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How Harley’s Financial Services Division Performed in Q1 2019

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HOG’s operating income

In the first quarter, Harley-Davidson’s (HOG) operating income fell 37.3% YoY (year-over-year) to $108 million in its Motorcycles and Related Products segment. Currency headwinds and a lower contribution of touring motorcycles to the company’s total shipments were some of the factors that affected its profitability in the quarter.

Being an American company, Harley reports its earnings in US dollars, which is why it needs to convert its international market revenue to US dollars. The strengthening of the US dollar compared to other key currencies, including the euro and the British pound, affects the company’s international market revenue and profitability.

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Harley-Davidson Financial Services

Harley-Davidson provides financing options and loans to its retail customers to financially support them in purchasing its motorcycles. These attractive financing options are provided by the company’s HDFS (Harley-Davidson Financial Services) division. HDFS provides wholesale financing services to its dealers in the United States and Canada.

Other legacy automakers (VCR) General Motors (GM), Toyota Motor (TM), Volkswagen (VLKAY), and Ford Motor Company (F) also provide financing options to their customers via their own financial services arms.

HDFS’s first-quarter performance

In the first quarter, Harley-Davidson’s revenue from its HDFS division rose ~5.9% YoY to $189 million compared to $178 million a year ago.

On the negative side, HDFS’s operating income fell 7.6% YoY to $59 million in the quarter from $64 million in the first quarter of 2018. In the first quarter, HDFS’s retail motorcycle loan annualized loss rate on its balance sheet receivables rose slightly to 2.22% compared to 2.15% a year earlier. Despite Harley-Davidson’s higher first-quarter revenue from financial services, a sharp drop in its operating income in the segment could be seen as a negative factor.

At the end of the first quarter, HDFS’s cash and cash equivalents stood at $365 million, significantly lower than its cash and cash equivalents of $659 million at the end of the fourth quarter of 2018.

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