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Harley plunges on earnings; ‘We have to raise our game’

Shares of Harley-Davidson plunged Tuesday morning after the motorcycle company reported disappointing earnings, announced layoffs and reduced sales guidance.

In fact, the results and the outlook are so bad, the 111-year-old company is reducing its expectations and rethinking its strategy.

"We fully recognize that we have to raise our game," CEO Matt Levatich said in the beginning of the company's earnings call. "We know we can do better, and we will."

One problem has been recalls. Thus far in 2015, recalls have affected 312,000 vehicles, marking a record, The Wall Street Journal reported earlier this month. The recalls not only increased expenses by $15 million in the third quarter, but gummed up the works in terms of production, and even stirred apparent concerns about the strength of the brand.

"I will say that in my time here, we've never had a more significant view on all the things we need to do to ensure quality," Levatich said. Customers' loyalty is "incredibly valuable to us, and these recalls have been very disappointing to the company, and to our riders, and to our dealers; there's no question about it."

An even bigger problem is competition. According to management, Harley saw its U.S. market share drop 4 percent in the third quarter versus the year prior; in Europe, market share is down 1.6 percent this year.

The company indicated that this can be partially blamed on the strong dollar, which has made it easier for a foreign competitor such as Yamaha or BMW to sell its bikes at a discount.

"The marketplace has thrown us some curve balls this year," the CEO said.

Read MoreLower revenue projections pressure earnings and margins

Scott Olson | Getty Images

Alongside its results, Harley reduced its guidance for margins and for motorcycle shipments. Now the company expects to see shipments to be flat to down 2 percent for the full year versus 2014.

Even as the company expects sales to drop, it also cut its expectations for operating margins. This as it plans dramatic, long-term investments to combat slow sales — growing customer-facing marketing spending by 65 percent, and increasing its investment in product development by 35 percent.

The company also announced layoffs.

"This isn't about improving results for a quarter or even a year. This is about where we want to be in three years, five years, and even 10 years," Levatich said.

Harley also announced its intention to outperform the S&P 500. But with (HOG) now down nearly 30 percent on the year, that goal appears far away indeed.

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