IE 11 is not supported. For an optimal experience visit our site on another browser.

Harley’s profit skids, plans to cut 1,100 jobs

Harley-Davidson Inc. said Friday it will cut 1,100 jobs over two years, close some facilities and consolidate others as it grapples with a slowdown in motorcycle sales.
Image: Harley-Davidson Sportster motorcycles
Harley-Davidson motorcycles are reflected in the chrome of a police bike at a dealership, in Omaha, Neb. Harley said Friday it will cut 1,100 jobs over two years and close some facilities as it grapples with a slowdown in demand.Nati Harnik / AP file
/ Source: Reuters

Harley-Davidson Inc. said Friday it will cut 1,100 jobs over two years, close some facilities and consolidate others as it grapples with a slowdown in motorcycle sales.

The Milwaukee-based company also reported its fourth-quarter profit fell nearly 60 percent, and said it is slashing motorcycle shipments in 2009 to cope with reduced demand.

The iconic motorcycle maker said it will consolidate two engine and transmission plants in Milwaukee into its facility in Menomonee Falls, Wis. It will shrink its paint and frame operations in its York, Pa., plant and close its distribution facility in Franklin, Wis., whose duties will be handled by a third party.

Harley also is exiting its domestic transportation operation — its fleet of long-haul truckers who transport parts between manufacturing facilities — and outsourcing duties to a third party. The cuts make up slightly more than 10 percent of the company’s total work force.

“Harley-Davidson is not immune to the current economic conditions,” said Jim Ziemer, the company’s outgoing chief executive, in a conference call. “We’re going to show great discipline in protecting the value of the brand.”

The company said the cuts include 800 hourly production positions and 300 non-production, mostly salaried positions. It said 70 percent of the job cuts will occur this year and the rest in 2010.

In an interview, Ziemer said about 650 of the cuts will be in Wisconsin, while more than 400 jobs will be lost at its facility in York, where its transportation operation is also based. About 85 cuts will be made at the company’s motorcycle plant in Kansas City, Mo., he said.

“Right now, it’s more fear than anything else, and consumer confidence” that’s hurting demand, Ziemer said.

The job cuts will result in one-time charges of $110 million to $140 million over 2009 and 2010, Harley said. Once they are finished, the cuts will save between $60 million and $70 million per year.

Harley has been stung by the rapid downturn in motorcycle demand. The economic recession has prompted many consumers to put off purchases of its high-end bikes, while the credit crunch has kept some would-be customers from obtaining financing.

“It’s industrywide,” said Robin Diedrich, senior consumer analyst for Edward Jones. “It’s the global economy that’s impacting discretionary items, especially something that’s as discretionary as a motorcycle.”

Meanwhile, Harley-Davidson remains in the midst of a shake-up among top management. Chief Executive Jim Ziemer said last month he would retire in 2009, and the company remains in the process of finding a successor. Sy Naqvi, the head of Harley’s troubled financial-services arm, resigned earlier this month. Chief Financial Officer Tom Bergmann has taken on Naqvi’s old duties until a replacement is found.

Ziemer said the company’s board of directors remains on track in its search for his successor, adding that he is committed to staying on the job until the search is complete.

Harley said worldwide retail sales fell 13.1 percent in the fourth quarter, with sales in the U.S. — its biggest market — falling nearly 20 percent. International sales crept higher, though, and the overall heavyweight motorcycle sales fell 25.5 percent in the same period, Harley said.

For the full year, worldwide retail sales fell 7.1 percent.

Harley said it is slashing new motorcycle shipments in 2009 to between 264,000 and 273,000 to cope with the down market. That would be a drop of 10 percent to 13 percent from a year earlier.

In 2008, Harley said it shipped 303,479 new motorcycles, down 8 percent from 330,619 new motorcycles in 2007.

Harley said its fourth-quarter profit fell 58 percent to $77.8 million, or 34 cents per share, for the quarter ended Dec. 31, compared with $186.1 million, or 78 cents per share, in the same quarter last year.

Revenue fell 6.8 percent to $1.29 billion from $1.39 billion in the year-ago quarter.

The earnings fell short of Wall Street estimates. Analysts surveyed by Thomson Reuters expected 57 cents per share on sales of $1.29 billion, on average.

Harley said its financial-services division swung to an operating loss of $24.9 million in fourth quarter, hurt by write-downs totaling $63.5 million. CFO Bergmann said Harley-Davidson Financial Services needs $1 billion in funding in 2009, and is exploring several options to obtain the money, including attempting to access the capital markets and increasing a $500 million commercial paper lending facility it negotiated last month.

Bergmann said delinquency rates on loans from HDFS have crept higher from last year as cash-strapped consumers are having difficulty making payments. The troubled financial arm has hobbled Harley-Davidson recently, and many analysts have suggested the lending unit may have to be sold because it is struggling to unload its debt in the financial markets.

For the full year, Harley said its earnings fell 30 percent to $654.7 million, or $2.79 per share, from $933.8 million, or $3.74 per share, in the same quarter last year. Sales fell 2.3 percent to $5.59 billion from $5.73 billion in 2007.

Analysts expected $3.02 per share on sales of $5.61 billion in revenue for the year. Harley declined to provide earnings guidance for 2009, citing the uncertain economy, but analysts call for $2.15 per share.

Shares of Harley dropped $1, or 8.1 percent, to $11.40 in midday trading after hitting a new 52-week low of $10.07 earlier in the session. The stock is down 69 percent in the last 52 weeks.