In a research note provided to Powersports Business following Harley-Davidson’s response to EU tariffs on American-made motorcycles, BMO Capital Markets analyst Gerrick Johnson reports that BMO views “Harley-Davidson's (HOG) response, which is to absorb the costs rather than pass them along to the consumer and to begin the process of transitioning Europe-bound exports to its international facilities, as prudent.
“While these actions negatively affect our EPS estimates, the biggest risk we see is an alienation of some American consumers who may side with President Trump who has angrily criticized HOG's decision to manufacture motorcycles outside of the U.S.”
Johnson notes that Harley-Davidson has had encouraging sales results in Europe, with the retaliatory tariffs “threatening to stall recent momentum.”
“To reflect the impact of these tariffs we are adjusting our earnings estimates accordingly. Our new 2018 EPS estimate is $3.57 (down from $3.75) while our new 2019 estimate is $3.70 (down from $4.15).
“On a long-term basis, HOG says it may transition production of EU-destined motorcycles to its international facilities.
“We think the company’s plans are prudent. In the near term, keeping its motorcycles accessible to European customers by absorbing the tariff impact on its own P&L should help continue recent momentum in the region.
“In the longer term, HOG has international manufacturing options and we believe it is the correct move to use them to avoid even further tariff exposure and uncertainty.
“The overlap between Harley-Davidson owners and Donald Trump supporters is significant. Thus, the President’s angry reaction to HOG’s plan should cause some concern for investors. We see a squabble with the President as risky: is the core consumer more loyal to Harley-Davidson or to Donald Trump?”
Dealers, check your email for the Q2 Dealer Survey from PSB and BMO. Didn’t get the email but want to take the survey? Send me an email at dmcmahon at powersportsbusiness.com. — Dave