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Harley-Davidson asks for patience, expecting a tough market in 2019



Harley-Davidson
Inc.


HOG -2.19%

said US motorcycle sales would remain weak until 2019 as corporate executives await the results of a new growth strategy focused on younger drivers , Executives demanded patience on Tuesday as Harley released new models and expanded programs to increase passenger numbers, especially among younger city dwellers. Harley pursues this new group of potential customers to try to balance a major customer base of aging drivers buying fewer new motorcycles. Harley is on course this year for the fourth year in a row, with sales in the US, the largest market, declining.

"It's not a quick fix," chief executive Matt Levatick told analysts during a conference call. "We still have to go through a few years, until some of these products become tailwind for the company."

In another issue that will weigh on the company's profits this quarter, Harley announced on Tuesday a recall of 238,300 model motorcycles worldwide due to a clutch problem. The Company expects to pay $ 35 million in connection with the recall.

The company's shares had recently fallen 3.7% to $ 37.27

Harley announced plans to introduce 1

6 new motorcycle models by 2022. Many of the new motorcycles will target parts of the motorcycle market that Harley currently does not serve, including electric motorcycles, racing bikes and touring motorcycles that can ride on paved and unpaved roads. Harley expects the new modes to increase annual sales by $ 1.5 billion in five years.

Harley reported that motorcycle retail sales in the US fell 13% year-on-year to 36,220 motorcycles in the third quarter. In the first three quarters, sales declined by 10% compared to the same period of the previous year.

"We expect a continuing challenge in the US motorcycle industry next year," said CFO John Olin.

Harley said tariffs could cost the company about $ 120 million next year, with most of it coming from EU tariffs for US-made bicycles being exported to Europe. The company plans to relocate the production of motorcycles destined for the European market out of the US to avoid the EU tariff that this year was levied in retaliation for US tariffs on European steel and aluminum. The company expects tariffs to cost $ 43-48 million this year.

Milwaukee third quarter results exceeded sales and earnings expectations. Increasing wholesale deliveries of its more expensive motorcycles helped boost sales by 17% in the quarter.

The company has shipped 51% more touring bikes, typically the company's most expensive models. Deliveries of lower priced cruiser bikes were 7% lower than a year ago. The favorable mix of higher-margin bikes boosted Harley's operating margin for the quarter from 1.8% in the prior year to 5.8%. The company said it still expects to sell 231,000 to 236,000 motorcycles per year.

Harley posted earnings of $ 113.9 million, or 68 cents a share, in the third quarter, compared to $ 68 million or $ 40 a share a year earlier. After eliminating some manufacturing costs, Harley said it earned 78 shares, compared to the 53 cents predicted by analysts. Sales of motorcycles and related products were $ 1.12 billion. Analysts had predicted $ 1.07 billion.

Please contact Bob Tita at robert.tita@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com


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