Tumbling US Sales Wreck Harley-Davidson

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When Harley-Davidson Inc. (NYSE: HOG) reported fourth-quarter, and full-year 2018 results before markets opened Tuesday, the iconic motorcycle builder posted breakeven adjusted earnings per share (EPS) on revenues of $1.15 billion for the quarter. In the same period a year ago, the company reported EPS of $0.47 on revenues of $1.83 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.28 and $1.05 billion in revenues.

For the full year, the company said it had EPS of $3.78 on revenues of $4.97 billion, compared with year-ago EPS of $3.43 and revenues of $4.92 billion. Analysts were looking for EPS of $3.84 and revenues of $5.06 billion.

Harley’s breakeven quarter included quarterly restructuring costs of $19.1 million and a full-year total of $102.4 million. The company said it expects another $50 million to $60 million in restructuring costs in 2019.

In June, the company said it planned to eat the 31% tariff cost on sales in Europe. Calling the tariffs “a tremendous cost increase,” Harley said that passing the cost along to dealers and retail customers “would have an immediate and lasting detrimental impact” on its European business. The plan worked to some extent, as sales in Europe rose by nearly 1,500 units. Worldwide unit sales were down 6.1% in 2018, and unit sales down 10.2% in the United States.

CEO Matt Levatich said:

The challenges we experienced during the year reinforced the commitment we have for our More Roads to Harley-Davidson accelerated plan for growth. Our plan addresses the challenges of today and the opportunities we see for growth ahead, and we are energized by the momentum we are building. New and different people, riders and non-riders, are taking notice of Harley-Davidson and the thrill of riding.

The company’s challenges in the United States include younger generations (Gen X, Gen Y and millennials) who are not as smitten with Harley’s expensive bikes as their boomer parents and grandparents. Harley also managed to get sideways with President Trump when the company announced plans to move some production overseas. Trump, who is hugely popular with current Harley riders, urged Harley owners and prospective buyers to boycott the company over the overseas move. The numbers indicate that Trump’s audience listened.

On the company’s conference call to announce third-quarter earnings last October, CEO Levatich said of Harley’s move offshore, “This is something we’ve never contemplated on doing. We have never imagined moving production for European customers outside the United States, and here we are.”

Harley stock traded down about 8% shortly after the noon hour Tuesday, at $33.80 in a 52-week range of $31.36 to $52.46. The consensus 12-month price target is $41.35.

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