Harley Falls Most Since 2008 After Cutting Shipment Forecast

Harley-Davidson Looks to Expand Reach and Appeal
  • Motorcycle maker trims deliveries outlook by about 4%
  • Marketing, product development efforts boosted by $70 million

Harley-Davidson Inc., the biggest U.S. motorcycle maker, trimmed its shipments outlook again after competitor discounts cut into its sales. The shares fell the most in almost seven years.

Harley reduced its worldwide shipments forecast by 11,000 motorcycles to as few as 265,000, following a reduction in April to “protect the premium nature of our brand.” The company said its retail sales in the third quarter declined 1.4 percent, including a drop of 2.5 percent in its home market. Harley has had to fend off Asian and European rivals that are capitalizing on the dollar’s strength this year to slash prices.

Harley will boost marketing and product development by $70 million and cut an unspecified number of jobs to help pay for the increase. The Milwaukee-based company said it expects $30 million to $35 million in fourth-quarter expenses for employee separation and reorganization.

“Everything is hitting them at once,” Robin Diedrich, an analyst with Edward Jones & Co., said in an interview. “They’re doubling their marketing spending and investment in product development. That’s all hitting the bottom line.”

Harley posted third-quarter profit of 69 cents a share, below the 78-cent average of 18 estimates compiled by Bloomberg. Revenue from motorcycles and related products rose 0.9 percent to $1.14 billion, trailing the $1.21 billion projection.

The shares fell 14 percent to $48.25 at the close in New York, the steepest daily decline since November 2008. They had lost 15 percent this year through Monday.

‘Competitive Environment’

“We expect a heightened competitive environment to continue for the foreseeable future, and now is the time for us to dial things up,” Chief Executive Officer Matt Levatich said in a statement.

Harley lowered its 2015 operating margin forecast to 16 percent to 17 percent for the motorcycles segment from 18 percent to 19 percent.

Harley said it will increase spending on product development by 35 percent and on customer-facing marketing by 65 percent compared with this year. Product development will get twice as much money as in 2014, Levatich said in a conference call with analysts.

The company aims to add 150 to 200 dealerships in emerging markets by 2020, Levatich said in the call.

The company’s product-safety recalls have cost $35 million so far this year, Chief Financial Officer John Olin said on the call.

Harley anticipates a 3 percent to 5 percent increase in shipments next year, Olin said.

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