Harley-Davidson sees decline in quarterly sales and profit

Milwaukee Journal Sentinel

MILWAUKEE — With motorcycle sales stuck in low gear and too many unsold bikes left over from 2016, Harley-Davidson Inc. on Tuesday reported sharp declines in revenue and profit for the first quarter of the year.

Harley said it had $186.4 million in net income, or $1.05 per share, for the period that ended March 26, down more than 25 percent from $250.5 million, or $1.36 a share, in the same period a year ago.

The average estimate of 12 analysts surveyed by Zacks Investment Research was for 99 cents per share.

Revenue in the recent quarter was $1.5 billion, down from $1.75 billion in the first quarter of 2016.

Harley, which controls about half of the U.S. heavy-weight motorcycle market, said it shipped about 15 percent fewer bikes to dealerships in the quarter as it culled remaining 2016 inventory.

In an unusual move, the company has offered its dealers incentives to clear out the leftover motorcycles. It has shipped fewer 2017 bikes, giving consumers an incentive to buy last year’s models still in stock.

Harley has purposely constrained the supply of its hottest-selling new models, including bikes with the new Milwaukee Eight engine, said Chief Financial Officer John Olin. “It shows our resolve to make sure that we are aggressively managing supply in line with demand,” Olin said.

Harley’s motorcycle sales in the U.S. were down 5.7 percent in the quarter compared with a year ago, with the overall U.S. industry down for the same period. Harley and other makers of cruiser and touring motorcycles have seen their sales fall as the economy has slowed in some states, such as Texas, where oil and gas production is down.

Increased competition has become the new normal for Harley as other bike manufacturers discount products to boost sales and take advantage of foreign currency differences.

Still, the company’s U.S. market share for the quarter was 51.3 percent in the heavyweight segment, up from a year ago as it rolls out popular new models including the 2017 Road King and Street Rod.

“First-quarter U.S. retail sales were in line with our projections, and we remain confident in our full-year plan, despite international retail sales being down in the quarter,” said CEO Matt Levatich.

“We are very pleased with our continued growth in the U.S. market share and the progress our U.S. dealers made in reducing their inventory of 2016 motorcycles in the quarter,” he added.

Harley’s international sales were down behind weaker business in Asia, partially offset by strong growth in Latin America.

The next few months will be especially important for the company as it enters the riding season in most of its markets.

“I think they were caught off guard” by the number of leftover 2016 bikes, said analyst Robin Diedrich of Edward Jones Co. Those have to be cleared out to make room for 2017 models and also to pave the way for 2018 model-year bikes coming later this year.

“It definitely made for a tough first quarter,” Diedrich said.

Historically, the company has done a good job of balancing motorcycle supply and demand, cutting production so that dealerships aren’t flooded with bikes they can’t sell.

Until the second half of last year, the U.S. motorcycle industry had been strong for about five years. It’s much more challenging now, even as consumer confidence remains high.

Sometimes there’s a disconnect between consumer confidence numbers and actual spending, according to Diedrich.

“We don’t think the spending is as high as the confidence would lead you to believe,” she said.

Harley’s 10-year strategy is to train 2 million new U.S. riders, grow international business to 50 percent of sales, and launch 100 new “high impact” motorcycles.

For the remainder of 2017 the company sai it expects full-year bike shipments to be flat or down modestly as it works through some difficult months. “As we exit the first quarter, we feel very good about our overall inventory levels and product mix. We are ready for the spring selling season,” Olin said.