Harley-Davidon’s (HOG) credit rating outlook was lowered to negative from stable by Fitch Ratings on Friday as the firm said the motorcycle maker is facing external pressures like declining demand and tariffs that could weigh on its credit profile.
While the motorcycle business for Milwaukee-based Harley-Davidson has been under pressure for several years, Fitch said in a note Friday that the company has been managing the headwinds without a “meaningful deterioration” in its credit profile.
“However, the next several years will be more challenging as the company realigns its manufacturing footprint while introducing a number of new products in segments it does not currently serve, increasing the risk of credit profile erosion,” Fitch said.
The credit profile is currently healthy, with low financial leverage, high margins, strong free cash flow, solid liquidity and pension plans that are well funded. The cash flow and leverage are seen offering flexibility as Harley-Davidson restructures manufacturing and introduces new products to deal changing demand and global trade issues, according to the ratings agency.
The biggest risk to Fitch’s A rating on the company is the cyclicality of the motorcycle industry and the potential for an economic slowdown that would weigh on demand beyond what’s already seen in the market.
Still, Harley-Davidson is in a better position to withstand any downturn today than before the last recession with a more flexible cost structure and a commitment to maintaining sufficient liquidity to meet cash needs.
“Over the longer term, Fitch continues to expect that HOG’s non-US sales will grow at a faster rate than its US sales as the company increases the number of non-US dealers and increases its penetration in key developing markets,” the agency said.