Japan disruption hits Harley-Davidson

CHICAGO (Reuters) - Harley-Davidson Inc (HOG.N) trimmed its full-year forecast for motorcycle shipments, citing problems with supply of an electronic component after the earthquake and tsunami in Japan, sending its shares to a near three-month low.

The company reported quarterly earnings that missed expectations and noted lingering economic weakness as a potential drag on U.S. demand for motorcycles this year.

"It's a discretionary category it's in," said R.J. Hottovy, director of consumer research at Morningstar. "While we've seen some confidence at the higher end, it's still a difficult situation."

Harley-Davidson declined to name the manufacturer of the Japanese-made part that could hold up shipments. But it said on Tuesday it was looking at other options for obtaining the microchip that helps run displays on the Harman-Kardon audio radios featured on its touring motorcycles. Harley-Davidson did not disclose the cost of the chip.

"These are sub-tier suppliers. In other words, we buy our radios from a U.S. supplier. But they then source chips and other components from sub-tier suppliers who in turn might source something from yet another sub-tier supplier," Chief Executive Keith Wandell told Reuters in an interview.

"We felt that we have great mitigation plans in place," Wandell said. "Again, there could be a timing issue. And that's why we were just a little bit conservative."

Harley lowered the bottom end of its full-year motorcycle shipment forecast to accommodate a slight supply chain interruption. The new forecast is for the company to ship 215,000 to 228,000 Harley-Davidson motorcycles to dealers and distributors in 2011. That outlook is adjusted from 221,000 to 228,000 motorcycles.

Harley-Davidson's shares were down 4.1 percent at $38.08 in afternoon trade, after falling as much as 5.7 percent earlier in the session. (For a graphic on Harley Davidson's earnings and share price: r.reuters.com/pex98r )

"It's had a good run, and any kind of downward guidance is going to put pressure on the stock," Morningstar's Hottovy said.

The company said it expects to ship 62,000 to 67,000 bikes in the second quarter.

LINGERING HEADWINDS

Harley-Davidson is seeing renewed demand for its motorcycles as the economy recovers from a downturn. The motorcycle maker reported a 3.5 percent increase in quarterly sales of new motorcycles.

"We are pleased by the growth of our dealers' new motorcycle sales on a worldwide basis, led by strength in Europe, even as we continue to encounter some headwinds in the U.S. related to the challenging macro-economic conditions," Wandell said in a statement.

In particular, Wandell noted stubbornly high unemployment -- 8.8 percent in the United States -- and the diminished value of home equity that customers often use to buy motorcycles.

Harley-Davidson said first-quarter income rose to $119.3 million, or 51 cents per share, compared with $68.7 million, or 29 cents per share, in the year-ago period.

Analysts on average had expected the Milwaukee-based company to report a profit of 53 cents per share, according to Thomson Reuters I/B/E/S.

Harley-Davidson said first-quarter earnings improvements were driven largely by income from financial services, which soared 154.6 percent compared with the first quarter of 2010.

Harley-Davidson said its financial services segment earned $67.9 million in the quarter, up from $26.7 million in the year-ago quarter. The increase was due to continued improvement in credit performance, the company said.

(Reporting by Kyle Peterson, editing by Maureen Bavdek and Matthew Lewis)