Four quarters running, hogmeister Harley-Davidson (NYSE:HOG) has confounded the critics by beating estimates and, in three cases, beating last year's record for earnings. But can it repeat the feat when reporting Q3 earnings Friday morning?

What analysts say:

  • Buy, sell, or waffle? The 17 analysts who ride herd on Harley aren't so sure. Only four of them rate the stock a buy, a round dozen say you should only hold it, and one even thinks Harley's a sell.
  • Revenues. Sales are expected to drop 6% to $1.53 billion this quarter.
  • Earnings. Profits are predicted to fall twice as hard, down 12% to $1.05 per share.

What management says:
Interesting dynamic here: Sales were up nearly 18% year over year in Q2, but no thanks to you. According to CEO Jim Ziemer, sales through U.S. hog shops dropped 5.5%. What saved the quarter? Europe. And Japan. Outside our borders, Harley is riding high, with double-digit sales growth practically everywhere you look. What's up with that? Perhaps it's just that U.S. buyers sat out the quarter in expectation of the 2008 line of bikes, which was introduced in July. In September, though, management announced a big cut on their 2007 outlook, lowering previous full-year revenue and EPS guidance.

What management does:  
Harley's gross margins have been sliding for the past several quarters, but up until we heard the guidance last quarter, it was looking like operating and net margins had stabilized. In its September guidance update, though, management flatly said to expect "lower operating margins," so don't look for the trends to improve anytime soon. Still, rivals Honda (NYSE:HMC) and Polaris (NYSE:PII) would kill for the chance to suffer those numbers. And don't even get me started on Harley's four-wheeled cousins Ford and GM. Those two are just happy when they post numbers without having to append a negative sign.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

39.4%

39.4%

39.6%

39.5%

39.1%

39%

Operating

25.9%

25.8%

26.1%

25.9%

25.2%

25.3%

Net

16.9%

16.8%

17%

16.9%

16.4%

16.5%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
So is there anything about Harley that could use a tune-up? Yes, and it's way overdue. That "thing" would be the continuing issue with inventories. I've talked about this problem so long I'm feeling hoarse (quite a trick, considering all I do is type), so I won't rehash it all here. Suffice it to say that with sales up 5% year to date, I'm concerned that inventories are still up 30% in comparison to the first half of fiscal 2006. While the recent strike at the company's York, Pa., plant probably means that the inventory situation isn't quite as bad as it looks, it looks really bad. So bad that I continue to believe this issue bears watching.

What was that about inventories again? And what strike is Rich talking about? Read all about both in: