Harley execs confident in long-term strategy as profit drops 40%

Retail sales down nearly 7% worldwide

Problems for Harley-Davidson include difficulty modeling future demand
Riders depart Harley-Davidson’s Milwaukee headquarters on the first leg of the MDA Ride for Life.

Milwaukee-based Harley-Davidson Inc. saw sales decline around the world during the third quarter and the company’s profit declined by 40 percent, but executives said Harley outperformed the industry and expressed confidence in their long-term strategy.

Riders depart Harley-Davidson’s Milwaukee headquarters on the first leg of the MDA Ride for Life earlier this year.

“We’re bringing everything we have to bear in this marketplace to not only grow ridership, but to compete for share and to do it profitably,” said Matt Levatich, Harley president and chief executive officer. “And I think we’re a formidable competitor.”

The motorcycle industry in the U.S. has seen eight straight quarters of declines as lower used motorcycle prices eat into sales of new bikes and older riders exit the sport. Harley has unveiled plans to introduce 100 new models over the next 10 years and add 2 million new riders in the United States.

Those plans may serve the company well over the longer-term, but they will take time to show sustained benefits. The last several quarters have seen the company work to reduce dealer inventories following an industry downturn in mid-2016 followed by the introduction of a new engine for 2017. Executives expressed confidence the inventory was closer to being under control as the 2018 model year gets underway.

In the third quarter, Harley reported a 40 percent drop in net income to $68.2 million and earnings declined from 64 to 40 cents per diluted share.

Revenue was down nearly 12 percent to $962.1 million as worldwide motorcycle retail sales declined 6.9 percent to 64,209. Retail sales in the U.S. were down 8.1 percent, compared to 9.2 percent for the industry as a whole.

“The continued weakness in the U.S. motorcycle industry only heightens our resolve and the intensity we are bringing to the quest to build the next generation of Harley-Davidson riders,” Levatich said.

The company’s performance during the quarter was impacted by a number of things, including Hurricanes Harvey and Irma in Texas and the southeast. John Olin, Harley chief financial officer, said it was difficult to estimate exactly the exact impact of the hurricanes, but suggested it accounted for 1.5 to 2 percent of the U.S. decline. Those figures would equate to around 680 to 910 motorcycles.

Profit margins during the quarter were impacted by the startup costs related to Harley’s new line of Softail models, which the company says is its largest product development effort ever.

“The lines didn’t go up as quickly as we had wanted, largely because of supply of all the changed products coming in,” Olin said. “Suppliers didn’t necessarily keep up as much as we’d like, that created a fair amount of overtime and additional costs in the quarter.”

He added those costs would be a one-time occurrence and the company exited the quarter with good production speeds and quality.

The company also saw sales down internationally by 4.6 percent with weakness in the Middle East, Africa, Japan and Australia while Europe and emerging markets were up.

Levatich said the company has a lot of good measures of brand health internationally and isn’t concerned about changing views of American foreign policy impacting the company.

“Clearly the Harley brand is inextricably linked with the ideals of America which are freedom, independence, and strength,” Levatich said. “We’re, in all of our communication, highlighting those core human values of our brand versus the flag waving attributes, because those are fundamental, high-impact, high-value human needs, everywhere we see in the world people do make that connection with the Harley brand.”

The company is also continuing its efforts to use apparel to help raise awareness of the brand, particularly in Asia. Levatich said the company has a new partner and plans to open 100 apparel stores over four years starting in 2018 in China, Malaysia and India.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.