Motorcycle maker Harley-Davidson Inc. said Wednesday that the staff of the Securities and Exchange Commission is launching an inquiry into the company’s April announcement that it would limit short-term production and decrease planned motorcycle shipments.
Separately on Wednesday, Harley-Davidson reported that second-quarter earnings declined 4 percent from last year, as lower motorcycle shipments outweighed a modest rise in revenue. However, the company’s results beat Wall Street expectations, and Harley-Davidson also raised its full-year earnings growth target.
On April 13, Harley-Davidson said it would increase motorcycle shipments from last year’s 317,000 units to a target of 329,000 units, below original plans of 339,000 units. The company also lowered earnings forecasts for the year, citing weak first-quarter sales and a glut of 2005 models on dealer floors. In response, Harley-Davidson shares plunged nearly 17 percent to their lowest price in more than 14 months.
After that announcement, a number of shareholder complaints were filed in the U.S. District Court for the Eastern District of Wisconsin.
In an 8-K filing with the SEC on Wednesday, Harley-Davidson said SEC staff also is investigating certain allegations contained in the shareholder complaints. The Milwaukee-based company said it is cooperating with the SEC, and noted that in light of the pending shareholder litigation, it wasn’t surprised by the inquiry.
In multiple complaints, the company’s shareholders allege that Harley-Davidson misrepresented or disregarded certain facts — including that the gap between consumer demand for Harley’s products and the available supply had disappeared; that the company, in an effort to mask the decline in demand, shipped excess inventory to dealers; and that the profitability of the company’s Financial Services division was being hurt by interest rate fluctuations.
Despite company claims of a “gap” between supply and demand, shareholders allege that Harley-Davidson’s continued “channel stuffing” — or padding shipments to dealers — had caused distribution channels to become saturated.
Shareholders also charge that Harley-Davidson’s financial results were materially inflated at all relevant times, and that its growth projections “lacked any reasonable basis when made.” Certain complaints allege that shipments to dealerships actually exceeded demand by tens of thousands of units in 2003 and 2004, and that annual shipment numbers significantly overstated the company’s progress and prospects compared with Harley-Davidson’s 2007 retail sales goal.