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Harley looks abroad to juice sales as tariffs hit home

While U.S. sales of Harley-Davidson motorcycles have slipped

While U.S. sales of Harley-Davidson motorcycles have slipped recently, international  sales are rising. Credit: AP/Nam Y. Huh

Shares of Harley-Davidson jumped nearly 7 percent Tuesday afternoon after the Milwaukee motorcycle company reported financial results that beat investors' expectations.

The company also said it expects new tariffs to increase the company's annual costs by as much as $100 million as long as the trade dispute between the United States and other countries goes on.

Executives with the Milwaukee company spoke with investors Tuesday for the first time since announcing last month that production of motorcycles sold in Europe would move overseas in order to avoid retaliatory tariffs the EU is imposing on American exports.

That announcement unleashed a series of critical tweets from President Donald Trump.

With sales stagnant at home, Harley-Davidson has looked increasingly overseas for buyers of its iconic motorcycles. The company did not discuss Trumps' criticism, but CEO Matt Levatich stood by its decision to move some production overseas because of the tariffs.

"It put further pressure on our business and we made the best decision based on the circumstances," he said.

Harley-Davidson said it's working with the Trump administration and other governments to try to get the tariffs removed.

In the short term, the cumulative impact from the tariffs will increase Harley-Davidson's costs as much as $55 million this year, the company said. Costs from raw materials subject to tariffs, like steel and aluminum, account for $15 million to $20 million, and the EU tariffs add another $30 million to $35 million, according to Harley-Davidson.

On average, the EU tariffs will increase the cost of motorcycles sold in Europe by $2,200, but the company is absorbing all of those costs, rather than passing price hikes on to customers.

The importance of overseas markets to Harley-Davidson plays out every quarter in its sales numbers.

U.S. sales slid 6.4 percent in the most recent quarter, and they're down 8.7 percent at the halfway point of the year.

At the same time, international sales rose 0.7 percent in the quarter, and 0.5 percent over six months.

For the three months ended July 1, Harley-Davidson Inc. earned $242.3 million, or $1.45 per share. A year earlier the Milwaukee company earned $258.9 million, or $1.48 per share.

Stripping out manufacturing optimization costs, earnings were $1.52 per share. That easily beat the $1.35 per share that analysts surveyed by Zacks Investment Research were calling for.

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