Harley-Davidson Inc. (HDI) reported a 20 percent rise in quarterly earnings on Wednesday, but its shares fell on a sharp drop in U.S. retail motorcycle sales and a lower-than-expected production goal for 2005.

The Milwaukee-based company blamed the retail sales drop on tough comparisons with a year ago, when the company's 100th anniversary celebration lifted retail sales by 27 percent, as well as hurricanes that hit the U.S. Southeast.

Some analysts focused on production. Harley-Davidson estimated it will ship 339,000 motorcycles in 2005, an increase of 7 percent from the projected 2004 total. The company has targeted long-term annual growth of 7 percent to 9 percent.

"The '05 guidance means that Harley-Davidson would have to grow production at a higher ... rate of 8.6 percent in 2006-2007 to hit its target of 400,000 units in 2007," Robin Farley, an analyst with UBS Securities, wrote in a research note. She has a "buy" rating on the stock.

Third-quarter net income rose to $229 million, or 77 cents a share, from $190.1 million, or 62 cents a share, a year earlier.

Analysts' earnings forecasts ranged from 73 cents to 78 cents a share and averaged 75 cents, according to Reuters Estimates.

Analysts said margins made the difference. Gross margins widened to 38.0 percent from 35.6 percent a year earlier, while operating margins widened to 23.6 percent from 21.3 percent.

Harley-Davidson credited the integration of its new plant in York, Pa., and other efficiencies, as well as the weak dollar.

Revenue increased almost 15 percent to $1.30 billion from $1.13 billion a year earlier.

Sales of Harley-Davidson-brand motorcycles totaled $996.6 million during the quarter, an increase of 18 percent. Buell motorcycle (search) sales declined to $18.3 million from $20.5 million.

The company said U.S. retail sales of Harley-Davidson motorcycles declined 9.8 percent from a year ago. Analysts said the decline for the entire industry was 2.3 percent.

Harley-Davidson said its 2005 production target, for a 7 percent increase, is warranted, given some of the weakness in its international markets.

The company said demand has been strong in Canada, France, Britain, Spain and Italy, but weak in Japan and Germany.

Harley-Davidson shares were down $1.40, or 2.3 percent, at $58.34 on the New York Stock Exchange (search) after falling as low as $57.71 earlier.