Harley cuts outlook, to slash output

Bikers ride motorcycles during the International Harley-Davidson festival in Alsoors, 68 miles west of Budapest, June 16, 2007. Iconic motorcycle maker Harley-Davidson is slated to report first-quarter earnings on Thursday, and analysts and investors are keen to see if the company can turn itself around and get its shares moving back in the right direction after falling more than 40 percent over the past year. (REUTERS/Laszlo Balogh (HUNGARY))

CHICAGO (Reuters) - Harley-Davidson Inc <HOG.N> said on Thursday it would report full-year earnings well below its forecast, slash production and lay off hundreds of workers as the U.S. economic slowdown crimps demand for its iconic motorcycles.

The company, whose shares fell more than 7 percent in pre-market trading, expects earnings to fall 15 percent to 20 percent in 2008, resulting in earnings of $3.00 to $3.18 per share. It previously forecast growth of 4 percent to 7 percent in 2008, which translated into $3.89 to $4.00 per share.

Robin Farley, an analyst at UBS, characterized the forecast revision as a "massive guidance cut."

The company blamed the shortfall on economic difficulties in the United States, its biggest and most important market, where a housing market slump and a related tightening in credit markets have forced U.S. consumers to rein in spending.

"With growing weakness in the economy, U.S. retail sales of Harley-Davidson motorcycles were down 12.8 percent in the first quarter," said Jim Ziemer, the company's chief executive, in a statement.

As a result, Harley expects to ship 23,000 to 27,000 fewer bikes in 2008 than it did in 2007 and would temporarily shut down some plants in the coming months. It said 370 unionized employees and 360 non-factory employees would lose their jobs.

The news came as Harley reported a first-quarter net profit of $187.6 million compared with $192.3 million last year. Earnings per share rose to 79 cents a share from 74 cents a share, due to a lower outstanding share count. Sales during the quarter rose 10.8 percent to $1.31 billion.

Harley's results were also pulled down by its in-house financing arm, where operating income plunged nearly 41 percent because the turmoil in credit markets reduced income from the loans the unit securitizes.

A 3.3-percent decline in parts and accessories revenue also weighed on the company earnings.

Dealers have reported that the company's finance arm, in an effort to tighten up credit standards and ease concerns on Wall Street, has lowered the amount of money it will lend buyers to just 100 percent of the cost of a new bike.

In the past, it was willing to give loans that were 130 percent of the cost of the bike, which gave customers money to customize their bikes with saddlebags, extra chrome and other high-margin add-ons.

Outside the United States, sales continued to grow, rising 7.8 percent in Europe, 19.5 percent in Asia, 31.1 percent in Canada and 53.3 percent in Latin America.

Harley shares were trading down $2.79, or about 7 percent, at $34.50 ahead of the opening bell.

(Reporting by James B. Kelleher; Editing by Derek Caney)

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