President Donald Trump has praised for Harley-Davidson Inc's US manufacturing presence, is cutting workers as younger American consumers buy fewer bikes than baby boomers.
Harley-Davidson Inc., the motorcycle maker President Donald Trump has praised for its U.S. manufacturing presence, is cutting workers as younger American consumers buy fewer bikes than baby boomers. Chief Executive Officer Matt Levatich told analysts Tuesday the company planned to make hourly employment reductions and would share details with workers later. Harley’s shares plunged the most in more than a year after the company forecast annual motorcycle shipments may decline as much as 8 percent.
The moves run counter to Trump’s claims he would drive U.S. economic growth by spurring more factories and hiring. The president in February called Harley a “great example” of successful American manufacturing and said his administration would make it easier for businesses to create jobs and build plants. Instead, slumping demand for pricey bikes has left Harley with too much inventory and needing to pare production at home.
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“It’s unfortunate,” said David Beckel, a Bernstein analyst who downgraded the stock last week, citing a lack of demand from younger Americans. “It’s just a symptom of the environment they’re facing,” as competitors cut prices and millennials show less interest in motorcycles than past generations.
Harley shares plunged as much as 12 percent and traded down 7.5 percent to $48.11 as of 2:11 p.m. in New York, headed for the biggest daily drop since July 2016. The shares have declined 17 percent this year.
Katie Whitmore, a Harley spokeswoman, said the company will share details on the job cuts with employees Tuesday and Wednesday. Representatives for the United Steelworkers and the International Association of Machinists and Aerospace Workers said they were still waiting for the company to provide more information.
Harley, which said its third-quarter motorcycle shipments may drop as much as 20 percent, has factories in Pennsylvania and Wisconsin, states that helped carry Trump to his surprise election victory in November.
While the company is cutting jobs in American plants, it’s building a factory in Thailand to serve markets in the Asia Pacific region and reduce tariffs on imports, Levatich told analysts. He said the facility will assemble bikes using components shipped from the U.S.
Harley is caught “in the throes of secular erosion” in the U.S., with younger consumers riding motorcycles at much lower rates than previous generations, Beckel wrote in last week’s report. Levatich, who joined union leaders in meeting with Trump at the White House in February, called conditions in the U.S. market challenging and said the company needed to balance supply with demand to protect its brand.
Despite the demand headwinds, Harley’s second-quarter results beat analysts’ estimates. The company reported adjusted earnings per share of $1.48, beating consensus by 10 cents. Going forward, executives said they expect profit margins will be squeezed by slower volumes and expenses that are slipping at slower rates than revenue.
“Longer-term, it signals that things are getting worse, not better,” Beckel said in a phone interview. While Harley is trying to build the popularity of biking and is helping dealers boost their used-motorcycle business, progress has been slower than planned, he said. “It’s an unpalatable situation for investors in that the payoff will come much further down the road than people were expecting.”