July 21 (Reuters) – Harley-Davidson Inc (HOG.N) on Wednesday warned that soaring commodity prices and supply chain and logistics bottlenecks would hurt its second-half profits, causing a sale of its shares.
In the last quarter, inflation in raw materials and logistics slashed the profits of the American motorcycle manufacturer by 5 points. Shipping delays, meanwhile, are affecting deliveries of bikes to dealers, hitting sales especially in Europe and Asia.
Harley said the supply chain deadlock will keep inventory running out at the company’s dealerships for the remainder of the year.
“We’re going to sell what we basically do,” Managing Director Jochen Zeitz told investors on a earnings conference call.
To ease growing cost pressure, the company will impose an average surcharge of 2% starting July 1 on some of its bikes sold in the United States.
The measure, however, will not fully offset the high costs of raw materials.
Inflation concerns overshadowed Harley’s better-than-expected earnings in the quarter through June, proving that Zeitz’s recovery plan was gaining momentum.
The company’s shares fell after a higher opening. They were last traded down 7.3% to $ 40.61.
The 118-year-old American brand, which has not seen sales growth in the United States for the past six years, has once again focused on big bikes, traditional markets like the United States and Europe, and to older and richer customers in an offer to increase profits.
Although the company’s performance in the last quarter was overstated by a favorable statistical base, as most of its dealerships in the United States were hit by lockdowns related to the pandemic last year, it showed that the new strategy was working.
For example, unit sales of its bikes in the United States – Harley’s largest market – were higher than in the second quarter of 2019.
Likewise, the motorcycle maker significantly reduced the share of cheaper, lower-margin models in overall shipments and was able to increase sales despite lower spending on marketing and promotions.
The measures mitigated an impact of around $ 16 million in the quarter due to higher tariffs on its bikes in the European Union – its second largest market.
Harley products in the EU are now subject to a 31% tariff after a ruling revoked credentials that allowed it to ship motorcycles to the Single Currency Zone from its international manufacturing facilities at a duty by 6%. Read more
Citing the higher tariff, the company downgraded its operating profit forecast from motorcycle sales to 6% to 8% in 2021, from an earlier estimate of 7 to 9%.
On an adjusted basis, Harley earned $ 1.41 per share in the quarter, beating the average analyst estimate of $ 1.17 per share, according to IBES data from Refinitiv.
Reporting by Rajesh Kumar Singh in Chicago and Ankit Ajmera in Bengaluru; Editing by Anil D’Silva, Steve Orlofsky and Nick Zieminski
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