Investor reaction to Harley-Davidson’s weak half-year results was remarkably upbeat, hailing what could be described as “well-managed decline”, after a tele-conference between corporate analysts and Harley senior executives. BDN financial editor Roger Willis reports.
Apart from the results actually exceeding gloomier analyst expectations, conference-call revelations following the announcement from Harley CEO Matt Levatich helped to push the company’s share price sharply upwards by 7.7%. Principal optimism driver was a big reduction in the immediate impact of a 25% EU tariff increase in its current fiscal year. Levatich told analysts that Harley had accelerated bike shipments to Europe well in advance of additional tariff introduction in June, creating a stock buffer. This should cut tariff-burden costs to about £27m in the second half of 2018, compared with an earlier estimate of up to £38m.
Harley chief financial officer John Olin added that other cost savings and offshoring production of European volume from the US were serious prospects, when annual impact of the tariffs might otherwise run to £75m. “We are doing everything we can to absorb the costs,” he said. “We’re analysing the capacity options that we have — manufacturing costs, supply chain, logistics — in an effort to optimise them, and to reduce and mitigate those tariffs.”
Craig Kennison, senior automotive analyst at US investment bank and fund manager Baird, later commented: “European ridership is key to global strategy. Down the road, Harley would like international markets to represent half the business.”
Others weren’t entirely convinced that Harley’s initiatives will permanently offset investor jitters about the tariff hit and prop up its share price. Morgan Stanley analyst Adam Jonas opined: “While this may give pause to pressure facing the stock, it’s unlikely to entice serious incremental capital.”