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Harley-Davidson Inc. said it started tacking on surcharges on select motorcycle models this month, but that only partially offsets raw materials and freight inflation that is expected to last at least through the end of the year.
Earlier Wednesday, the company reported second-quarter profit and revenue that beat expectations, as motorcycle sales doubled from a year ago, but remained below levels seen in the same period in pre-pandemic 2019.
The company said that, like many other companies from many different sectors, it expects to continue to face headwinds from rising costs and supply chain challenges, and may not be doing enough to stop them.
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The stock
HOG,
quickly reversed early intraday gains of as much as 0.7%, to slump 6.4% in afternoon trading. That put the stock on track to close at a three-month low.
Regarding supply chain “complications,” Chief Executive Jochen Zeitz said on the post-earnings conference call with analysts that while they have improved in North America, they continue to impact international operations. He indicated that the challenges are being managed on a day-to-day basis, as they are not something that can be predicted.
Regarding inflation, however, the company told analysts, according to a FactSet transcript:
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“We have continued to see inflation across all modes of freight, as well as raw materials, and we are forecasting this to continue throughout the fiscal year.”
”
For raw materials, the company said the most increased costs were primarily in the aluminum and steel markets, while lumber costs have started to settle down.
To fight the effects of inflation, CFO Goetter said the company implemented an average 2% pricing surcharge on select motorcycle models in the U.S., starting July 1, for the remainder of model year 2021.
Given that input costs are expected to remain “elevated” through the second half of the year, “the 2% surcharge will not completely offset what we’re seeing come at us but it…will do a good, good part in offsetting much of that.”
If there is good news for Harley, it’s that inflation is widespread enough that customers do seem to be upset about paying more for bikes.
“We have not seen any pushback,” Harley executives told analysts, according to a FactSet transcript. “Obviously it’s early days, but overall I think the market understands and dealers and customers understand that we needed to pass on some of the price increases in the price pressures we’re seeing in the market.”
Whether the 2% surcharge will last into 2022, however, has not yet been decided.
Harley’s stock has gained 11.8% year to date, while the S&P 500 index
SPX,
has advanced 15.9%.
