Harley-Davidson Isn’t Abusing Tax Cuts to Outsource Jobs, though It Has a Bigger Problem

Critics recently have indicted Harley-Davidson (NYSE:HOG) of regulating a income it is saving interjection to a new taxation remodel to trade jobs to Thailand, and to intemperate division hikes and batch buybacks on a shareholders, rather than regulating those supports to save U.S. jobs.

While a motorcycle hulk did lift a dividend, and says it will continue to repurchase shares, Harley says those dual choices have zero to do with a new taxation law, and that it usually distributes income to shareholders after it invests in a business. Also, pronounced management, a enlargement into Thailand was a business necessity, and a preference was done before to any announcements around a taxation overhaul. 

Motorcyclist roving underneath a bridge

Image source: Harley-Davidson.

Consolidating in a down market

Harley-Davidson is a plant of a slowing motorcycle market. First-quarter sales slid 12%, a many steeper decrease than a 8.5% dump it suffered in 2017, and worse than a altogether dump off in a attention broadly.

Baby boomers, who were a many unchanging buyers of motorcycles for over a decade, were too harm by a retrogression to lapse to their prior shopping levels, and are now aging out of a marketplace altogether.

Those who are shopping — younger, some-more mostly civic riders, as good as women — aren’t captivated to a same kind of motorcycles as those boomers were. Although Harley and opposition Polaris Industries (NYSE:PII), that owns a Indian Motorcycle brand, commend this changing demographic, their designs haven’t practiced adequate to make a large adequate impact.

It’s a usually disappearing marketplace with too many capacity, and Harley-Davidson is being advantageous in consolidating a U.S. production facilities. While a closure of a Kansas City, Missouri, bureau means a detriment of around 800 jobs there, some 400 new jobs will be combined in a York, Pennsylvania, bureau where a work is being transferred.

And yet Harley-Davidson is opening a plant in Thailand, it’s not a outcome of exporting jobs overseas, though rather an try to accommodate a final of a market, as good as to negate protectionist trade policies.

Going where a sales are

The bike builder is looking to boost general sales to 50% of a total. Currently, a U.S. accounts for scarcely two-thirds of a total, or 148,000 of a scarcely 243,000 motorcycles it sole final year. International sales came in during only underneath 95,000 bikes.

Yet, as U.S. sales plunged in a initial quarter, they augmenting incrementally overseas. Although sales in a Asia Pacific segment fell scarcely 8% in a initial entertain and were down by a like volume in 2017, motorcycles done in a U.S. and exported to a segment face estimable tariffs, making them uncompetitive with locally constructed bikes.

For example, Thailand imposes 60% tariffs on motorcycle imports. If Harley fabricated a bikes there, they would shun a duties, that is partial of a reason for a new factory, approaching to go live after this year. Once that happens, Harley will be means to boat some-more bikes to other Asian markets as good though confronting identical tariffs since of trade agreements between a member countries of a Association of Southeast Asian Nations.

It also reduces a shipping distances to China, that is apropos a flourishing marketplace for foreign-made motorcycles. Harley says it would reduced float time from 45 to 60 days for bikes built in a U.S. to only 5 to 7 days.

But U.S. jobs are not removing axed in a process, as Harley-Davidson will make a tools for a bikes in a U.S., and boat them abroad for assembly, only as it does for a comforts in Brazil and India. So no American jobs are being mislaid to a new plant.

The association positively faces a high sequence in augmenting tellurian sales to comment for half a total. To pierce them into relation with a U.S. would need Harley to significantly boost general sales. Harley-Davidson wants a sum marketplace to expand, and wants to pierce during slightest another 2 million riders to a code over a subsequent decade. Considering a decrease in U.S. sales lately, that puts an even larger importance on a general market. Making a bikes rival in cost is an constituent partial of that, so removing around a tough tariffs is a intelligent move.

HOG Stock Buybacks (TTM) Chart

HOG Stock Buybacks (TTM) information by YCharts.

Spending income on itself

With that said, it is tough to clear Harley-Davidson’s batch buybacks other than as a means of propping adult a per-share earnings. Its batch has mislaid 20% of a value over a past year, and is down by over 25% from a 52-week high. Yet final quarter, government spent $65 million repurchasing 1.4 million shares, that authorised it to post increase of $1.03 per share, only dual cents next a EPS it available a year ago. Had diluted shares superb remained consistent from 2017, Harley would have reported gain of $0.99 per share.

There are arguments to be done for buybacks, such as well allocating capital, or gripping a expansion in a series of superb shares due to insiders sportive batch options in check. And there are times when a association doesn’t have a improved place to spend a money. But that final reason positively doesn’t request with Harley.

It needs to build bikes consumers wish to buy and float if it wants to sojourn competitive, and it does contend dividends and buybacks come after such reinvestment, though so far, it has mostly built bikes out of sync with what a marketplace desires. 

We can oppose with either Harley-Davidson should be building an electric motorcycle, or only how many cruisers it needs to make in a year compared to a a series of smaller, lighter bikes. But it is wrong to advise that it is pocketing income during a responsibility of a employees. Harley is holding required stairs to make a U.S. business cost-efficient while ensuring a general business stays competitive.

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