Harley-Davidson soars on plans to reorganize, slow production workforce

October 18, 2016 7:52 AM EDT

A Harley-Davidson bike is displayed in their head office in Singapore October 13, 2016. REUTERS/Edgar Su


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(This October 18 story has been corrected to say 'soars' instead of 'soar' in headline)

By Meredith Davis

(Reuters) - Shares in Harley-Davidson Inc (NYSE: HOG), jumped more than 9 percent on Tuesday as the market shrugged off sluggish U.S. retail motorcycle sales.

Harley's shares touched a two-month high on the company's plan to streamline its operations, reorganize and reduce its workforce during the fourth quarter in a move that will cost the company $20 million to $25 million.

Shares of Harley-Davidson were at $54.39 up 9.45 percent in afternoon trade.

"The stock is up strongly today on Harley's plans to cut back production. The company sees demand picking up next year, a view we concur with," CFRA Research equity analyst Efraim Levy said in a note.

The Milwaukee, Wisconsin-based company said it also plans to slow production in an effort to work through high inventory levels.

The company's new engine models also ignited some demand in September stoking hopes sales could pick up in the coming quarters.

"While the launch of the Milwaukee Eight engines stimulated demand ... its success remains tempered by the still-competitive motorcycle industry environment," Morningstar analyst Jaime Katz said in a note.

U.S. motorcycle registrations fell about 5.6 percent to 279,013 for the nine months ended Sept. 30, according to Motorcycle Industry Council data.

The company reported a lower quarterly profit on Tuesday, a lower net income and weaker earnings per share, all of which was expected due to weak sales in the United States, the company's largest market.

Harley-Davidson's retail motorcycle sales fell 7.1 percent in the United States during the third quarter. Weak U.S. industry trends dragged on the company's total global retail sales, which fell 4.5 percent.

Arun Kumar, an AlixPartners consultant, said many Americans are putting disposable income toward automobiles, rather than motorcycles.

"The U.S. consumer is electing to upgrade to a luxury vehicle," Kumar said.

RBC Capital Markets analyst Joseph Spak noted some market enthusiasm regarding Harley's 2017 motorcycle lineup and positive September sales, but wondered if it would carry on into the spring.

"Question is can they hold on into and convert in the meaningful riding season," Spak said in a research note on Tuesday.

The company said its net income was $114.1 million in the second quarter, down from $140.3 million in the previous year.

Earnings per share decreased to 64 cents from 69 cents a year ago, in line with expectations. Revenue was $1.27 billion, down from $1.32 billion but beating forecasts for $1.09 billion.

The motorcycle manufacturer cited continued slowed U.S. motorcycle industry growth as the main factor for weaker retail sales. Harley-Davidson did not give details on its reorganization plans nor initially say how many jobs may be impacted.

"The restructuring plan will occur between now and the end of the year, but not with temp workers going first," spokeswoman Maripat Blankenheim said in e-mailed statement.

The Milwaukee-based company said its net income was $114.1 million in the second quarter, down from $140.3 million a year ago.

Earnings per share decreased to 64 cents from 69 cents a year ago, in line with expectations. Revenue was $1.27 billion, down from $1.32 billion a year earlier but beating forecasts for $1.09 billion.

(Reporting By Meredith Davis in Chicago; Editing by Bill Trott and Alan Crosby)



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