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Harley Hangs Tough

Shares of Harley-Davidson (NYSE: HDI  ) sold off about 6% today after the motorcycle maker released its third-quarter results. The market's apparently spooked by a dip in Harley sales, but Foolish investors know better than to take headlines at face value. Let's dig in now to see if there's really any reason to worry about Harley losing its luster.

Total revenues came in at $1.134 billion compared to last year's Q3 sales of $1.135, but as with anything, a little context is key. In last year's third quarter, Harley introduced its line of 100th anniversary bikes and gear, and they sold like crazy.

Sales in last year's Q2 rose 32% over 2001 levels, leaving a very tough comparison for the company this time around. It's hardly surprising that Harley found topping last year's results a challenge. Given this, I don't view this as the beginning of a scary trend for Harley or its loyal shareholders.

Looking beyond the top line is also valuable here, since doing so reveals a business that's strong and cash rich. Harley's earnings grew 15% to $190 million, with per-share income coming in six cents ahead of expectations at $0.62. Its financing division performed well, with a huge 56% jump in operating income that helps fatten the bottom line nicely.

Better still, check out Harley's cash flow statement and balance sheet. (Props to Harley for releasing a cash flow statement with its earnings report, by the way. More companies should follow its lead.)

At the close of the quarter, Harley had almost $1.4 billion in cash and marketable securities on the books, compared to $847 million at the same time last year. It generated a whopping $738 million in free cash flow through the first nine months of the year, substantially ahead of the $538 million in free cash flow produced for the same period last year.

Harley shareholders should be pleased with their company's quarterly results today and ignore the screeching crowd focusing only on Harley's top line. There's much more strength here than the headlines reveal. Harley will motor on, as always.

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