>.
James Hardiman: 2025, now you gave us a lot of the negatives right.
<unk> is going to be a negative it sounds like mix is going to be a negative.
James Hardiman: I guess, how do we get to that.
James Hardiman: Motor company and margin growth that you're guiding to.
James Hardiman: Alright, James if I can.
Speaker Change: I can start so I think as we go through and we take a look from an overall volume perspective, obviously as you've talked about were pretty flat. So as we think about.
Speaker Change: Walking off of six 7% for 2024, we ended up with a relatively flat guide from a volume perspective from a pricing standpoint, we expect a little bit of favorability.
Speaker Change: Thats in there as we look at the actions that we've taken across the portfolio.
Speaker Change: There's a little bit of a negative impact in 2025 from FX.
Speaker Change: So probably a little bit greater than the negative impacts that you saw in in 'twenty three 'twenty four o'clock.
Speaker Change: Little bit of a little bit of a challenge from a mixed standpoint, because we have the new soft tails that are hitting obviously to touring or higher margin motorcycles. So theres a little bit of a mixed dynamic in there.
Speaker Change: We don't think that we're going to see sort of the same level of unfavorable <unk> from manufacturing and other and then we think we have a little bit of favorability that falls in there from an opex perspective, those are for the reasons that <unk> talked about in his remarks, and so with that you kind of add up to the 7% to 8% guidance.
Speaker Change: Provided.
Speaker Change: Okay.
Speaker Change: Our next question comes from Robin Farley from UBS. Please go ahead. Your line is open.
Robin Farley: Great. Thanks, I wanted to just clarify.
Robin Farley: This your guidance for motorcycle revenue flat to down 5% I think you said price would be positive for the year.
Robin Farley: So does that imply.
Robin Farley: Percent of units down a bit more.
Speaker Change: Hey, Ben that's flat to 5% and then just on retail I know you gave some color on sort of first half versus second half.
Speaker Change: Assuming that if youre trying to clear inventory you're shipping.
Hello, your retail expectations.
Speaker Change: Should we kind of think about it as the rough range of your original expectation for the year, just so we can kind of.
Speaker Change: We move through the year kind of see how it's tracking versus your guidance and maybe kind of adjust our expectations. Accordingly. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you Robyn so I'll start with.
Speaker Change: From a from a wholesale perspective, we probably think.
Speaker Change: That said to down a little bit.
Speaker Change: So as we as we look at that that's a little bit of the volume.
Speaker Change: Sure.
Speaker Change: There'll be a little bit of volume challenge in there that is offset by the pricing piece that I talked about.
Speaker Change: And then I think relative to your question on retail overall for right now from the commentary that we talked about we think that retail is being flat in 2025.
Certainly.
Speaker Change: It'll be difficult to predict as we think about macroeconomic situation and where we are but overall, we are thinking about an environment globally that get us to flat retail.
Speaker Change: Maybe off a little bit and then pricing a little bit favorable on hopefully that answers your question around.
Speaker Change: How do we manage through that.
Speaker Change: Okay.
Speaker Change: Our next question comes from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.
Fred Wightman: Guys. Good morning, I was hoping you could just give us a sense for where the mix of current versus non current product that dealers have unlocked today stands. If we look back last year, you had called out some incremental dealer support to clear through non current so I think there was a $40 million number initially and then you upsize that down the road. So are you assuming in <unk>.
Fred Wightman: Mental dealer support year over year does that wind up being favorable how do you sort of think about that.
Fred Wightman: Okay.
Fred Wightman: Yes.
Fred Wightman: Yeah.
Speaker Change: Alright, Thank you, Brian So I'll start and I think in terms of in terms of the mix. We obviously have just started shipping in 2025 model year motorcycles literally.
Fred Wightman: Just hitting within the last week or so.
Fred Wightman: So as we look at dealer inventory in terms of what's out there we've covered the fact that we're down.
Fred Wightman: <unk> from where we ended 2020.
Fred Wightman: That's kind of same period, a year ago as we as we look at how.
Fred Wightman: How we are managing through inventory in 2025, we've covered sort of the conservatism that we expect in the first half of the year.
Fred Wightman: Our shipping pretty carefully from that standpoint so.
Fred Wightman: So we think the dealers are pretty well positioned from an overall inventory perspective. The other thing that is a tremendous difference in 2025 calendar year versus 2024 calendar year is is.
Fred Wightman: But I would define it as kind of quality of inventory right. So as we think about the mix of touring bikes that dealers have on their floor. They have redesigned the redesigned.
Fred Wightman: <unk> hundred bikes that are out there youll can talked about market receptivity and market reaction to those which were positive in 2024.
Fred Wightman: So overall with that we think the health of the dealer inventory is better we think the quality of the dealer inventories better.
Fred Wightman: The piece that I think we are doing this a little bit different in 2025 versus 2024 is being more surgical in where we look for dealer support.
Fred Wightman: So rather than sort of a buying support across our family like we did a year ago. We actually now kind of look at specific models within that family and provides us quite a little bit more carefully from that standpoint again, something that we think we're able to do because of the because of the mix of dealer inventory that's out there in the network.
Speaker Change: Just to add one point or so please look at pricing.
Speaker Change: We've strategically priced our products going into 25% versus 24, so I think that.
Speaker Change: It is an important factor in this has.
Speaker Change: It has been proceeds received very positively.
But.
Speaker Change: Our next question comes from Alex Paris from Bank of America. Please go ahead. Your line is open.
Alex Paris: Hi, Thanks for taking my questions here.
Speaker Change: I wanted to ask about why we're so thinking about LIBOR is more longer term, how do you think about managing that business.
Speaker Change: And sort of managing the operating losses there.
Speaker Change: I guess, if demand and adoption of electric does not materialize meaningfully over the next few years.
Speaker Change: How are you thinking about wildfire longer term it would be great. Thanks.
Speaker Change: Yes, Alex Good question I think.
Speaker Change: Continuously evaluating from a Harley Davidson perspective, how to achieve the best performance for Harley Davidson and for life and.
And we are obviously, considering mid and long term perspectives.
Speaker Change: This evaluation beyond what we've said today.
Speaker Change: Little to nothing that I won't comment on but.
Speaker Change: First significant step Caribbean as already mentioned, we are reducing our operating losses from $110 million last year to $70 million to $80 million.
Speaker Change: And cash burn, but at least 40%, 40% or more to $60 million. So the team has taken under <unk> leadership with a lot of significant actions to downsize the organization refocus the product portfolio and to ensure that the cash burn and the operating losses are being reduced.
Speaker Change: That is an indication of how we see.
Speaker Change: Streamlining the business in light of the new realities beyond that I can't really comment, but rest assured that we are continuously evaluating.
Speaker Change: The development of live wire from Harley Davidson perspective, as well as the benefits it brings in and of course versus the cost that we incur are being invested in that business.
Speaker Change: Okay.
Speaker Change: Our next question comes from David Macgregor from Longbow Research. Please go ahead. Your line is open.
Speaker Change: Hi, Good morning. This is Joe Nolan on for David.
Speaker Change: Just briefly I wanted to touch on your outlook for some of your international end markets.
Speaker Change: Any detail there.
Joe Nolan: Okay, Hi, Joe.
Joe Nolan: So I think as we as we sort of take a look at where we are from an international perspective.
Joe Nolan: Looking back is a little bit of an important perspective in terms of trying to look forward.
Joe Nolan: So as we think about 2024, there were some market.
Joe Nolan: In the international that were positive for the markets that were a little bit down so as we think.
Joe Nolan: China, and Japan proved a little bit of a challenge as we look back Australia, and New Zealand exhibited some nice strength in the.
Joe Nolan: In the Asia Pacific region, as we think about Europe, Germany, and the surrounding markets. There were a little bit challenged there were there were a couple of specific market.
Joe Nolan: That we've had some strength for a while Spain, Portugal, Italy in particular over time have been have been solid and performing really nicely.
Joe Nolan: As we as we move forward and really take a look at where we think 2025 is going.
Joe Nolan: Overall globally, we kind of view it as pretty flat. So as we think about international markets in 2025.
Speaker Change: Pretty flat so in in the prior periods, Joe we've kind of walked through and covered what we've seen from Asia Pacific and the way that that market has performed over time.
Joe Nolan: We feel like.
Speaker Change: We feel like that for example, it is overall.
Speaker Change: <unk> growth in 2025.
Speaker Change: But for the most part again, we're guiding to a flat.
Speaker Change: Flat global.
Speaker Change: Environment from a retail standpoint.
Speaker Change: Our next question comes from Noah <unk> from Keybanc. Please go ahead. Your line is open.
Speaker Change: Alright, Thanks for taking my question, maybe just a couple on <unk> I guess first how are you feeling about the health of the book.
Speaker Change: And then in light of so for declining I know you guys have variable rate debt, but what are kind of the big moving pieces on the expense or the income side, that's driving the decline in the guide.
Speaker Change: And then is there some expected credit loss baked in there conservatism just trying to better understand that thank you.
Speaker Change: Okay, great. Thank you so as we look at <unk> I think overall health of the book a couple of things. So as we think through some of the.
Speaker Change: Some of the sort of historical origination, there's a little bit of pressure as we think about that.
Speaker Change: Some of the variability in motorcycle values over time.
Speaker Change: So as we look toward the final quarter of 2024 and forward we feel like.
Speaker Change: If you remember there was a tremendous rise up in used values in the period. Following COVID-19 there is a little bit of normalization.
Speaker Change: As we go through when we look at statistics and kind of performance.
Speaker Change: Over the last few months, we feel like there is probably stability.
Speaker Change: Where used values are so that's a positive.
Speaker Change: From a consumer perspective again with recent originations we've been originating at very very high credit quality. So the overall kind of mix of the portfolio is looking pretty strong and pretty healthy.
Speaker Change: But I think thats a positive when we kind of look at things in absolute dollar perspective, we feel good from a percentage standpoint, some things pop out a little bit so as we work with our dealer network to really bring down wholesale inventory levels, you see that reflected negatively in <unk> results. So that's.
Speaker Change: A big part of what you're seeing on a year over year basis relative to what we guide is wholesale asset levels from a year over year standpoint that come down.
Speaker Change: We also recognize that as we've had a little bit of a challenged sales environment.
Speaker Change: In comparison to where we were we were in kind of the year or years immediately following COVID-19 that puts a little bit of pressure on asset levels as those customers continue to pay down their pay down their loans. So overall I would say that we're pretty pleased with the health of the book, we feel like it's being managed in a way that that's pretty positive.
Speaker Change: Yes.
Speaker Change: Percentages can throw things off a little bit just because of pneumonia numerator denominator effect.
Speaker Change: And then when we think about.
Speaker Change: Fed rate as we look at the parts of our portfolio that are actually tied to a variable rate. That's the wholesale business. So our dealers will continue to see savings in wholesaler right between units that.
Speaker Change: Arent being.
Speaker Change: We've delivered at the same level and were fed rates are going but that does put a little bit of pressure on H DFS. So for the most part it's the story of kind of assets the story.
Speaker Change: Some benefit that accrues to the dealers rather than the <unk> business.
Speaker Change: And then the other piece that we always consistently work to manage that as we bring on any new debt that's at a higher debt level than where we were three.
Speaker Change: Three four years ago.
Speaker Change: So we just have a little bit of sort of short term normalization around that but overall continue to be very pleased with that.
Speaker Change: Okay.
Speaker Change: Our next question comes from Tristan Thomas Martin from BMO Capital markets. Please go ahead. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Two kind of housekeeping questions I believe you mentioned growing too.
Speaker Change: It seems the operating income margin targets in the future is that 15% and then just quickly following up on those questions was there any seasonal accounting change embedded in the HFF guidance. Thanks.
Speaker Change: Yes, Jason.
Speaker Change: As mentioned.
Speaker Change: We continue to believe that 15% target is achievable.
Speaker Change: And if we assume 2006 balanced retail production in wholesale.
Speaker Change: This ore shipments.
Speaker Change: And then think about achieving a double digit margin in 2006, if we can achieve that with this year's outlook. The 15% target is still achievable, but obviously that requires us.
Speaker Change: Get a slight volume growth that is support but that we believe is actually support is going to be supported through exciting new products that we're launching I've mentioned in my opening remarks that we are also entering.
Speaker Change: Having an entry level motorcycle in select markets starting of next year and the small cruiser segment in following years, so supported with product launches, we believe 50% is possible.
Speaker Change: But it's hard to give you a timeline on that.
Speaker Change: Other than the double digit.
Speaker Change: Operating profit that we believe is achievable assuming that we that we achieved this year's levels.
Speaker Change: Yes, we feel comfortable that I think we are positioned well, but obviously, we need some tail winds and slightly improved.
Speaker Change: The retail environment and power sports industry, which we haven't seen now for two years in a row.
So I think that has to happen we need some tailwind overall not significant but certainly not a depressed market that we've seen in all of our sports RV marine pretty much anything that's discretionary so that will have to happen for us to achieve those.
Speaker Change: A 15% operating margins.
Okay.
Speaker Change: And then I know, it's been really really.
Speaker Change: Really quickly just on interest in side.
Seasonal change question. So from an <unk> perspective, we did adjust reserves up a little bit as we think about again to your point seasonal lifetime loss.
Speaker Change: Evaluation, we did add.
Speaker Change: A small amount to make sure that we are covered from that standpoint.
Speaker Change: Okay.
Speaker Change: Our next question comes from Brandon <unk> from D. A Davidson. Please go ahead your line is open.
Speaker Change: Thank you for squeezing me in here just a quick one on Livewire, how far away are we from seeing a profit on the live wire business, it's been a headwind to earnings for years now and.
Speaker Change: I guess I'm wondering clients are wondering.
Speaker Change: Is there anything that would change your mind about continuing down this path with Livewire and how committed are you to this business. Thank you.
Speaker Change: But I can follow up with the outlook and then I'm going to comment from a highly perspective.
Yes. Thank you Johan Thanks, Brendan somewhere library perspective, as you saw we are reducing all expenses quite significantly year over year, we do work on Mexico reading our path to profitability. We have an internal program bayrak receive on reducing a bump cost we do see actually an opportunity to have.
Speaker Change: Yes.
Speaker Change: Contribution margin positive by the end of the year between all of the work we've done on bump cost on.
Speaker Change: Conversion costs etcetera that would be the first debt before we actually breakeven the business obviously.
Speaker Change: It was mentioned before by Alex that demand adoption chat ends right now, but down segments and markets where EV.
Speaker Change: He is having some traction is taking you to get zero of the Mexican scooter type of mobility segment, which we announce backup ecmo and we really believe that we are working towards where the market is pudding when EV, bringing additional.
Speaker Change: Additional value and so we'll keep working on this we do have a plan to exit a rate of path to profitability you start seeing some very significant improvement this year and you should expect to continue seeing some some improvements.
Speaker Change: The second part of your question and comments.
Speaker Change: Yes Brendan.
As I said, we are evaluating the business performance of fly Libra very carefully there are a lot of benefits that life of operating beyond electrification to Holly as well, but obviously, we are not achieving the targets that we've set out for many different reasons.
Speaker Change: Option being oil.
Speaker Change: Slower pace of EV adoption, obviously being a contributing factor.
Speaker Change: So we will watch this very carefully likewise needs to perform and we've invested a significant amount of money and that performance needs to happen otherwise, we'll obviously have to look at some optionality here, but we are committed to the business at this point, but we need to see improvements in the business performance based on.
Speaker Change: Karim what Heath mentioned I think we're seeing the losses continuously and really focusing hard on reducing the cash flow is critical and then adoption and sales obviously you need to show up and this year will need to prove that.
Speaker Change: Our last question comes from Jamie Katz from Morningstar. Please go ahead. Your line is open.
Speaker Change: Hi, Good morning, I, just wanted to stay on that topic.
Speaker Change: I guess I am thinking about this new product that you guys are launching and given them.
Speaker Change: The strain or lack of support.
Speaker Change: From a retail perspective or demand.
Speaker Change: I guess.
Speaker Change: What was the strategic purpose.
Speaker Change: Rolling out a new product, there's a lot of demand in this segment and I guess where is it.
Speaker Change: Where does the incremental investment line with that and what does the profit margin opportunity look like for that unit just trying to think about that.
Profit progression. Thanks.
Speaker Change: Thank you just to clarify are you talking about the alpinist lounge that we just had on the <unk> two platform.
Speaker Change: Maxie screener that I assume is going into the P&L line Liar, yes. It is correct. Okay. Thank you for clarifying.
Speaker Change: Thats Cuda is expected to hit market in 2026, we are right now working diligently on the development of it.
The strategic rationale for reach which is pretty strong for us. It does leverage two key things. The first one is the <unk> two platform, which is fully developed in market right now and Knowhow and expertise of all second largest shareholder kimco, who already in this market segment. So when you take the combination of the two.
Speaker Change: We feel that we have everything it takes to come and have a value proposition for this specific segment.
Speaker Change: Would be extremely compelling.
Speaker Change: Not only in terms of performance, but in terms of market positioning as well.
Speaker Change: And there is actually growth in these maxis kudos segments EV right now in Europe in particular, so we are clearly targeting this segment next year.
Speaker Change: If I just may add from Harley Davidson perspective.
Speaker Change: Likewise has not invested into a new platform, but its using the existing is to platform.
Speaker Change: To launch line.
Speaker Change: Extensions and that is one of the major reasons why we are also operating with a smaller.
Speaker Change: Engineering team at this point not not investing into new platform, what bigger platform, which was originally planned.
Speaker Change: Which is the reason why we are likewise able to reduce the operating loss significantly to between $70 million to $80 million and the cash burn as well and therefore the focus right now is really getting from cross sells.
Speaker Change: <unk> cost of sales and <unk>.
Speaker Change: Reducing the loss per bike, but as I said, we will have to which we are watching this very carefully with a mid to long term perspective in mind and look at the risks and rewards going forward to decide how the business is going to be positioned in the future.
Speaker Change: Okay.
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.
Speaker Change: Yeah.
Speaker Change: [noise].