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Oct 18

Harley-Davidson shares jump on plans to reduce workforce

Harley-Davidson

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Shares in Harley-Davidson Inc jumped more than nine per cent 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 and to reorganize and reduce its workforce during the fourth quarter. The changes will cost the company US$20 million to US$25 million.

Shares of Harley-Davidson were at US$54.39, up 9.45 per cent in the 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 per cent 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 per cent 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 per cent.

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 US$114.1 million in the second quarter, down from US$140.3 million in the previous year.

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