Harley Davidson 2013 Annual Report Download - page 25

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25
Outlook(1)
On January 30, 2014 the Company announced the following expectations for 2014.
The Company expects to ship 279,000 to 284,000 Harley-Davidson motorcycles during 2014, up approximately 7% to
9% over 2013. This includes 76,500 to 81,500 Harley-Davidson motorcycles that it expects to ship in the first quarter of 2014,
an increase of approximately 2% to 8% over the first quarter of 2013. The Company believes the underlying worldwide
demand fundamentals for Harley-Davidson motorcycles are strong and expects that motorcycle shipment growth in 2014 will
be driven by:
• The strong appeal of the Harley-Davidson brand
• Great model-year 2014 and 2015 motorcycles
• The introduction of the new Street motorcycles, which represent 7,000 to 10,000 of the 2014 unit shipment estimate
• Continuing outreach momentum in the United States
• International expansion
During the last several years, the Company has provided guidance on Motorcycles segment gross margin. The gross
margin guidance was provided given the Company's focus on restructuring which was largely aimed at improving gross margin
profitability. Since 2009, the Company has significantly improved Motorcycles segment gross margin from 32.3% to 35.4% in
2013. However, as the Company exits its restructuring activities, it will shift its focus to operating margin as a key financial
metric going forward. The Company believes Motorcycles segment operating margin will more appropriately capture the
Company's opportunities to leverage both gross margin and its investment in selling, administrative and engineering expenses.
The Company expects 2014 operating margin percent for the Motorcycles segment to be between 17.5% and 18.5%
compared to 16.6% in 2013. The Company believes operating margin percent improvement will be driven by a modest increase
in gross margin, as well as lower selling, administrative and engineering expenses as a percent of revenue. The Company
expects that 2014 gross margin percent will be positively impacted by additional restructuring savings of approximately $10
million, lower temporary inefficiencies of approximately $8 million, incremental margin behind higher production and lower
retirement plan expenses. The Company also expects these positive impacts to be partially offset by unfavorable product mix,
the impact of pricing net of higher cost related to the significant content added to the 2014 model year motorcycles and foreign
currency exchange. While the Company anticipates pressure on gross margin percent from product mix and pricing, the
Company expects that both product mix and pricing will positively impact gross profit dollars in 2014. The Company expects
that changes in foreign currency exchange rates in 2014 will adversely impact both gross margin percent and gross profit
dollars. With respect to the first quarter of 2014, the Company expects gross margin to be down slightly from 2013 due to start-
up costs associated with Street motorcycles which the Company expects to recognize during the first half of 2014. The
Company expects selling, administrative and engineering expenses to grow in 2014 as it continues to invest in future growth
opportunities, but will decrease as a percent of revenue as the Company leverages its current spending.
The Company expects operating income for the Financial Services segment to be down modestly in 2014 as compared to
2013. Going forward, the Company continues to expect pressure on Financial Services operating income as a result of modestly
higher credit losses and tightening net interest margins due to increasing competition and higher year-over-year borrowing
costs.
The Company’s capital expenditure estimates for 2014 are between $215 million and $235 million. The Company
anticipates it will have the ability to fund all capital expenditures in 2014 with cash flows generated by operations.
The Company also announced on January 30, 2014 that it expects the full year 2014 effective income tax rate to be
approximately 35.5%. The increase over 2013 is primarily due to the absence of the U.S. Federal Research and Development
tax credit in 2014. This guidance excludes the effect of any potential future adjustments such as changes in tax legislation or
audit settlements which are recorded as discrete items in the period in which they are settled.