UPDATE 5-Harley slide on lower production, Europe worry

* Second quarter earnings $1.07/share v. $1.05 Wall St view
* Revenue up 14.6 percent
* CEO "cautious" on second half, Europe weak
* Says third-quarter shipments to decline
* Shares fall 3.7 percent

By Scott Malone
Aug 1 (Reuters) - Harley-Davidson Inc reported a
better-than-expected 29.7 percent rise in profit, but its shares
slid 3.7 percent as the its third-quarter motorcycle shipments
would be below prior-year levels as it retools a big U.S.
factory.
Executives with the U.S. manufacturer also told investors on
Wednesday that they are seeing slowing demand in northern Europe
in addition to the weakness in the South and that U.S. consumers
seemed to be becoming warier about making purchases after a
spike in motorcycle purchases earlier in the year.
"There has been a negative turn here in consumer
confidence," said Chief Executive Keith Wandell. "People are
concerned about the election and what's going to happen with the
economy, and so I think people are becoming a little more
conservative in the last several months."
Confidence is critical for the Milwaukee-based company,
which is trying to broaden the market for its high-end
motorcycles beyond a core of Baby Boomer enthusiasts to include
younger buyers, women and other new riders.
The company said it would ship 9 percent to 17 percent fewer
units as it retools its factories in York, Pennsylvania and
Kansas City. It kept its full-year target steady.
That is part of a long-planned reworking that Harley
officials say will allow them to quickly raise or lower
production in response to changing demand rather than building
motorcycles at a steady rate and seeing inventory levels build.
"The market is focusing on the lower-than-expected shipments
in the third quarter," said Morningstar analyst Jaime Katz.
"Maybe that disappointed a little ... it's a little bit of a
knee-jerk reaction."
Harley shares were down $1.61 to $41.62 on the New York
Stock Exchange in midday trade. Earlier they had fallen as much
as 12 percent, hitting their lowest point since December.

SALES DROP IN EUROPE
Europe stood out as the weak spot in the quarter, with unit
sales down 6.4 percent in the region, reflecting continued
declines in southern Europe and the United Kingdom and slowing
growth in northern European countries including Germany.
The company also faced pressure in Japan, where it lost
market share to rival Honda Motor Co.
"There's more price competition in Japan, in particular by
Honda," said Chief Financial Officer John Olin.
Harley's other rivals include Japan's Suzuki Motor Corp
and Yamaha Motor Co, as well as Italy's
Ducati, which is owned by Volkswagen AG.
Harley said second-quarter earnings rose 29.7 percent to
$247.3 million, or $1.07 per diluted share, compared with $190.6
million, or 81 cents per share, a year earlier.
Its profit came in 2 cents per share higher than analysts
had forecast, according to Thomson Reuters I/B/E/S.
Revenue rose 14.6 percent to $1.73 billion from $1.51
billion a year earlier.
The company held steady its full-year forecast, which called
for a 5 percent to 7 percent increase in the number of
motorcycles it ships to dealers, with gross margins of 34.75
percent to 35.75 percent.
"We believe June growth in particular was below consensus
expectations," said UBS analyst Robin Farley, noting that
unseasonably warm weather in the first quarter had pulled sales
forward out of the second quarter.