Harley-Davidson plans to gear down output

The motorcycle maker cut its earnings projections for the rest of the year.

MILWAUKEE (AP) — Harley-Davidson Inc., which has been slowing down for the past few years, has hit a serious rough patch as even its upwardly mobile customer base thinks twice about dropping thousands of dollars on a classic motorcycle.

The maker of one of America’s most iconic rides said Thursday that it will cut its work force by 8 percent and trim bike shipments by the thousands with domestic sales falling nearly 13 percent in the first quarter.

Chief Executive Jim Ziemer said Harley-Davidson has had temporary production cuts over the past four years, but the hundreds of layoffs announced Thursday are the first of that magnitude in two decades.

Expectations for the rest of the year are not good. The Milwaukee-based company cut its guidance for 2008, saying it expects earnings to decline by 15 percent to 20 percent. Previously it predicted growth of as much as 7 percent.

“We’re looking at a difficult economy right now,” Ziemer said in an interview. “We don’t see this changing any time soon so we need to make these changes permanent.”

Some analysts are more pessimistic still.

U.S. sales were down in the high teens in the past six weeks, Citigroup analyst Greg Badishkanian wrote in a research note, and he said the drop in Harley’s guidance may not be low enough.

Shares fell rapidly to a 52-week low at one point of $34.10 early Thursday. Shares were trading down just 65 cents to $36.14 by the afternoon, but still well off the $66 that Harley fetched within those same 52 weeks.

Net income for the quarter ended March 30 was down 2.5 percent to $187.6 million, or 79 cents per share, compared with a profit of $192.3 million, or 74 cents per share, a year ago. Revenue increased 10.8 percent to $1.31 billion from $1.18 billion a year ago.

The earnings beat the expectations of analysts, who were looking for a profit of 77 cents per share on revenue of $1.23 billion, according to a poll by Thomson Financial.

But for the year ahead, Harley-Davidson cut its earnings per share expectations to between $3 and $3.18. Wall Street had expected $3.62, according to Thomson.

Worldwide retail sales of Harley-Davidson motorcycles fell 5.6 percent in the quarter. The U.S. heavyweight motorcycle market, of which Harley has about a 50 percent share, saw sales drop 14 percent in the quarter.

Overseas sales were up 16.8 percent in the first quarter, but that represents only about a third of all Harley shipments.

To achieve the cuts, Harley will temporarily idle plants and change daily production rates, Ziemer said. These changes will result in the loss of about 370 unionized employees over the next several months, he said. About 80 percent of those cuts will be at the company’s largest plant, in York, Pa., which has more than 2,770 hourly workers. About 14 percent of the cuts will be at plants in Milwaukee, the company said. It’s not clear where the remainder will be. The company has plants throughout Wisconsin and in Kansas City.

In addition, the company will cut about 360 nonproduction jobs — the bulk of those will most likely be at Harley-Davidson headquarters in Milwaukee.

Harley-Davidson has about 5,600 production workers and 3,560 nonproduction workers.