Harley Profit Rises as Finance Unit Makes Up for Slumping Motorcycle Sales

Harley-Davidson Inc., the biggest U.S. motorcycle maker, said third-quarter profit more than doubled as earnings in its finance unit made up for declining sales worldwide.

Net income rose to $88.8 million, or 38 cents a share, from $26.5 million, or 11 cents, a year earlier, Milwaukee-based Harley said today in a statement. The average estimate of seven analysts surveyed by Bloomberg was 36 cents. Revenue fell 1.9 percent to $1.09 billion, and the shares dropped 6.8 percent.

Chief Executive Officer Keith Wandell, who has cut costs by renegotiating labor contracts, said Harley is transforming itself to “succeed at today’s volumes.” The financial-services unit, which makes loans to motorcycle buyers, had operating income of $50.9 million compared with a $31.5 million loss a year earlier. Harley’s retail sales slid 7.7 percent.

“Motorcycle demand is slumping, and that slump has yet to show signs of abating,” Brent Miller, an analyst with Gradient Analytics in Scottsdale, Arizona, said in an interview. “That’s a bit concerning. How long can a company continue to count on its financial services arm to fill in that gap of dragging demand?”

Harley declined $2.20 to $30.30 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 20 percent this year.

The new labor agreements at factories in Pennsylvania and Wisconsin reduce jobs, give new employees fewer benefits and will let Harley add and cut workers based on demand. The Wisconsin contracts start in 2012.

MV Agusta

Excluding discontinued operations such as the MV Agusta line of motorcycles, profit rose to 40 cents a share from 24 cents a year earlier.

Harley raised the low end of its production plan for this year. It now expects to ship 207,000 to 212,000 motorcycles to dealers, a decrease of as much as 7.2 percent from last year. In July, it forecast shipments of 201,000 to 212,000, as much as a 9.9 percent decrease. Deliveries fell 27 percent last year to 223,000 from 303,500 in 2008.

Most motorcycle sales are discretionary purchases, which consumers reduced as the economy slowed, Wandell said today.

“All of our market data and research indicates there’s still a tremendous affinity for the brand and a desire to own Harley-Davidson motorcycles,” Wandell said in an interview. “It’s a matter of getting some help with the economy on top of everything else we’re doing with our strategy.”

Harley’s U.S. retail sales in the three months ended Sept. 26 fell 9.4 percent from a year earlier. Industrywide retail sales of heavyweight motorcycles fell 14 percent, Harley said.

To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net.

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