Harley Davidson HOG Alert

by Robert Freeman on 01/31/18

Harley-Davidson to close US factory as sales slide

Published: Jan 30, 2018 1:47 p.m. ET

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ANDREW
TANGEL
Harley-Davidson Inc. plans to close a U.S. factory amid a protracted sales slide that the motorcycle maker expects to continue into 2018.

Motorcycle-related revenue fell 6.8% in 2017 to $4.92 billion, as retail sales dropped in the U.S. and around the globe. Worldwide, Hog retail sales fell 7% in 2017, the third consecutive annual decline.

Harley forecasts continued challenges this year, including soft U.S. retail sales. The Milwaukee-based company expects to ship up to 236,000 motorcycles globally, a decline from the 241,498 motorcycles it shipped last year.

Shares of the company fell more than 7% in early Tuesday trading to $51.15.

As part of a cost-cutting plan, Harley-Davidson said it would close its assembly plant in Kansas City, Mo. and lay off about 800 workers. The plant is one of its four U.S. factories.

“This decision was extremely difficult but necessary under the circumstances," Chief Executive Matt Levatich said on Tuesday. "I have profound respect for the women and men in that facility.”

Harley plans to move the plant's operations to its York, Pa., facility, which would eventually add about 450 jobs as part of the consolidation. Mr. Levatich said in an interview that the company planned upgrades to the York factory, but that the new tax law's benefits for such investments didn't affect the decision.

Harley is often used by politicians as a backdrop for discussing U.S. manufacturing or economic policy. Harley executives and union officials visited the White House last year, and the company was mentioned in President Donald Trump's post-inauguration address to Congress.

Mr. Levatich said the manufacturing cuts didn't undermine Harley's focus on keeping most of its operations in the U.S., its biggest market. "Nothing has changed in the sense of our commitment to U.S. manufacturing," he said.

In addition to the Kansas City plant, Harley said its manufacturing consolidation would also affect its motorcycle wheel factory in Adelaide, Australia. Cuts there are expected to affect about 110 jobs.

Harley said it expects to incur restructuring costs of $170 million to $200 million and expects to spend about $75 million in related capital investments over the next two years. After 2020, the company expects the moves to save about $65 million to $75 million of cash annually.

For its fourth quarter, Harley earned $8.3 million, or 5 cents a share, down from $47.2 million, or 27 cents a share, for the same quarter of the prior year.

Results were hurt by a $53.1 million charge related to new U.S. tax law and a $29.4 million charge related to a product recall. Motorcycle revenue in the fourth quarter grew 12% to $1.05 billion.

Harley said it expected the new tax law would reduce its effective tax rate to 23.5-25% this year. That is down from an effective tax rate of 39.6% in 2017.

Harley executives said the company had made progress in its long-term goal of adding two million new riders in the U.S. over the coming decade and boost its international business to 50% of its total annual volume from around 38%. Mr. Levatich said Harley added more than 32,000 new Harley riders in the U.S. over the last year.

The company has also been working to expand its appeal to women, minorities, young adults and city dwellers. As part of that effort, Harley-Davidson said it is on target to launch its first electric motorcycle within 18 months. The company said Tuesday it would invest more aggressively in developing electric-biking technology.