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Harley-Davidson Inc. said Friday its fourth-quarter profit tumbled 26.3 percent due to slumping U.S. motorcycle sales amid a weakening economy.

CEO Jim Ziemer called the retail environment "challenging" for this year. The Milwaukee-based company expects moderate growth in both earnings per share and revenue, however. Analysts expected slightly lower revenue and higher earnings in 2008.

Harley’s (HOG, Fortune 500) shares gained 2.9 percent in morning trading Friday.

Harley said its profit for the quarter ended Dec. 31 totaled $186.1 million, or 78 cents per share, compared with a profit of $252.4 million, or 97 cents per share, a year ago. Revenue dropped 7.7 percent to $1.39 billion from $1.50 billion in the period.

Analysts had expected a profit of 82 cents per share on revenue of $1.34 billion, according to a poll by Thomson Financial. The earnings estimates typically exclude one-time items.

Worldwide retail sales of Harley-Davidson motorcycles were down 6.1 percent in the quarter, and 14.2 percent in the U.S. The company said the domestic heavyweight motorcycle market was down 9 percent in the quarter. Overseas, Harley’s sales were up 17.4 percent.

Harley’s shipments were down 12.5 percent to 81,206 units, a drop of 11,642 units.

For the year, profit fell to $933.8 million, or $3.74 a share, from $1.04 billion, or $3.93 a share, in 2006 absolutely free credit report. Revenue slipped 1.3 percent to $5.73 billion from $5.8 billion in 2006.

Worldwide sales fell 1.8 percent in 2007, while U.S. sales were down 6.2 percent. The overall heavyweight market was down 5 percent for the year, Harley said. Internationally, Harley’s sales finished the year up 13.7 percent.

Shipments for the year were down 5.3 percent to 330,619 motorcycle units, from 349,196 bikes in 2006. Harley-Davidson cut its bike shipments in the wake of expected falling sales and even idled its plants for a week in November.

First quarter shipments are expected to be between 68,000 and 72,000 bikes, compared to 67,761 units in the first quarter of 2007.

Ziemer said Harley will monitor its wholesale shipments throughout the year.

For the year, Harley-Davidson said it expects moderate revenue growth and earnings per share growth of between 4 and 7 percent compared to 2007.

But analysts are expecting a drop in revenue to $5.6 billion for 2008 and earnings per share of $3.79, according to a poll by Thomson Financial.

The company bought back 20.4 million shares of its stock in 2007 at a cost of $1.15 billion. 

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