Harley says strike in York cut profit

18% drop reported as labor talks loom

April 20, 2007|By Rick Barrett | Rick Barrett,Milwaukee Journal Sentinel

As Harley-Davidson Inc. gears up for contract negotiations with its labor unions in Milwaukee and Kansas City, Mo., shareholders were reminded yesterday of the strike in York, Pa.

That work stoppage in February, at Harley's largest motorcycle assembly plant, caused the company to lower its earnings expectations for the year. The company also blamed the strike, and lackluster U.S. sales, for an 18 percent drop in first-quarter profit.

Harley said net income for the three months that ended April 1 fell 18 percent to $192.3 million, or 74 cents a share, from $234.6 million, or 86 cents, a year ago. Revenue fell 8.3 percent to $1.18 billion from $1.29 billion last year.

As a result of the strike, Harley produced about 14,000 fewer motorcycles.

"Strikes are never good. No one wins in a strike, and anyone who thinks otherwise doesn't understand very much about Harley-Davidson and the degree to which our relationships with all of our stakeholders are such an important part of our success in the marketplace," Jim Ziemer, the company's chief executive officer, said in a conference call with analysts.

Ending the work stoppage, union workers in York overwhelmingly approved a new labor agreement on Feb. 22 that called for a 12 percent wage increase over three years. Starting wages for new employees will be lower, but they will be able to advance to the same maximum rate earned by current employees.

This summer, Harley will begin negotiating a new labor contract in Kansas City. The next round of negotiations for Milwaukee will begin early next year.

The York strike left Harley and the International Association of Machinists and Aerospace Workers at odds with each other.

"Frankly, the relationship was strained. But at the same time, the strength of the relationship is what gets us through the tough situations like this," Ziemer said. "Just like with any other family, we have disagreements from time to time. But because we all knew it was important to find a mutually beneficial set of terms that we could agree to, we kept talking."

Harley's first quarter was primarily "a story of the strike's impact on the business," said Thomas Bergman, Harley's chief financial officer.

"We are not happy with the financial results ... but they are to be expected because of four weeks of lost production at our largest manufacturing facility," Bergman said in the conference call.

Analysts said the strike cost Harley millions of dollars a day in sales. But some industry observers said it wasn't so bad because Harley had made too many bikes, and the production slowdown helped dealers clear out some inventory.

Harley's sluggish performance shouldn't be blamed on the strike, said Thomas Boger, business representative for International Association of Machinists and Aerospace Workers District 98, in York.

The company might have lost production of 14,000 motorcycles, but it isn't attempting to recover much of that, Boger said.

"It tells you that sales were soft," he said.

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