Harley Davidson's turnaround plan gains traction, shows signs of progress

By Rajesh Kumar Singh and Ankit Ajmera

(Reuters) -Harley-Davidson Inc on Wednesday offered evidence that its turnaround plan was gaining traction as the U.S. motorcycle maker reported a better-than-expected quarterly profit.

The 118-year-old American brand, which has been steadily losing U.S. market share amid declining retail sales for six years, has shifted focus back to big bikes, traditional markets like the United States and Europe, and to older and wealthier customers in a bid to grow profits.

Under Chief Executive Jochen Zeitz's strategy, the company is eliminating slow-selling models and exiting money-losing dealerships and markets. It is a departure from a decade-long effort to grow market share and draw younger riders with cheaper and newer models.

Although the company's performance in the latest quarter was exaggerated by a favorable statistical base as most of its dealerships in the United States were hit by pandemic-linked lockdowns last year, it offered signs that the new strategy was working.

For example, unit sales of its bikes in the United States - Harley's biggest market - were higher than in the second quarter of 2019.

Similarly, the motorcycle maker substantially reduced the share of cheaper and low-margin models in overall shipments and was able to drive up sales despite spending less on marketing and promotions.

The measures helped mitigate about a $16-million hit in the quarter from increased tariffs on its bikes in the European Union - its second-biggest market.

Harley's products in the EU are now subjected to 31% tariff after a ruling revoked the credentials that allowed it to ship motorcycles to the single currency zone from its international manufacturing facilities at a 6% duty.

Citing the higher tariff, the company revised down operating income guidance from motorcycle sales to 6% to 8% in 2021 from 7%-9% estimated earlier.

It, however, lifted the operating income growth forecast for its financial services segment.

On an adjusted basis, Harley earned $1.41 per share in the quarter, beating analysts' average estimate of $1.17 per share, according to IBES data from Refinitiv.

(Reporting by Rajesh Kumar Singh in Chicago and Ankit Ajmera in Bengaluru; Editing by Anil D'Silva, Steve Orlofsky and Nick Zieminski)