Fitch affirms ratings for Harley-Davidson

CHICAGO — Fitch Ratings on Monday raised its debt ratings outlook on Harley-Davidson Inc. and two of its subsidiaries, saying the market for heavyweight motorcycles appears to have stabilized and should see sales rise modestly this year.

The credit ratings agency boosted its outlook to "Positive" from "Stable" on the long-term issuer default and senior unsecured ratings of the motorcycle manufacturer, Harley-Davidson Financial Services Inc. and Harley-Davidson Funding Corp.

The ratings remain at "BBB+," an investment-grade rating.

While demand for motorcycles in the U.S. remains well below pre-recession levels, the heavyweight motorcycle market appears to be stabilizing, Fitch said.

The firm anticipates the improving demand this year should give Harley its first year of growth since 2006.

Harley's finances also should benefit from the company's restructuring effort, which it launched in 2009, Fitch said.

The restructuring plan will result in higher operating expenses through next year for Harley, but should ultimately lead to lower costs, the firm said.

The ratings outlook also reflects Harley's efforts to slash its debt over the past several quarters and improve its pension funding position.

Demand for Harley-Davidson motorcycles has recently begun to grow. In the first half of this year, its global motorcycle shipments to dealers rose 7 percent to 120,642 units, while worldwide retail sales of its motorcycles increased 4.8 percent.

The increase in global shipments to dealers and unit revenue drove Harley-Davidson motorcycle revenue up 12 percent in the first half of the year, Fitch noted.

Assuming that the economy doesn't worsen, especially in the U.S., Fitch expects higher shipments and pricing will boost Harley's revenue by at least 10 percent this year.

Still, the potential for another economic downturn and ensuing softening in demand for motorcycles remains a key risk for Harley and its subsidiaries, Fitch cautioned.

Last month, Milwaukee-based Harley said its second-quarter net income more than doubled to $190.6 million from $71.2 million. U.S. retail sales of new motorcycles grew 7.5 percent to 53,599 bikes. Globally, sales rose 5.6 percent.

Harley boosted its shipment forecast for the year. It now expects to ship between 228,000 and 235,000 new bikes worldwide. That represents an increase of 8 percent to 12 percent over 2010 levels.

Shares of Harley fell $1.31, or 3 percent, to $42.08 in afternoon trading Monday.