As expected, Harley-Davidson, Inc. (NYSE: HOG) this morning announced that first-quarter 2007 earnings were down from a year ago. Net income dropped 18% from last year's $234.6 million to $192.3 million. EPS fell from $0.86 to $0.74. The company also spent $61 million in this quarter to repurchase 870,000 shares.

More surprising was the 1.3% decline in retail sales worldwide. U.S. sales fell by 5.9% compared to an industry decline of less than 1% for bikes of the same class. The U.S. drop-off was partly offset by international growth of 16.5%. Over 75% of the company's motorcycles are currently sold in the U.S., where they represent approximately half of all same-class bike sales. Competitors such as Honda, Yamaha, Suzuki and BMW comprise the other half.

CEO Jim Ziemer attributes the lackluster performance to the three-week strike at Harley-Davidson's York, PA. plant. He predicts that by the end of the year, 2007 earnings will exceed that of 2006, confident that the soft sales of the first quarter are not symptomatic of an overall cooling of demand.

The company will webcast its earnings report this morning at 9:00 a.m. I expect questions about the impact of the subprime fiasco on Harley-Davidson Financial Services, which showed an operating income of $58.9 million, up 14.2% from same quarter 2006. The company finances many of its sales and many analysts wonder about the quality of its financees.