(Reuters) - Harley-Davidson Inc (HOG.N) shares surged nearly 9 percent on Tuesday after the iconic U.S. motorcycle maker posted a better-`than-expected quarterly profit, lifted by strong international demand.
The company’s results were also lifted by its continued success in cutting production costs. Harley-Davidson said its gross margins grew a full percentage point year-over-year to 37.7 percent during the most recent quarter, a testament analysts said to the company’s five-year restructuring under CEO Keith Wandell. The austerity drive concluded last year and pulled $300 million in annual costs out of its manufacturing operations.
“These are obviously very good results,” said Jaime Katz, an analyst at Morningstar. “All the work they’ve done in recent years at their facilities are bearing fruit.” Katz said she planned to update her fair-value estimate of the company’s stock, which she currently pegs at $68.
Harley-Davidson said it had shipped 80,682 motorcycles to its independent dealers and distributors worldwide during the quarter, in line with its expectations and up 7.3 percent from a year earlier.
Sales jumped 20.5 percent in the Asia-Pacific region, 8.9 percent in Latin America and 8.2 percent in Europe, the Middle East and Africa, the company said.
Sales were also up a modest 3 percent in the United States, where Harley-Davidson still sells the majority of its bikes, despite bitterly cold winter weather that gripped much of the country. During a conference call, executives said “significant” sales growth in warmer regions of the country, like California, helped offset weakness in colder regions. Sales in Canada fell 2.4 percent, the company said.
The international sales growth is welcome news. Harley-Davidson has long known that its reliance on an overwhelmingly white, male and middle-aged consumer base would ultimately challenge sales in North America, where it still earns two-thirds of its revenue.
That so-called “baby boomer” cohort is growing at a low-single-digit rate. So in recent years, the company has aggressively courted non-core customers, such as young adults, women, African-American and Hispanic riders, and riders in international markets, with a variety of new designs.
This spring, the motorcycle maker began shipping a new line of lighter, more affordable motorcycles, the Street 500 and the Street 750, to a handful of markets, including Italy, Spain, Portugal, and India. The company has said it believes the new bikes can significantly grow its share of overseas markets.
The Milwaukee-based company reported first-quarter net income of $265.9 million, or $1.21 a share, up from $224.1 million, or 99 cents a share, a year earlier.
Analysts on average had expected a profit of $1.08 a share, according to Thomson Reuters I/B/E/S.
Sales rose 10.2 percent to $1.73 billion, the company said.
In early afternoon trading, Harley-Davidson shares were up 8 percent at $72.98 after earlier trading as high as $73.50.
Reporting by James B. Kelleher in Detroit; Editing by Lisa Von Ahn and Andrew Hay