S&P downgrades Harley-Davidson to BB+ on margin concerns

Investing.com -- S&P Global Ratings downgraded Harley-Davidson Inc. to BB+ from BBB- on Tuesday, citing expectations that the motorcycle manufacturer may need several years to improve its EBITDA margin to near 10%.

The ratings agency also lowered its issue-level rating on Harley's unsecured debt to BB+ from BBB- and assigned a recovery rating of 3 to the company's senior unsecured notes. S&P removed all ratings from CreditWatch, where they were placed with negative implications on February 11, 2026.

The downgrade follows Harley-Davidson's "Back to Bricks" strategic plan announced in May, which includes introducing more affordable models to attract newer riders and focusing on dealer profitability.

S&P forecasts Harley's adjusted EBITDA margin will remain at 5% to 6% in 2026 as the company prioritizes market share over unit profitability. The ratings agency expects operating income and EBITDA margin will stay depressed through at least 2027.

Harley plans to reduce costs by $150 million, but 2026 operating income faces pressure from restructuring expenses. The company reported $15 million in restructuring charges in the first quarter related to headcount reductions and employee termination benefits.

Tariff costs on steel and aluminum are expected to reach $75 million to $90 million in 2026, down from an earlier forecast of $75 million to $105 million. Management expects peak tariff impact in 2026, with relief anticipated beyond that year due to trade policy changes and new exemptions for certain motorcycle parts.

The company's new strategy includes introducing the Sprint model and reintroducing the Sportster model, which was discontinued in 2022. Both models will sell at entry-level prices, with Sportster priced around $10,000 and Sprint priced lower, starting in late 2026 and 2027.

Harley's U.S. market share declined to 34.5% in 2025 from 49.1% in 2019, as measured by total motorcycle registrations. S&P projects the company could increase its market share to the mid-40% range if new product introductions succeed.

The company targets gross margins of 25% to 30% and EBITDA margins of 10% to 12% for its operating subsidiary over the next three to five years. These targets fall below 2022 and 2023 levels, when gross margin exceeded 30% and EBITDA margin surpassed 16%.

S&P also lowered its short-term rating on Harley Davidson Financial Services Inc. to B from A-3 and reduced its issue-level rating on HDFS medium-term notes to BB+ from BBB-.

Harley maintained $1.8 billion in cash and cash equivalents as of March 31, 2026, with over $2 billion available under various commercial paper programs.

The stable outlook reflects the company's liquidity position and commitment to maintaining low captive-adjusted leverage, according to S&P.

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