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