April 13 (Bloomberg) -- Harley-Davidson Inc., the largest U.S. motorcycle maker, cut its forecast for 2005 profit after first-quarter sales in the U.S. declined. The shares fell as much as 19 percent.

Profit in 2005 will grow 5 percent to 8 percent, down from a previous forecast of about 15 percent, Milwaukee-based Harley- Davidson said in a statement. The average forecast of analysts in a Thomson Financial survey was for a 12 percent rise. First- quarter sales fell almost 1 percent in the U.S., the company's biggest market.

Harley-Davidson, which under Chief Executive Jeff Bleustein quadrupled profit from 1998 to 2004 and tripled its motorcycle sales volume over the past decade, has posted an unbroken string of quarterly earnings gains stretching back to 1997. For a decade investors have been willing to pay a premium for its shares in part because demand for its cruisers outpaced supply.

``For years, Harley never knew its true growth rate,'' Edward Aaron, an analyst with RBC Capital Markets in Denver, said in a note to investors. ``Harley's underlying growth rate is lower than management or investors perceived.'' Aaron said the decline in the forecast ``runs much deeper'' than the drop in first-quarter sales.

Harley-Davidson gets about 80 percent of its sales from the U.S. and about 10 percent from Europe, according to company revenue figures. The shares fell $9.81, or 17 percent, to $48.96 at 10:15 a.m. in New York Stock Exchange composite trading. It's the biggest drop since 1991.

First-quarter net income increased to $227.2 million, or 77 cents a share, from $204.6 million, or 68 cents, a year earlier, Harley-Davidson said in the statement. Sales of motorcycles such as Fat Boy and Road King cruisers rose 6 percent to $1.24 billion.

Shipments Slow

The company cut its forecast for 2005 shipments by 3 percent to 329,000 motorcycles. That's up 3.8 percent from 317,000 in 2004. The earlier forecast was for 339,000 shipments this year.

U.S. sales ``have been relatively flat with the same period last year, falling short of our expectations,'' Chief Financial Officer Jim Ziemer, who will take over as chief executive later this month, said in a statement. ``We feel it is prudent to limit short-term production growth.''

First-quarter sales rose 21 percent in Europe, while Japan sales increased 11 percent. The motorcycle maker said in January it was cutting prices in Europe and offering incentives of $1,000 in accessories for purchasing certain models in the U.S. in January and February.

Concern

``We were keeping an eye on manufacturer's recommended sticker prices at the dealerships and incentives and our feeling was it was starting to look more and more like an auto company,'' said Tim Edwards, an analyst with GW Hennsler & Associates in Marietta, Georgia, which sold its Harley-Davidson shares on March 9. ``We were growing concerned about their ability to be able to live up to forecasts.''

Aaron downgraded his rating of Harley-Davidson's shares to ``sector perform'' from ``outperform'' after the company lowered its 2005 production forecast and a goal of building 400,000 cycles in 2007.

Robin Farley, a UBS Investment Research analyst in New York, also said she was reviewing her ``buy'' rating on the shares and estimates for the company's earnings for the rest of the year.

Sales of Harley-Davidson brand motorcycles rose 6.6 percent in the quarter to $979 million, while sales of the company's Buell sport-bike brand fell 9 percent to $20 million. Sales of Harley-Davidson parts and accessories rose 4.6 percent to $177 million and clothing and general merchandise sales increased 9.3 percent to $59.5 million.

Ziemer is succeeding Bleustein, who has held the post since 1997. The company hasn't had a quarterly profit decline since that year. It sells about half of all U.S. motorcycles with engines 660cc or larger and about one in four worldwide. Honda Motor Co. is the world's largest motorcycle maker.

The company was expected to post a first-quarter profit of 76 cents a share, the average estimate of 18 analysts surveyed by Thomson Financial.

(Harley-Davidson's conference call on the quarterly results is at 9 a.m. New York time and is being Webcast at http://www.harley-davidson.com.)

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

Last Updated: April 13, 2005 10:21 EDT