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Harley-Davidson
Inc.
said U.S. motorcycle sales would remain weak through 2019, as company executives wait for the results of a new growth strategy focused on younger riders.
Executives called for patience Tuesday as Harley rolls out new models and expands programs to increase ridership, particularly among younger city-dwellers. Harley is pursuing this new group of potential customers to try to offset a core customer base of aging riders who are buying fewer new motorcycles. Harley is on course this year to log its fourth straight year of lower sales in the U.S., its largest market.
“It’s not a quick fix,” Chief Executive Matt Levatich told analysts during a conference call. “We have a tough couple of years to get through until some of these products start to become tailwinds for the company.”
In another issue that will weigh on the company’s earnings this quarter, Harley on Tuesday announced a recall of 238,300 recent-model motorcycles world-wide due to a clutch issue. The company expects to take a $35 million charge related to the recall.
The company’s shares were recently down 3.7% at $37.27
Harley this summer revealed plans to introduce 16 new motorcycle models by 2022. Many of the new bikes will be targeted at parts of the motorcycle market that Harley currently doesn’t serve, including electric motorcycles, racing-style sport bikes and touring motorcycles capable of operating on paved and unpaved roads. Harley expects the new modes will add as much as $1.5 billion to annual revenue over five years.
Harley reported that retail sales of motorcycles in the U.S. fell 13% in the third quarter from a year earlier to 36,220 motorcycles. In the first three quarters of the year, sales were down 10% from the year-earlier period.
“We expect a continuing challenge in the U.S. motorcycle industry into next year,” Chief Financial Officer John Olin said.
Harley said that tariffs could cost the company about $120 million next year with the majority of that coming from European Union tariffs on U.S.-built bikes exported to Europe. The company plans to move production of motorcycles destined for the European market out of the U.S. to avoid the EU tariff, levied earlier this year in retaliation for U.S. tariffs this year on European steel and aluminum. The company expects tariffs to cost it $43 million to $48 million this year.
The Milwaukee-based company’s third-quarter results beat revenue and profit expectations. Rising wholesale shipments of its pricier motorcycles helped to propel a 17% increase in revenue during the quarter.
The company shipped 51% more touring bikes, typically the company’s most expensive models. Shipments of lower-priced cruiser-type bikes were down 7% from a year ago. The favorable mix of higher-margin bikes pushed up Harley’s operating margin for the quarter to 5.8% from 1.8% last year. The company said it still expects wholesale motorcycle shipments of 231,000 to 236,000 the year, unchanged from previous guidance.
Harley earned a profit of $113.9 million, or 68 cents a share, in the third quarter, up from $68 million, or 40 cents a share, a year earlier. After excluding some manufacturing costs, Harley said it earned 78 a share, compared with the 53 cents a share predicted by analysts. Revenue from motorcycles and related products was $1.12 billion. Analysts had predicted $1.07 billion.
Write to Bob Tita at [email protected] and Micah Maidenberg at [email protected]
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