Harley-Davidson on Tuesday reported better-than-expected quarterly earnings but warned of declining profitability as it grapples with retaliatory European Union tariffs.
The iconic motorcycle maker stepped into President Trump’s global trade war last month by announcing it would move more motorcycle production overseas to avoid EU duties imposed in response to Trump administration tariffs on foreign steel and aluminum.
CFO John Olin told analysts in an earnings call Tuesday that the company now expects the U.S. tariffs will add $20 million to its costs this year and European tariffs an additional $30 million to $35 million.
Harley also projects that operating margin, a measure of profitability, will decline to between 9% to 10% this year, down from its previous estimate of 9.5% to 10.5%. The company has said it would temporarily eat the costs of the tariffs on its motorcycles in Europe, and take a hit on profits, instead of raising prices.
“Harley’s sales in Europe and other foreign markets have become increasingly important to the company as sales stall at home,” USA Today noted.
For the second quarter, Harley said international retail motorcycle sales rose 0.7% but U.S. retail sales fell 6.4%. Worldwide, retail sales declined 3.6% to $78.4 million.
Net income in the latest quarter fell to $242.3 million, or $1.45 per share, from $258.9 million, or $1.48 per share, a year ago. But excluding manufacturing optimization costs, Harley earned $1.52 per share, beating analysts’ estimates of $1.34 per share.
Revenue of $1.53 billion was down from the year-ago period but outpaced analysts’ estimates of $1.41 billion. In trading Tuesday, Harley shares rose 6.7% to $44.26.
“Our results in the second quarter reflect business performance that is in line with our expectations,” CEO Matt Levatich said in a news release. “With the focus of every employee and dealer, we are making progress building the next generation of Harley-Davidson riders in line with our long-term objectives.”
But Olin warned that the annual impact of the tariffs would be $90 million to $100 million by 2019, representing most of Harley’s profit in the EU.