International Dealer News IDN 144 August/September 2018 - Page 22

THE AMERICAN REPORT Harley to absorb tariffs pending European production decision Harley-Davidson’s Q2 financial results (released July 24) showed reduced profit for the period to June 30 with domestic U.S. unit sales down by -6.4 percent for the quarter (46,490 units) in a domestic U.S. heavyweight motorcycle market that was down by -6.3 percent for the quarter. The decline in profits reflect the decline in sales, the strength of the U.S. Dollar and the first effects of tariffs on imported aluminium and steel and on European import tariffs that are expected to cost Harley around $50m this year, and anywhere between $90m and $120m in the full year (tariffs on Harleys will increase from a WTO standard of 6 percent per bike to an average of 31 percent or $2,200 a bike). In response to the EU retaliation against President Trump’s decision, Harley had earlier moved to defend its dealers and customers from the price increase by saying it would absorb the increased tariffs and move production of EU destined models overseas to an as yet unconfirmed facility. The speculation is that Harley will make its European inventory at a factory in Thailand that is already expected to come on line later this year, however, that would likely only be a short-term fix. The company is targeting for 50 percent of sales by unit volume to be outside the U.S. by 2017 (as are Indian Motorcycle) with the largest slice of that being in Europe. Further announcements of growth initiatives are planned for July 30. Asked about the reaction in Europe to Harley’s decision to “eat” the tariff damage, CEO Matt Levatich said the reaction among dealers had been universally positive and that the fact that the company would back their commitment to Harley in this way “made them very proud” to be associated with Harley. Conversely, he said that the general reaction among U.S dealers to seeing some production transitioning overseas had been phlegmatic – he said that for the most part domestic dealers appeared to understand that the company “had to do what’s best” to keep itself healthy. Despite the profit drop, Harley’s Q2 Fiscals were not as bad as analysts had feared and their lacklustre share price actually bounced on the news by around 10 percent. Although domestic U.S. unit sales were down, again, the decline is broadly tracking 22 Harley-Davidson sales revenue and production data… 2nd quarter 2018 Income statements in $1,000s (except share) Net sales revenue Gross profit Total operating income Net income Diluted earnings per common share THREE MONTHS ENDED SIX MONTHS ENDED 2018 Q2 2017 Q2 2018 Q2 2017 Q2 $1,525,121 $532,085 $323,947 $242,338 $1,577,135 $572,962 $399,287 $258,867 $2,889,068 $1,005,858 $560,364 $417,101 $2,905,846 $1,047,785 $688,469 $445,236 $ 1.45 $1.48 $2.48 $2.53 NET SALES REVENUE Figures are shown in $1,000s THREE MONTHS ENDED 2018 Q2 2017 Q2 SIX MONTHS ENDED 2018 Q2 2