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Sales to emerging markets a bright spot for Harley Davidson – Metro US

Sales to emerging markets a bright spot for Harley Davidson

By Rajesh Kumar Singh

CHICAGO (Reuters) – Harley-Davidson Inc on Tuesday reported stronger sales in China and other Asian markets and said U.S. sales should improve in the second half of the year, positive news that offset a cut to its full-year motorcycle forecast and sent shares up 5.3 percent.

“There’s a general sense of relief that the company’s earnings are expected to hold up fairly well despite lower motorcycle sales volume and operating margin guidance,” said Garrett Nelson, a senior equity analyst at CFRA.

Harley’s challenges in the United States, which accounts for more than half of the company’s sales, are well documented – core customers are growing older and outreach efforts to attract new and young riders have yet to show results.

In a reflection of the demographic headwind, the heavyweight motorcycle maker’s stock price has declined by 46% in the past five years. In comparison, the S&P 500 has gained 50%.

To offset weak demand at home, Chief Executive Officer Matt Levatich is trying to make deeper inroads into some of the fastest growing two-wheeler markets in Asia through lightweight motorcycles. The push is part of a strategy to get half of the company’s revenue from overseas by 2027.

The latest results show those efforts are bearing fruit.

While retail motorcycle sales were down in the developed markets, they were up in emerging markets on the back of a double-digit growth in China and ASEAN markets.

Levatich credited the performance to the company’s decision to set up a plant in Thailand to serve the Southeast Asian market as well as China. The decision had drawn flak from both U.S. President Donald Trump as well as Harley’s labor unions.

The move, however, has allowed the American icon to circumvent the region’s tariff barriers and price its bikes more competitively, resulting in a 77% jump in sales in Southeast Asia during the June quarter.

In the United States, sales fell again. But in a silver lining for the company, sales in the age group of 18-34 year-olds were up 2.7 percentage points.

Harley has been aggressively wooing the next generation of riders to turn around its fortunes. Its first electric motorcycle, LiveWire, scheduled to go on sale in September, is targeted at younger people who don’t prefer big motorcycles.

U.S. sales are forecast to be down in the second half of the year. The pace of decline, however, is expected to moderate.

The Milwaukee, Wisconsin-based company now expects to ship about 212,000 to 217,000 bikes in 2019, 5,000 units fewer than projected earlier.

The estimate of operating margin as a percent of motorcycle revenue for 2019 has also been revised down by 2 percentage points.

“We expected 2019 to be a difficult year and it is unfolding as such, especially in our developed international markets,” Chief Financial Officer John Olin told analysts on an earnings call.

Adding to the company’s troubles is Trump’s trade war. In retaliation for the tariffs the White House placed on imported steel and aluminum, the European Union increased import duties on U.S.-manufactured Harley bikes to 31% from 6% last June.

To mitigate the EU tariffs, Harley will begin shipping bikes from its Thailand facility. However, a delay in regulatory approval from the trading bloc means the benefits of lower tariffs would not reflect in earnings before the second quarter of 2020.

In the June quarter, Harley’s profits declined to $1.23 per share from $1.45 per share a year ago.

(Reporting by Rajesh Kumar Singh; Editing by Nick Zieminski)