Can Harley-Davidson Financial Services Help Boost Sales?



Harley-Davidson’s Financial Services

Harley-Davidson (HOG) is a global leader in heavyweight motorcycle manufacturing. These motorcycles come with expensive price tags compared to mass-targeted motorcycles.

To financially support its customers in purchasing these motorcycles, the company provides retail consumer loans and financing options through its financing arm. In this part, we’ll find out how Harley-Davidson Financial Services, or HDFS, performed in the second quarter of 2016.

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Higher revenues, higher credit losses

In 2Q16, Harley-Davidson’s revenues from HDFS increased by 10.0% YoY (year-over-year) to $190 million from $173 million earlier. HDFS plays a crucial role by providing attractive financing options to Harley customers. Notably, 62.2% of Harley-Davidson motorcycle buyers in the US used this service in fiscal 2015.

Major automakers (VCR) General Motors (GM), Toyota (TM), Ford (F), and Volkswagen (VLKAY) also provide financing facilities to their customers with their own financial services arms.

As you can see in the chart above, the company’s retail credit losses increased in 2Q16. According to the company, this “increase in retail credit losses was primarily driven by higher losses on loans in oil-dependent areas and lower used bike values at auction.”

HDFS’s operation income

Similarly, HDFS’s operating income also increased by 9.4% during the quarter to $89.6 million from $81.9 million in 2Q15. At the end of 2Q16, HDFS’s cash and cash equivalents stood at $419 million.

HDFS’s net interest income increased by $5 million in 2Q16. During the 2Q16 earnings call, Harley-Davidson’s President and CEO, Matthew S. Levatich, said that “this increase was driven by higher receivables, partially offset by higher borrowing costs and lower yields due in part to the 2015 low-interest rate promotional activity.”

Continue to the next and final part for a look at Harley-Davidson’s valuation multiples.


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