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Announcements of Plans to Reorganize, Slow Production Workforce Helps Harley-Davidson Stocks to Soar


Announcements of Plans to Reorganize, Slow Production Workforce Helps Harley-Davidson Stocks to Soar
As the market shrugged off sluggish U.S. retail motorcycle sales, shares in Harley-Davidson Inc  jumped more than 9 percent.
After the company announced plans to reorganize and reduce its workforce during the fourth quarter and streamline its operation in a move that will cost the company $20 million to $25 million, Harley's shares touched a two-month high.
Shares of Harley-Davidson were at $54.39 up 9.45 percent in 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.
In an effort to work through high inventory levels, it also plans to slow production, the Milwaukee, Wisconsin-based company also said. Stoking hopes sales could pick up in the coming quarters, the company's new engine models also ignited some demand in September.
"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.
According to Motorcycle Industry Council data, for the nine months ended Sept. 30, U.S. motorcycle registrations fell about 5.6 percent to 279,013.
The company's largest market is the U.S. and there has been weak sale in this region. And hence according to expectations, the company reported a lower quarterly profit on Tuesday, a lower net income and weaker earnings per share.
During the third quarter, Harley-Davidson's retail motorcycle sales fell 7.1 percent in the United States. The company's total global retail sales, which fell 4.5 percent was dragged down by weak U.S. industry trends.
Many Americans are putting disposable income toward automobiles, rather than motorcycles said Arun Kumar, an AlixPartners consultant.
"The U.S. consumer is electing to upgrade to a luxury vehicle," Kumar said.
Some market enthusiasm regarding Harley's 2017 motorcycle lineup and positive September sales was noted by RBC Capital Markets analyst Joseph Spak. However he 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.
Down from $140.3 million in the previous year, its net income was $114.1 million in the second quarter, the company said.

In line with expectations, earnings per share decreased to 64 cents from 69 cents a year ago. Revenue was $1.27 billion, down from $1.32 billion but beating forecasts for $1.09 billion.
The main factor for weaker retail sales was cited to be the continued slowed U.S. motorcycle industry growth by the motorcycle manufacturer. Details of its reorganization plans or initially how many jobs may be impacted were not given by Harley-Davidson.
"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.
Down from $140.3 million a year ago, its net income was $114.1 million in the second quarter, the Milwaukee-based company said.