CHICAGO (Reuters) - Harley-Davidson Inc said on Friday that it will cut nearly 12 percent of its workforce and close several plants as the global pullback in consumer spending crushed its earnings even worse than Wall Street had expected.
The quarterly results, which were also pulled down by a big loss at the motorcycle maker's in-house finance unit, sent Harley's already battered shares sharply lower.
Manufacturers of discretionary items like motorcycles, boats and recreational vehicles have been especially hard hit by the confluence of economic problems.
The contraction in U.S. house prices, the Wall Street meltdown, loss of consumer confidence have relegated the industry's pricey products to the bottom of most households' to-buy lists.
The breakdown in the credit markets and surge in unemployment have only added to the industry's problems.
Analysts at Goldman Sachs think Harley's sales in the United States -- its largest and most important market -- will tumble 30 percent this year, the largest decline since the early 1970s.
Harley said it was taking several actions to cut costs, including plant closures that would result in the elimination of 1,100 jobs. The company employs about 9,000 workers, according to its most recent annual report.
Its fourth-quarter net income fell 58 percent to $77.8 million, or 34 cents a share, from $186.1 million, or 78 cents a share, a year earlier.
That was well below the 57 cent a share profit analysts had expected the company to report, according to Reuters Estimates.
Edward Aaron, an analyst at RBC Capital Markets, called the results "a big miss."
During the fourth quarter, worldwide retail sales of Harley motorcycles fell 13.1 percent, pulled down by a 19.6 percent drop in the U.S. But sales also fell in once-robust overseas markets, including Latin America, which saw a 28 percent decrease.
In response to the slowdown, Harley said it would slash its production of motorcycles in 2009 by as much as 13 percent.
"We reduced our production levels prudently in 2008, helping our dealers achieve lower inventory levels," Jim Ziemer, the outgoing chief executive, said in a statement, "and we're going to show similar discipline in 2009."
But Aaron at RBC wasn't sure. "It's not clear to us that this cut will be sufficient."
Along with the production cuts, Harley said it would combine its two engine and transmission plants, consolidate paint frame operations into one facility, and close its parts and accessories distribution center. In the future, Harley said it would use a third party to distribute those products.
The 1,100 jobs to be cut over 2009 and 2010 include about 800 hourly production positions. Harley said most of the layoffs would occur this year.
ROUGH SLEDDING
The contraction in consumer spending on bikes, boats, all-terrain vehicles and RVs isn't the only problem dogging Harley.
Over the past six weeks, the company has announced the departure of two top executives, adding boardroom uncertainty to its challenges.
In mid-December the company said that Ziemer, 58, would retire as CEO sometime in 2009 after only four years at the helm.
Then, in early January, it announced that Saiyid Naqvi, the head of its critical in-house finance unit, had resigned and left the company less than two years after joining it from the world of mortgage lending.
Naqvi's abrupt departure from Harley Davidson Financial Service was the latest trouble at the in-house lending unit, which helps more than half of Harley's customers finance the purchase of their bikes.
That unit, which accounted for about 15 percent of Harley's operating profit of $1.4 billion last year, relies on a healthy securitization market for both its operations and profits -- and that market has been largely paralyzed as a result of the credit crisis.
The economic downturn has added to its problems. In the fourth quarter, higher projected credit losses at the unit forced Harley to take writedowns of $35.1 million on retained securitization interests and $28.4 million on finance receivables held for sale.
The company's shares, which have lost 75 percent of their value since September, fell another 10 percent in early trading to $11.20.
(Reporting by James Kelleher; Editing by Lisa Von Ahn and Derek Caney)
