S&P Global Ratings cut Harley-Davidson NYSE:HOG, a U.S. motorcycle maker, to junk status on Wednesday, citing the company's plan to sell more lower-cost motorcycles as part of a push to lift revenue. The ratings firm said the strategy could help improve retail sales and market share, but may also weigh on profitability for some time. S&P lowered Harley-Davidson's unsecured debt rating by one notch to BB+, the highest junk level, while keeping the outlook stable.
Artie Starrs, Harley-Davidson's chief executive officer since October, is trying to make the company's bikes more accessible at a time when inflation and interest rates remain relatively high. His strategy appears focused on increasing sales volumes through lower-priced motorcycles, then rebuilding profitability through higher unit sales and a stronger parts and accessories business, where customers can customize their bikes. S&P noted that near-term profitability may face pressure from restructuring expenses and tariff costs.
S&P expects Harley-Davidson's adjusted Ebitda margin to be around 5% to 6% in 2026 and said it may take several years for margins to approach 10%. The downgrade may sharpen investor focus on whether Harley-Davidson can grow volumes without putting too much pressure on margins, especially as the company had about $1.63 billion of long-term net debt outstanding as of March 31. Moody's Ratings and Fitch still rate the company at investment-grade-equivalent levels, though Fitch has a negative outlook.