Harley-Davidson (NYSE: HOG) reported a 19% drop in earnings for the second quarter of 2019 as lower shipments dragged motorcycles revenue down. However, the results exceeded analysts’ expectations.

Net income decreased by 19% to $195.63 million or $1.23 per share. Adjusted earnings declined by 4% to $1.46 per share. Consolidated revenue declined by 5% to $1.63 billion.

Harley-Davidson worldwide retail sales decreased 8.4% due to a 8% drop in US retail sales and a 8.9% decrease in international retail sales. Continued weak industry sales hurt the US while weakness in developed international markets on the lapping of strong initial sales of new models introduced last year impacted the international.

Harley-Davidson Q2 profit drops 19% but beats estimates

The company made progress towards its plan to build more riders through its More Roads to Harley-Davidson accelerated plan for growth and expects to substantially mitigate incremental EU and China tariffs early in the second quarter of 2020.

Looking ahead into the full year 2019, the company expects Financial Services segment operating income to be down year-over-year and effective tax rate of about 24% to 25%. Capital expenditures are anticipated to be about $225 million to $245 million, including $20 million to support manufacturing optimization.

Harley-Davidson recently obtained regulatory approvals confirming that motorcycles shipped from the company’s Thailand operations to the EU would receive more favorable tariff treatment than if they were shipped from the US. The company adjusted 2019 outlook as a result of the timing of these approvals and softer than expected European retail sales as key drivers.

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For 2019, the company expects motorcycle shipments to be about 212,000 to 217,000 and motorcycle segment operating margin as a percent of revenue to be about 6% to 7%. For the third quarter, the company expects to ship about 43,000 to 48,000 motorcycles.

Harley-Davidson ridership in the US has been up each year since 2001 and at an all-time high of over 3 million riders in 2018. In the US, rider training participation was up with the greatest increase among 18-34 year-olds. The mix of 18-34 year-olds was 2.7 percentage points of the total US new retail sales in the second quarter.

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Harley-Davidson’s strategic objectives through 2027 are to build 2 million new riders in the US, grow international business to 50% of annual volume, launch 100 new high impact motorcycles and do so profitably and sustainably. The company plans to maintain its investment and return profile and capital allocation strategy, while it funds strategic opportunities expected to drive revenue growth and expand operating margin through 2022.

Starting in the first quarter of 2018, the company began work to close its wheel manufacturing facility in Australia and consolidate its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa. Full year savings of $25 million to $30 million for 2019 and ongoing annual cash savings of $65 million to $75 million after 2020 are still expected. For 2019, the company now expects to incur $40 million to $50 million of operating expense for this initiative.

Shares of Harley-Davidson closed Monday’s regular session down 1.64% at $34.28 on the NYSE. Following the earnings release, the stock declined over 2% in the premarket session.

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