Harley-Davidson's upbeat forecast soured by EU tariffs ruling

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Motorcycle manufacturer Harley-Davidson has raised its full-year earnings forecast after far exceeding analysts' quarterly profit estimates, giving credence to CEO Jochen Zeitz's decision to focus the company on the more profitable range of touring bikes instead of cheaper entry-level models.

Shares in Harley have soared by 36% since February and its last earnings report. On Monday, shares were up 10% to $44.38, after rising up to 15%.

The good news for the motorcycle maker has been dampened however by a new ruling in the EU - its second-biggest market - that will see all its products subjected to an import tariff of 56% from June.

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The new ruling will take away the credentials under which Harley can currently ship certain motorcycles from its global manufacturing facilities to the EU with a tariff of just 6%.

Harley has said that if it cannot mitigate the impact of the additional EU tariffs its operating profits for 2021 - forecast to be 7-9% - would be impacted.

Harley reported a 31% year-on-year leap in retails sales in the US last quarter, the first increase in its largest market in six years.

According to EdwardJones analyst Brian Yarborough, the decision by the company to cut inventory and bring forward the launch of new models from August to January, together with the stimulus payments to US households, both helped the company's earnings.

However, the challenge of attracting younger customers to drive sustainable growth still remains, Yarborough told Reuters. 

This problem is one explanation as to why profits are still down around 40% from their 2014 high point, with some investors concerned that the company's profit focus does little to address the brands appeal to younger riders.

Also read: Harley-Davidson "May Consider" Manufacturing In Europe Over Tariffs

During Zeitz's time as CEO, Harley-Davidson has moved away from cheaper entry-level models and has ramped up investment in touring bikes, large cruisers and trike bike segments, which drive profits.

To build brand loyalty and attract new, younger customers, the company is rolling out a certified pre-owned bike program, an adaption of a strategy that automakers have been following for years.

Harley expects revenues from its motorcycle business to surge 30% to 35% in 2021, compared with a 20% to 25% increase estimated in February.

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