Harley-Davidson's profitable third quarter included a sales pick up in Europe even as its ongoing slide in the U.S. motorcycle market steepened. The company is dealing with "tough U.S. industry conditions" and is adapting to "trade policy burdens" on its business, Matt Levatich, president and CEO, told analysts during an earnings call Tuesday.
Harley-Davidson is having a rough ride lately, with an aging U.S. customer base and younger riders here opting for cheaper alternatives. The 115-year-old Milwaukee company needs to bolster its bottom line by increasing sales of more expensive bikes -- especially overseas, where the iconic American brand name still has cachet. Indeed, retaliation by the European Union on Trump administration steel tariffsby management to move some motorcycle production overseas, a controversial move by a company long viewed through a patriotic lens.
"We never imagined moving production to our European customers out of the U.S.," Levatich said when asked about a timeframe for the company's tariffs countermove. "When we have that information and that plan, which is likely early next year, we'll share with our shareholders."
Smacked by the increased price of U.S. steel and metal that came with the White House's trade war, Harley-Davidson has also faced higher duties on its bikes as the EU added its own tariffs.
The company expects tariffs to cost about $120 million in 2019, with most of the burden coming from EU tariffs on U.S.-made motorbikes exported to Europe. It plans to move production of bikes bound for the European market out of the U.S. to sidestep the EU tariff, imposed in retaliation for U.S. tariffs on European steel and aluminum. Harley-Davidson expects tariffs to cost it $43 million to $48 million this year.
"Unless something changes, prices are just going to be higher," John Olin, Harley-Davidson's CFO, said of the increased costs from higher metal prices. The company is doing all it can to mitigate the damage, he added.
"We expect a continuing challenge in the U.S. motorcycle industry into next year," Olin said.
After lauding Harley-Davidson as an example of all that's right about American manufacturing, Mr. Trump turned the tables in June and tweeted his support for a boycott against Harley-Davidson after the company said it would shift some manufacturing overseas to sidestep new tariffs imposed by the EU.
Harley-Davidson's U.S. sales in the three months ending Sept. 30 dropped 13.3 percent from the prior quarter, the company reported Tuesday. Retail sales in Europe climbed 3 percent, it added.
Net income rose to $113.9 million in the quarter from $68.2 million a year earlier, while revenue from motorcycles and related products increased 16.8 percent to $1.12 billion, it said. Harley-Davidson maintained its 2018 shipments forecast.
Separately, Harley-Davidson is recalling about 238,300 motorcycles worldwide for a clutch problem. The recall involves all model year 2017 and 2018 Touring, Trike and CVO Touring models as well as some 2017 Softail models to replace a hydraulic clutch assembly. The recall will cost the company about $35 million, it said.
Shares of Harley-Davidson were down 2.1 percent in early afternoon trade on Tuesday.