Harley-Davidson 2Q climbs as sale decline eases, money unit posts profit, revving up shares

Harley-Davidson 2Q revs up and so do shares

NEW YORK — A profit at its motorcycle financing unit and stabilizing bike sales sent Harley-Davidson Inc.’s net income soaring in the second quarter, but the company cautioned that the market for its high-end two-wheelers will remain challenging this year.

Company shares took off in midday trading, soaring 12 percent.

Harley, which has been restructuring for more than a year, said sales of its motorcycles continued to fall in the second quarter, but the pace eased. Worldwide retail sales fell 5.5 percent, down from the 18 percent drop in sales in the first quarter.

“All of the hard work the employees and dealers are doing, and the strategies we put in place, are paying dividends,” CEO Keith Wandell said in an interview. “We would like nothing more than to have higher retail sales … When you look at the total picture, we feel very good where we’re at.”

The Milwaukee company began a major overhaul at the start of 2009 to cope with a shrinking market and an economic downturn that has undercut demand for its pricey, chrome-laden bikes. Sales of Harley motorcycles, whose prices range from $7,000 to $25,000 can take a big hit when the economy goes south.

The company has been focused on cutting costs and streamlining its business. Last year, it announced the shutdown its Buell sport-bike line and said it planned to sell the Italian motorcycle maker MV Agusta. In December, the company and its union agreed to a cost-cutting contract at its main motorcycle plant in York, Pa., that involved layoffs for about half the company’s unionized work force there.

Harley said it still expects to ship 5 percent to 10 percent fewer motorcycles to dealers this year, standing by an earlier forecast.

The next step in its restructuring plan comes this week, when Harley executives begin negotiations with the company’s union in Wisconsin for a new contract. Wandell said the company is “not flexible” on its demands and reiterated that the company will move Wisconsin production elsewhere if it doesn’t get the cost-savings it wants, which include lower expenses at its powertrain factory in Milwaukee and its motorcycle components facility in Tomahawk, Wis.

Among Harley’s goals is the ability to hire and lay off workers more quickly to better adjust to seasonal business fluctuations, Wandell said. Under current work rules, it can take as long as three months to let go of unneeded workers or recall laid-off workers, not including training time, he said.

“You get ready to produce just in time to lay everybody off again,” Wandell said. “Those costs become unbelievably burdensome.”

Wandell said the company is already scouting out other states. He declined to name them. Wandell said the company would be open to incentives to stay in Wisconsin, though he wouldn’t say specifically what inducements the company might be looking for.

Frank Larkin, spokesman for the International Association of Machinists, which represents Harley workers, said the union was prepared to negotiate with company management later this week. He added: “We are not interested in fueling a bidding war between states desperate for economic activity at any price.”

Harley got a lift in the second quarter from a rebound at Harley-Davidson Financial Services, the business unit that makes loans to Harley customers and dealers. HDFS posted operating income of $60.8 million in the second quarter thanks to lower borrowing costs and hefty one-time charges in the year-ago quarter. It lost $90.5 million in the same quarter last year.

The unit weighed heavily on Harley during the recession as credit markets froze. The company had even considered selling the business, but executives said Wednesday they decided to keep it under Harley-Davidson ownership.

Harley’s net income in the three months ended June 27 totaled $71.2 million, or 30 cents per share. That compares with net income of $19.8 million, or 8 cents per share, in the same period last year.

Excluding discontinued operations, income was 59 cents per share. On that basis, analysts polled by Thomson Reuters expected a smaller profit of 41 cents per share, on average.

Revenue from motorcycles and related products was flat at $1.14 billion. Analysts were calling for $1.13 billion.

Analysts surveyed by Thomson Reuters expected 41 cents per share on $1.13 billion in revenue, on average.

Shares rose $2.91, or 12 percent, to $26.52 in afternoon trading.