Harley-Davidson profit skids, cuts yearly outlook on slowing demand
By Bianca Flowers and Kannaki Deka
(Reuters) -Harley-Davidson Inc. missed Wall Street expectations on Thursday as profit declined 18% in the second quarter and slowing consumer demand in North America, its largest market, prompted the company to cut its sales outlook for the year.
Despite disappointing earnings, shares for the Milwaukee-based company were up 5.3%. Gross margins improving 400 basis points from last year tamped down on market concerns, said Garrett Nelson, a senior equity analyst at CFRA Research, in an email.
"Investors are focusing on the positives -- significant gross margin improvement, ongoing share repurchases, and a view that [Harley's] guidance has been brought down to more achievable levels," he said.
Company executives partially attributed the earnings miss to production being temporarily halted in June at the company's York, Pennsylvania, assembly plant for the second time in just over 12 months due to a parts shortage.
The 120-year-old manufacturer revised its full-year revenue target and is anticipating sales growth for its motorcycles and related products to be flat to 3% from its previous forecast of 4% to 7%. Operating margins are expected to be between 13.9% and 14.3%.
Tighter credit for American borrowers is denting consumers' ability to purchase big-ticket leisure items, Harley Chief Executive Jochen Zeitz told investors on a conference call.
"We've seen clear impact on customer demand and affordability with higher interest rates giving pause to higher-credit customers," he said.
Harley's price increases and surcharges for popular models have lifted the manufacturer's earnings per share in previous quarters, but analysts say the slowing demand is also reflective of consumers becoming less tolerant of price hikes.
Harley has sustained margin growth through its wealthier customer base but hasn't been as successful luring younger riders with the release of its electric bikes, such as its more affordable Del Mar model that retails for nearly half the price point of its top-selling bikes.
The manufacturer also shifted its electric motorcycles unit sales for the year. Lower sales for its latest model, LiveWire ONE, and electric-powered balance bikes for kids translated to a 44% yearly decline in revenue.
Worldwide retail sales were up 3% year-over-year, while bike shipments declined 10%.
Net profit declined to $178 million, or $1.22 earnings per share, in the quarter ended June 30, falling below analysts' forecasts of $1.25 per share. Revenue for motorcycles and related products came in at $1.2 billion, a 4% drop from the year prior.
(Reporting by Bianca Flowers in Chicago and Kannaki Deka in Bengaluru; Editing by Sriraj Kalluvila and Conor Humphries)
