Harley-Davidson Inc (HOG.N) 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 (7267.T).
"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 (7269.T) and Yamaha Motor Co (7272.T), as well as Italy's Ducati, which is owned by Volkswagen AG (VOWG_p.DE).
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.
(Reporting By Scott Malone; Editing by Maureen Bavdek, Sofina Mirza-Reid and Leslie Gevirtz)