Harley reduces shipment of cycles

By Ryan Nakashima
Associated Press

MILWAUKEE — Jim Ziemer, a former elevator operator who became the voice of Harley-Davidson on Wall Street, is about to become the firm's new CEO, but the road ahead may be bumpy. The United States' iconic motorcycle maker warned yesterday that it is cutting shipments due to flat sales.

Ziemer

The company cut its shipment and earnings forecasts for the year because of flat U.S. retail sales, although it met analysts' first-quarter expectations with $227.2 million in earnings, up 11 percent.

Ziemer attributed the cutback in shipments to the company's desire not to have too many 2005 bikes around when the 2006 models come out in June. But he said demand still exceeds supply and the company still projects earnings growth in the mid-teens beyond this year.

Harley-Davidson shares fell $9.84, or 16.7 percent, to close at $48.93 yesterday on the New York Stock Exchange.

Ed Aaron, an analyst with RBC Capital Markets, said Harley is at a turning point. Demand has been ahead of the company's ability to produce bikes until now, and yesterday's report was the first concrete indication of the true demand growth for Harley, he said.

"It's a well managed company with still one of the strongest brand names in consumer products, but I just question whether the company can grow its production 7 to 9 percent in an environment where demand doesn't seem to be growing at that rate," he said.

The lingering problem dogging Harley-Davidson is the graying of its core consumers — rockers who grew up in the 1960s and '70s and earned the motorcycle maker its cult-like following.

Ziemer, a 55-year-old grandfather of three, told The Associated Press he sees nothing wrong with having middle-aged men as a base.

"I can only think of pros and no cons," said Ziemer, who owns two Electra Glide motorcycles and a Road King, and often commutes to work on one of them.

"People don't stop riding when they hit 55," he said.

Others said his chief challenge will be broadening Harley's appeal.

"If they're going to do anything close to the goals they've got out there, that's what they've got to do. That's something that's pretty difficult," said Jake Balzer, senior equity analyst at Guzman & Co., who said the company's forecasts were still far too aggressive.

"There aren't a lot of the younger generation that can afford to run out and buy a Harley-Davidson," he said. "These are expensive bikes."

Analysts say Ziemer, the chief financial officer who handles conference calls with analysts, is a natural fit to replace CEO Jeff Bleustein, who announced his retirement in December. Bleustein will continue as chairman of Harley-Davidson's board of directors.

Bleustein is a former Yale engineering professor who took part in a management buyout of the ailing company in 1981, helped it improve the quality of its product and put it back in the lead among heavyweight motorcycle makers in the United States.

Ziemer, who joined the company in 1969 as a freight elevator operator and once walked to work, lived through the tough times and has worked in nearly every area of the company.

Because of that, longtime dealers say Ziemer has earned their trust.

"He has the information with where we're going, but he's also rooted in where we've been," said Kirk Topel, who for 27 years has co-owned the Hal's Harley-Davidson dealership in New Berlin, Wis.

"It's not a situation where a change of management is required to shake up or wake anybody up," Topel said. "We're doing the things we need to do."