Harley trims forecast on soft outlook for U.S. motorcycle industry

By Meredith Davis

REUTERS - Harley-Davidson Inc on Thursday said a decrease in total sales and soft domestic demand lowered second-quarter profit and has led the company to trim its forecast for motorcycle shipments in 2016.

Company executives said they were surprised by U.S. industry weakness.

"We did not expect the industry as a whole would be as soft as it is. While our (market) share gains helped to blunt the full impact of this weak market, lackluster industry sales have had a significant impact on our results and our forward expectations," Chief Executive Matt Levatich said during a conference call with analysts.

Levatich said uncertainty about the political environment and consumer credit conditions, combined with slower sales in oil dependant regions around the country, contributed to a softer-than-expected U.S. market for motorcycles.

Harley-Davidson's U.S. market share in the quarter was 49.5 percent, up 2.0 points from a year ago.

Harley-Davidson's domestic sales fell 5.2 percent in the quarter, while U.S. motorcycle industry sales overall dropped 8.6 percent in the same period.

The company cut its 2016 full-year outlook for motorcycle shipments to a range of 264,000 to 269,000 motorcycles. It previously estimated shipments of 269,000 to 274,000 motorcycles.

Given the weakness of U.S. sales and planned factory downtime in July to upgrade computer systems, year-end U.S. retail inventory will be flat year over year, Chief Financial Officer John Olin said.

International sales increased by 4.3 percent from a year ago, with the largest gain, 8.2 percent, in the Europe, Middle East and Africa region. The impact of Britain's vote to leave the European Union on the company's international sales is unclear, Olin said.

"What we are certain of is Brexit does not provide any benefit to retail sales or consumer confidence in Europe," Olin said.

Olin also said the company would not respond to speculation that the it was a takeover target, which moved its share price up earlier this month.

"We don't comment on stock market rumors - that would consume our entire life if we did," Olin said.

Harley's shares were up 0.65 percent at $50.91 on Thursday.

Second-quarter earnings per share increased to $1.55 from $1.44 a year ago, topping analysts' expectations of $1.53.

The Milwaukee-based company said net income fell to $280.4 million from $299.8 million a year ago.

Revenue was $1.86 billion, up slightly from $1.82 billion a year earlier. Analysts, on average, were estimating $1.67 billion, according to Thomson Reuters I/B/E/S.

(Editing by Steve Orlofsky)