Business

Harley’s renewed focus on touring bikes drives upbeat forecast

Harley-Davidson Inc on Monday raised its full-year earnings forecast after smashing analysts’ quarterly profit estimates, vindicating Chief Executive Jochen Zeitz’s decision to focus on more-profitable touring bikes at the expense of cheaper entry-level models.

The motorcycle maker’s shares, which have jumped 36% since the last earnings report in February, were up about 10% at $44.38 on Monday after earlier rising as much as 15%.

The company, however, also received a setback in the European Union – its second-biggest market – where all of its products, regardless of origin, will be subjected to a 56% import tariff from June following a new EU ruling.

The ruling revokes the credentials that currently allow Harley to ship certain motorcycles to the EU from its international manufacturing facilities at a 6% tariff.

The Milwaukee, Wisconsin-based company said it would lodge an “immediate” legal challenge to what it dubbed “an unprecedented situation”.

Harley warned that a failure to mitigate the additional EU tariffs would also impact its operating profit this year, which is forecast to be 7%-9% – up 200 basis points from the previous guidance.

In the latest quarter, Harley reported a 31% year-on-year jump in retail sales in the United States. It is the first quarterly sales increase in its biggest market in six years.

The sales, however, were helped by a favorable statistical base as most of its dealerships in the United States were hit by pandemic-linked lockdowns last year.

Brian Yarbrough, an analyst at EdwardJones, said the company’s decision to reduce inventory and switch the introduction of new models to January from August, together with stimulus payments to American households, have helped the company’s earnings.

However, it still faces the challenge of attracting younger consumers to help drive sustainable sales growth, Yarbrough said.

That may be one reason why Harley’s shares are still down about 40% from their 2014 highs, as some investors reckon the company’s focus on profit doesn’t address how to expand the brand’s appeal beyond middle-aged and affluent riders.

Under Zeitz, Harley has done away with some of the cheaper entry-level models and is ramping up investment in touring, large cruiser and trike bike segments that drive company profit.

To build brand loyalty and attract new customers, the company is rolling out a certified pre-owned bike program, adapting a strategy carmakers have been following for years.

Harley expects revenues from its motorcycle business to surge 30% to 35% in 2021, compared with a 20% to 25% increase estimated in February.

Adjusted earnings for the quarter came in at $1.68 per share, above the 88 cents per share estimated by analysts in a Refinitiv survey.