January 31, 2017 / 12:08 PM / in a year

Harley forecasts dull 2017 after shipments fall short

(Reuters) - Harley-Davidson Inc (HOG.N) said motorcycle shipments for 2016 fell short of its estimates, citing tough global competition, and the company forecast shipments for this year to be flat to down modestly.

A Harley-Davidson softail Breakout fuel tank and logo are seen at Harley-Davidson of Frederick in Frederick Maryland, October 23, 2012. REUTERS/Gary Cameron

The motorcycle maker said dealers in the United States still had too many 2016 models at the end of the fourth quarter, which led Harley to limit shipments of its 2017 models, including higher-margin touring motorcycles with the new “Milwaukee-Eight” engine.

The company, which commands about 51.2 percent of the U.S. big-bike market, would focus on selling 2016 motorcycles through the first quarter of 2017, Chief Financial Officer John Olin said on a conference call.

Milwaukee-based Harley also said a strengthening U.S. dollar against its key currencies, including the euro and the Japanese yen, would negatively affect 2017 gross margin.

“We are concerned about currency going forward and expect that to be a $20 million to $25 million hit (to gross margin in 2017),” Olin added.

Harley said it expects its 2017 gross margin to be in line with 2016 levels.

The company also said it would ship 66,000-71,000 motorcycles in the first quarter of 2017, down 20.5-14.5 percent from the year-ago period.

Harley’s shipments have been hurt as competitors such as Japan’s Honda Motor Co Ltd (7267.T) and Indian motorcycle maker Polaris Industries Inc (PII.N) cut prices to entice buyers.

The company said it expects to see “increasing competitive discounting” by rivals in 2017 in the United States, its biggest market. Harley’s other rivals include Kawasaki Heavy Industries Ltd (7012.T) and Germany’s Bayerische Motoren Werke AG (BMWG.DE).

Harley’s shares fell as much as 5.4 percent to $54.79 on Tuesday.

SLOWING DEMAND HURTS RESULTS

Demand for Harley’s motorcycles in the United States has been slowing as many Americans choose to spend their disposable income on automobiles, rather than motorcycles.

In October, Harley said it planned to slow production in the fourth quarter to work through high inventory levels and reduce its workforce.

The move which cost Harley $18.2 million is expected to generate savings of about $30 million in 2017, the company said.

Harley shipped 262,221 motorcycles in 2016, below its expectation of 264,000-269,000 units.

Shipments fell 11.9 percent in the fourth-quarter ended Dec. 31, the company said.

However, revenue per motorcycle was up about $546 at $16,151.

Retail sales in the United States, where its core baby boomer demographic is aging, were flat in the quarter compared with a year earlier.

The motorcycle maker, which repurchased 1.7 million shares of its common stock for $91 million in the quarter, earned 27 cents per share, missing analysts’ average estimate of 31 cents, according to Thomson Reuters I/B/E/S.

At the end of 2016, Harley had 19.3 million shares remaining on a board-approved share repurchase authorization.

Revenue from motorcycles and related products fell 7.4 percent to $933 million and was below Street’s estimate of $972.5 million.

Harley slashed its selling, administrative and engineering expense by 11.8 percent to $227.5 million to compensate for lower revenue.

Reporting by Ankit Ajmera in Bengaluru; Editing by Martina D'Couto

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