(Bloomberg) -- Harley-Davidson Inc. reported better-than-expected first-quarter profit and raised a key sales outlook for the year, offsetting the disclosure that it’s facing a potentially damaging tariff fight with the European Union.
Shares of the Milwaukee-based motorcycle maker soared 11% to $44.88 at 11:06 a.m in New York. Harley generated adjusted earnings of $1.68 a share in the first three months, almost twice as much as analysts had expected, it said Monday in a statement.
Chief Executive Officer Jochen Zeitz, who took the helm of the troubled manufacturer last February, has slashed costs and trimmed the product portfolio, and he’s investing more in Harley’s core heavyweight-bike segment. Those cost cuts, combined with a revival of demand in its core U.S. market, powered earnings in the first quarter, the company said.
“We can see the initial signs of consumer excitement and optimism returning,” Zeitz said in a statement. “The actions we have taken to reshape the business are having a positive impact on our results, especially for our most important North American region.”
Retail sales jumped 30% in North America in the first quarter and 9% globally, the company said. European deliveries fell 59%, mired by pandemic lockdowns, shipping delays and the discontinuation of sales of two models there -- the Street and the Sportster.
Harley expects revenue in its motorcycles segment to grow 30% to 35% this year, up from a previous forecast of 20% to 25%, mainly due to a strong recovery in North America.
The numbers are good news for Zeitz, who also plans to invest more in electrification. He has championed Harley’s first electric motorcycle, the LiveWire, and plans to set up a standalone electric-motorcycle division. Earlier this month, Harley nominated Ford Motor Co. Chief Executive Officer Jim Farley to join its board.
The results show Zeitz’s strategy of paring back inventory to push up prices is helping margins, and the introduction of the new sport adventure Panamerica bike at the beginning the spring riding season may also have given sales a boost, William Blair analyst Ryan Sundby wrote in a note to clients Monday. As one of his first moves as CEO, Zeitz shifted the annual release of new product from fall to spring.
The company’s progress in the U.S. was met with a new headwind across the pond in Europe. Harley was notified late Friday that the European Union was revoking the “binding origin information” credentials on all its products -- the workarounds that allowed the U.S. company to sidestep tariffs imposed on its bikes in 2018 by exporting them to the EU from a factory in Thailand.
Under those agreements, Harley bikes faced a 6% tariff in Europe. Now, all of Harley’s products will carry a 56% import tariff, regardless of origin, starting in June. Harley is appealing the decision.
“The potential impact of this decision on our manufacturing, operations and overall ability to compete in Europe is significant,” Zeitz said in a separate statement Monday.
Harley, an iconic American brand with operations in politically important battleground states like Pennsylvania and Wisconsin, has been ensnared in U.S. and European trade negotiations since 2018, when President Donald Trump’s administration imposed 25% and 10% tariffs on foreign steel and aluminum exports, respectively.
The EU rejected the Trump administration’s claim that exports of steel and aluminum from America’s NATO partners posed a national-security threat to the U.S., and responded with retaliatory tariffs of 25% on Harley motorcycles and a range of other iconic U.S. goods, including Levi Strauss & Co. jeans and bourbon whiskey.
Separately, the European Commission and the Biden administration are negotiating a settlement to a long-running dispute over subsidies to Airbus SE and Boeing Co.
The U.S. and EU in March agreed to temporarily suspend tariffs they had imposed on $11.5 billion of each other’s goods for a period of four months while they endeavored to reach a settlement to the 17-year-old trade dispute.
Harley will hold its investor earnings call Tuesday, as was originally scheduled.
(Updates with CEO comment in fourth paragraph, details on EU tariff in seventh.)
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