Harley-Davidson rumbles on amid painful restructuring

Though Harley-Davidson stock has benefited from a general rise in share prices in recent weeks, which culminated in the Dow Jones industrial average topping the 10,000 mark on Wednesday mark for the first in about a year, Wall Street sees promise in the Milwaukee-based company's plan to ride to greater profitability.

Those include a decision announced Thursday to discontinue its Buell line and sell its MV Agusta brand, part of a "single-brand strategy" that will result in Harley-Davidson exiting the lighter sport-bike market to focus on its beefier, core bikes. The move was sudden, especially when viewed in light of the fact that Harley-Davidson acquired Italy-based MV Agusta just last year for $109 million as part of a plan then to expand into the premium sport market.

The Buell and MV Agusta lines just aren't as profitable as the company's core products, said Harley-Davidson Chief Executive Keith Wandell.

"The return that we generate from a sale of an MV Agusta or even a Buell, it's far less than the return we get on a Harley-Davidson," Wandell told the Associated Press.

Harley decided to discontinue Buell, rather than sell the brand, because unlike MV Agusta, it is not a stand-alone business, reported the Journal-Sentinel newspaper. The move will result in the loss of 100 salary and 80 hourly jobs by mid-December. Those cuts are on top of the 2,000 layoffs announced at Harley-Davidson headquarters and factories earlier this year. Also at risk are 2,300 jobs at the company's York, Pa., plant, which Harley said isn't competitive. A decision about its fate is expected in December.

As painful as such restructuring plans can be, investors generally view them as promising. RBC Capital Markets raised its rating on HOG to Outperform from Sector Perform on Friday. The firm believes Harley-Davidson has significant upside potential.

Investors also like Harley's plans to expand into Asian markets. In India and China, a new influx of wealth is resulting in purchases of bigger bikes. Harley-Davidson recently said it will begin selling bikes in India next year.

Harley expects to continue to lose money for the next few quarters, chief operating officer John Olin said. But expects to return to profitability, just as riding season begins anew in the spring. While Harley -- and its employees -- face a tough road, the company's restructuring plan may be just the trick to keep this American icon rumbling.