By Bianca Flowers and Kannaki Deka
(Reuters) -Harley-Davidson Inc. revised its sales outlook for the year on Thursday after profit declined 18%, missing Wall Street’s expectations in the second quarter as a suspension of production affected motorcycle shipments.
Despite disappointing earnings, shares for the Milwaukee-based company were up 6.4%.
“Gross margins came in better than expected and the stock appears to have discounted many of the concerns,” Garrett Nelson, a senior equity analyst at CFRA Research, said in a research note.
Company executives 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)
