Harley Rises Most in a Year on Seeing $100 Million Tariff Relief
Harley has been caught in the crossfire of trade disputes since last year, when it was mulling shifting production overseas.
(Bloomberg) -- Harley-Davidson Inc.’s highly contentious plan to dodge tariffs by shifting some production overseas has been green-lighted just as the iconic American manufacturer really needed the relief.
The motorcycle maker’s shares surged the most in a year after it secured approval from the European Union to import bikes from Thailand and mitigate almost all of the $100 million hit it’s feeling from tariffs this year. U.S. President Donald Trump has at times attacked both Harley and the EU over the ordeal, which all springs from retaliation against his administration’s levies on steel and aluminum.
The reprieve that Harley expects starting in the second quarter of next year overshadowed cuts the company made to its forecasts for annual shipments and profit margin after another quarter of dismal sales. The Milwaukee-based company’s stock finished up 6.3% on Tuesday, the biggest gain since July 2018.
“We look forward to putting the burden and uncertainty of the European incremental tariffs behind us, and we look forward to restoring roughly a $100 million of annualized margin,” Chief Financial Officer John Olin said on a conference call with analysts.
The levies on bikes Harley ships from Thailand to the EU will be just 6%, down from the 31% rate that the trade bloc put on U.S.-made motorcycles last year, Chief Executive Officer Matt Levatich said on the call. The process of getting approval from the EU for its import plan took “considerably longer” than expected, he said, and kept the company from being able to see some savings before the end of this year.
Harley’s adjusted earnings per share in the second quarter of $1.46 beat the $1.41 average analysts expected, and were up slightly from a year ago. But operating income fell 26% in the quarter as the impact of tariffs eroded profits. That prompted Harley to lower expected 2019 operating margins from motorcycles to 6% to 7% of revenue, from a previous 8% to 9%.
Trade woes have compounded the longer-term demographic problems Harley faces as it struggles to attract younger buyers and reverse a 2 1/2-year slide in U.S. sales. Efforts to grow share overseas are being hampered by tariffs and weaker global demand, which suggests a turnaround is still going to be tough to pull off.
Harley also cut its shipment forecast this year to 212,000 to 217,000, from a previous range of 217,000 to 222,000.
“Plummeting demand in the U.S., which made up 58% of 2018 deliveries, is structural,” said Kevin Tynan, an analyst with Bloomberg Intelligence. “Achieving a goal of attracting 2 million new riders by 2027 will be challenging even without elevated tariffs.”
Retail sales in the U.S., Harley’s biggest market, fell 8%, the 10th consecutive quarter of declines, while worldwide sales dropped 8.4%. Deliveries to Europe, which had been spared from steep declines in recent quarters, tumbled 12.5%.
“Retail sales were far worse than expected overseas,” said Sharon Zackfia, an analyst with William Blair in Chicago, who called U.S. deliveries “lackluster.”
In an effort to showcase Harley’s technology and reach new and younger buyers, Levatich earlier this year rolled out LiveWire, the company’s first fully electric-powered motorcycle.
“We’re seeing some light but key developed markets remain troubled,” the CEO said on the earnings call. “Our approach is to maximize value while we continue to invest in further strength and growth.”
--With assistance from Tony Robinson.
To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net
To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Chester Dawson
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