Harley surges on US$100M tariff relief

EU APPROVAL

NEW YORK • HarleyInc.’ s highly contentious plan to dodge tariffs by shifting some production overseas has been green-lighted just as the iconic American manufacturer really needed the relief.

The motorcycle maker’s shares surged the most in a year after it secured approval from the European Union to import bikes from Thailand and mitigate almost all of the US$100 million hit it’s feeling from tariffs this year. U.S. President Donald Trump has at times attacked both Harley and the EU over the ordeal, which all springs from retaliation against his administration’s levies on steel and aluminum.

The reprieve that Harley expects starting in the second quarter of next year overshadowed cuts the company made to its forecasts for annual shipments and profit margin after another quarter of dismal sales. The Milwaukee-based company’s stock finished up 6.3 per cent on Tuesday, the biggest gain since July 2018.

“We look forward to putting the burden and uncertainty of the European incremental tariffs behind us, and we look forward to restoring roughly a US$100 million of annualized margin,” Chief Financial Officer John Olin said on a conference call with analysts.

The levies on bikes Harley ships from Thailand to the EU will be just 6 per cent, down from the 31 per cent rate that the trade bloc put on U.S.-made motorcycles last year, chief executive Matt Levatich said on the call. The process of getting approval from the EU for its import plan took “considerably longer” than expected, he said, and kept the company from being able to see some savings before the end of this year.

Harley’s adjusted earnings per share in the second quarter of US$1.46 beat the US$1.41 average analysts expected, and were up slightly from a year ago. But operating income fell 26 per cent in the quarter as the impact of tariffs eroded profits. That prompted Harley to lower expected 2019 operating margins from motorcycles to 6 per cent to 7 per cent of revenue, from a previous 8 per cent to 9 per cent.

Trade woes have compounded the longer-term demographic problems Harley faces as it struggles to attract younger buyers and reverse a 2 1/2-year slide in U.S. sales. Efforts to grow share overseas are being hampered by tariffs and weaker global demand, which suggests a turnaround is still going to be tough to pull off.

Harley also cut its shipment forecast this year to 212,000 to 217,000, from a range of 217,000 to 222,000.

“Plummeting demand in the U.S., which made up 58 per cent of 2018 deliveries, is structural,” said Kevin Tynan, an analyst with Bloomberg Intelligence. “Achieving a goal of attracting 2 million new riders by 2027 will be challenging even without elevated tariffs.”

Bloomberg