Hurt by a continued slide in motorcycle sales, Harley-Davidson Inc.’s recent-quarter profit plummeted, the company said Tuesday, adding that it’s planning to close its assembly plant in Kansas City, Mo., resulting in the loss of 800 jobs there. 

The world’s largest maker of heavyweight motorcycles has struggled to reverse a four-year sales slide, with growth overseas helping offset a decline in the U.S. bike market somewhat.

Tuesday, the Milwaukee-based company said its net income fell 82% in its fourth quarter of 2017 to $8.3 million from $47.18 million in the same quarter last year.

Earnings per share were 5 cents, down from 27 cents a year ago.

Revenue was $1.23 billion, up from $1.11 billion.

Much of the drop in earnings was attributed to an income tax charge related to the enactment of the 2017 Tax Cuts and Jobs Act, and a $29.4 million charge for a voluntary product recall. The adjusted earnings per share was 47 cents, and analysts on average had expected 45 cents, according to Thomson Reuters I/B/E/S.

Harley-Davidson worldwide retail motorcycle sales fell 6.7% in 2017 compared to 2016. The company’s U.S. sales fell 8.5% and international sales were down 3.9%.

Harley has taken steps to counter what’s been a prolonged downturn, including tightening motorcycle inventories. 

“Our actions to address the current environment, through disciplined supply and cost management, position us well as we drive to achieve our long-term objectives to build the next generation of Harley-Davidson riders globally,” Matt Levatich, president and CEO said in a statement.

“We finished 2017 with over 32,000 more Harley-Davidson riders in the U.S. than one year ago, and we delivered another year of strong cash generation and cash returns to our shareholders,” Levatich said.

Harley says it plans to tighten its manufacturing operations through a multi-year initiative anchored by the consolidation of its motorcycle assembly operations in Kansas City, Mo. into its plant in York, Pa.

The closure of the Kansas City plant, in 2019, will result in the loss of 800 jobs there, the company said. Moving the work to York will result in about 450 additional jobs there.

The company said it expects to incur restructuring and other consolidation costs of $170 million to $200 million, and capital investment of approximately $75 million, over the next two years.

It expects ongoing annual cash savings of $65 million to $75 million after 2020.

“The decision to consolidate our final assembly plants was made after very careful consideration of our manufacturing footprint and the appropriate capacity given the current business environment. Our Kansas City assembly operations will leave a legacy of safety, quality, collaboration and manufacturing leadership,” Levatich said.

Levatich did not make any mention of the company’s Wisconsin operations, including its large manufacturing plant in Menomonee Falls and a smaller plant in Tomahawk. 

Harley and other makers of cruiser and touring motorcycles have seen their sales tumble as the economy has weakened in some areas and interest in motorcycling, overall, hasn’t been as strong.

“For years, the North American heavyweight motorcycle industry grew at double-digit rates due to low interest rates, a strong economy, a rising stock market and … the baby boomers. However in recent years, and going forward, we expect a much slower growth pattern for the U.S. motorcycle industry,” said analyst Robin Diedrich with Edward Jones Co.

“As safety becomes a concern for aging baby boomers, domestic sales for the heavyweight motorcycle industry should slow. We expect certain international markets, particularly in Asia and South America, to have higher growth rates in heavyweight motorcycles than the U.S.,” Diedrich said.

Harley’s foreign competitors have benefited from a strong U.S. dollar, as their overseas operations have made it more profitable to sell bikes in the U.S. at lower prices.

In some cases, Diedrich said, prices of Japanese motorcycles have come down 25% and discounts ranged up to $3,000 per bike.

“Harley is seeing significant pricing pressure, hurting profitability and sales,” she said.

Harley-Davidson’s 10-year strategy is to train 2 million new U.S. riders, grow international business to 50% of sales and launch 100 new “high impact” motorcycles.

The problem is that Harley has run rider training campaigns over the years, “with little real progress made,” said Rich Duprey, a writer for The Motley Fool, an online financial publication.

“There’s something to be said about generating goodwill from training new riders, but investors just shouldn’t expect bikes to begin flying off the dealer lots as a result,” Duprey wrote in a column Monday.

The same goes with Harley-Davidson’s new partnership with Eagle Rider, a worldwide motorcycle rental agency, according to Duprey.

Harley views Eagle Rider as an opportunity to build its customer base by giving renters a chance to cruise the country on a Harley, hoping they will come back and buy a bike, especially as Eagle Rider will sometimes have access to the newest models before they’re even in dealers’ showrooms.

But many of Eagle Rider’s customers already own a Harley, and they’ve probably rented one because they’re away from home on vacation or a business trip.

The Eagle Rider partnership could spur some new bike sales, but probably not at the rates some might expect, Duprey said.

There’s an argument in favor of rider training and rental programs, according to Duprey, but the programs aren’t going to move the “sales needle” anytime soon.

The company’s 2018 outlook will be key for investors as, at the beginning of 2017, management projected a sluggish outlook and revised it downward halfway through the year.

Harley-Davidson shares have increased almost 9% since the beginning of the year, while the Standard & Poor’s 500 index has risen roughly 7%. The stock has declined slightly more than 6% in the last 12 months.

 

 

 

 

 

 

 

 

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