Harley-Davidson Inc. (HDI) Wednesday slashed its 2005 production and earnings targets as bad weather caused a slight dip in U.S. retail sales of its motorcycles, sending shares down 17 percent.

The warning overshadowed news of an 11 percent rise in quarterly earnings, and raised questions among analysts about the long-term growth outlook for Harley-Davidson.

"Management attributed the cuts to slow first quarter sales, but we think the issue may run deeper than that," said RBC Capital analyst Ed Aaron. "For years, neither Harley nor anyone else knew the true underlying growth rate because of supply and demand imbalances. Now that it's come into parity, we think Harley's underlying (production) growth rate is lower than either management or investors perceive."

Harley-Davidson, based in Milwaukee, said it would cut 2005 production by 10,000 shipments from its original forecast, and now targets shipment growth of 3.7 percent from a year ago.

The stock fell $10.05 in early activity -- the biggest fall in its history -- to $48.95 on the New York Stock Exchange (search), its lowest level in 15 months.

Chief Financial Officer and CEO Elect Jim Ziemer told investors on a conference call the shortfall was mostly due to weather and the delay of warm spring temperatures. He tried to reassure the market that demand exceeds supply and that inventories are in good shape.

"We are taking a precautionary measure by moderating our 2005 shipment schedule to maintain that demand remains in excess of supply. Based on all our indicators we see continued 7 to 9 percent unit growth," he said.

For the first quarter, net income rose to $227.2 million, or 77 cents a share, from $204.6 million, or 68 cents a share, a year earlier. Operating expenses fell nearly 5 percent.

Revenue for the quarter, ended March 27, climbed 6 percent to $1.24 billion. Sales from its motorcycles and related products division rose 6.5 percent, and revenue from its parts and accessories division grew nearly 5 percent.

Analysts, on average, expected a profit of 76 cents a share on revenue of $1.23 billion, according to Reuters Estimates.

But retail motorcycle sales in the United States through March fell about 1 percent from a year earlier, and the U.S. heavyweight motorcycle market fell 0.4 percent in the first quarter, the company said.

As a result, the company said it decided to limit short-term production growth and cut its earnings growth outlook for the year to about 5 percent to 8 percent, down from its previous forecast of growth in the mid-teens. Analysts, on average, expected earnings before items to rise about 12 percent, according to Reuters Estimates.

Harley also cut its shipment target for the year to 329,000 units, down from its prior target for 339,000 units. It shipped 317,000 units in 2004. It expects the 10,000-unit reduction to occur almost entirely in the second quarter and to involve reducing planned production of 2005 Model Year motorcycles.

Ziemer said second-quarter earnings will be lower than last year's due to inefficiencies and disruptions in production.

The company, however, stood by its long-term unit growth projection of 7 to 9 percent, as well as its outlook for mid-teens earnings growth other than for this year.

"They didn't change their long-term forecasts but I think the biggest thing is that Harley said (the cuts) may prevent it from achieving its 2007 goal of 400,000 units. That was probably its biggest goal (in the eyes of Wall Street)," said FTN Midwest analyst Brian Rayle, who has a neutral rating on Harley's stock.