When it comes to the greatness of the Trump tariffs, Harley-Davidson begs to disagree.
Harley-Davidson Inc. (HOG - Get Report) Chief Financial Officer John Olin said on Tuesday, July 24 the motorcycle manufacturer expects to incur about $45 million to $55 million of increased costs because of the recently enacted tariffs.
Olin's remarks stood in stark contrast to President Donald Trump's Tuesday morning tweet declaring tariffs are great.
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It's as simple as that - and everybody's talking! Remember, we are the "piggy bank" that's being robbed. All will be Great!— Donald J. Trump (@realDonaldTrump) July 24, 2018
The tariffs, however, are clearly far from great for Harley. The Milwaukee-based company was targeted by the European Union last month with fresh import tariffs after Trump imposed 25% levies on non-American steel and aluminum products earlier in the year. Harley decided to move some production overseas as a result, a decision the president greeted with disdain, threatening the company will be "taxed like never before."
Harley now expects incremental costs of about $15 million to $20 million for the duties on steel and aluminum and about $30 million to $35 million for the EU tariffs, Olin said on a conference call with analysts. Though the company plans to absorb a significant portion of these costs through disciplined business management, Harley still lowered its operating margin as a percent of revenue for the motorcycles segment to 9% to 10%, compared to its previous guidance of 9.5% to 10.5%.
"It is our aim to mitigate those [costs] over time but this is going to take some amount of work to get this done," Olin said. "We've never contemplated moving our European volume out of the United States. Consequently, we are analyzing the capacity options that we have, manufacturing costs, supply-chain logistics, and the effort to optimize it and to reduce and mitigate those tariffs. This will go into 2019."
Olin emphasized that the company is working with the Trump administration and all governments involved to try to get these tariffs removed.
"When tariffs were enacted by the EU in the second quarter, it put further pressure on our business, and we made the best decision given the circumstances," said Olin. "We will continue to make the best business decisions for Harley-Davidson and our stakeholders based on the facts and circumstances before us, and we will continue to build Harley-Davidson motorcycles for our U.S. riders in the United States, as we have for our entire 115-year history."
Harley is scheduled to share plans to accelerate its strategy to deliver new products and reach the next generation of riders on July 30.
Shares of Harley rose 7% to $44.37 at 11:00 a.m. New York time on stronger-than-expected second-quarter results.