Little mention of tariffs in Harley earnings announcement

Company to announce accelerated strategy on July 30

Harley-Davidson headquarters
Harley-Davidson Inc.'s headquarters in Milwaukee.

Last updated on July 2nd, 2019 at 09:08 pm

Milwaukee-based Harley-Davidson’s announcement of second quarter results contained little mention of its decision to move production of European motorcycles in response to tariffs, which has drawn the ire of President Donald Trump and thrust the company into the international spotlight.

Harley announced in June it would move production of motorcycles destined for Europe to facilities in Thailand, India and Brazil. The company cited an increase in European Union tariffs on its motorcycles that would have added $2,200 to the average price of a motorcycle. The decision prompted Trump to repeatedly tweet his grievances with the company, including a pledge to work with its competitors.

The plan is not specifically mentioned in Harley’s earnings release and there are only two mentions of tariffs. The first notes the company cut its guidance for operations margin by 0.5 percentage points “given the expected impact of tariffs in 2018.” The second calls out its ability to “manage the impact of new or adjusted tariffs” as a factor in meeting its expected results.

Harley’s second quarter results did come in ahead of analyst expectations, with adjusted earnings of $1.52 per share and revenue of $1.53 billion beating estimates by 18 cents and $120 million respectively, according to Seeking Alpha.

Matt Levatich

“Our results in the second quarter reflect business performance that is in line with our expectations. With the focus of every employee and dealer, we are making progress building the next generation of Harley-Davidson riders in line with our long-term objectives. Our manufacturing optimization, demand-driving investments and commitment to manage supply in line with demand remain on target and continue to strengthen our business,” said Matt Levatich, Harley president and chief executive officer.

The results, however, continued to show the challenges the company faces from increased competition and changing ridership demographics.

Shipments of motorcycles declined 11.3 percent to 72,593 in the quarter and motorcycles revenue was down 4 percent to $1.2 billion. Consolidated revenue was down 3.4 percent to $1.71 billion as financial services revenue was flat.

Retail sales of motorcycles declined 3.6 percent worldwide, including a 6.4 percent drop in the United States.

Sales in Europe were actually up by 655 motorcycles or 4.2 percent to 16,012 ahead of the tariff announcement.

The company’s net income dropped 6.4 percent to $242.3 million, including nearly $14.8 million in restructuring costs and inefficiencies related to the closure of its Kansas City facility.

Harley has seen a steady drop in motorcycle shipments and sales in recent years driven by a number of factors, including increased competition from the revived Indian Motorcycle brand and lower used motorcycle prices as older riders exit the sport.

To address the challenging results, Harley laid out a 10-year plan that called for creating 2 million new riders in the U.S., grow international business to 50 percent of annual volume and launch 100 new “high-impact” models.

The company said Tuesday it would announce plans to accelerate the strategy on Monday of next week.

Levatich said the company would “take bold actions that better leverage our vast capabilities and competitive firepower.”

“We are tapping into the spirit that drove our founders back in 1903,” he added. “Our plan will redefine existing boundaries of our brand – reaching more customers through new types of products and channels and doing so in a way that reinforces all we stand for as a brand and as a company. We’re out to secure the legacy of Harley-Davidson freedom for the next generations of riders.”

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at 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.

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