William Blair Downgrades Harley-Davidson Pending Consistent Return To Retail Sales Gains

William Blair has downgraded the rating on Harley-Davidson Inc

to Market Perform from Outperform, pending a consistent return to retail sales gains and more meaningful EPS growth. The analyst also warned that the company's 2016 shipping guidance could be in "jeopardy." "With a soft start to the year, 2016 shipment guidance of 269,000 to 274,000 bikes (up 1% to 3%) could already be in jeopardy. However, we expect management to reiterate motorcycle operating margin guidance of 16% to 17% (versus 16.5% in 2015 and our 16.5% estimate), according to a note from the brokerage. William Blair cut its 2016 shipment growth outlook to 1 percent from 2 percent, saying "although we cannot rule out further downward revisions at this juncture." "We project motorcycle shipments of about 79,000, down 1 percent and versus guidance of 78,000 to 83,000. Given continued currency headwinds, we project total revenues will decline about 2 percent, to $1.47 billion, versus the consensus of $1.50 billion," the brokerage added. Combined with sales declines in Europe and Latin America, the brokerage sees global retail sales to fall about 2 percent, versus a decline of 0.6 percent in the fourth quarter. The brokerage also expects gross margin to decline 200 basis points, to 37.1 percent, as unfavorable currency, unfavorable mix, and start-up costs associated with the implementation of ERP in Kansas City more than offset pricing and productivity gains. "While we believe shares may prove attractive over the longer term from an EV/EBITDA of roughly 12 times our 2016 estimate, we find that to be of little solace in the near term given continued risk to those estimates," the brokerage concluded. Shares of motorcycle maker closed Wednesday's session down 7 percent. In the pre-market, they further dropped 1.6 percent to $45.60.