Getchermotorrunnin', investors. It's time to head out on Wall Highway and listen to some earnings news from Harley Davidson (NYSE:HOG). The hogmeister reports fiscal fourth-quarter and full-year 2006 earnings Thursday morning.

What analysts say:

  • Buy, sell, or waffle? As much as its owners love it, analysts have no love whatsoever for Harley. Of the 19 who follow the stock, 17 rate it a hold, and the other two a sell.
  • Revenues. Product sales are expected to rise 8% year over year to $1.44 billion (analyst estimates do not appear to count financing revenue as part of their sales estimates).
  • Earnings. Profits are predicted to rise 14% to $0.96 per share.

What management says:
One year ago, Harley CEO Jim Ziemer had this to say about the firm's future: "We believe the prospects for retail growth remain strong and support a wholesale unit growth rate in the range of 5 to 9 percent annually and an annual EPS growth rate of 11 to 17 percent." One year later, things look to be proceeding according to plan.

What management does:
This hog is cruising. Whether it's in the gross, operating, or net margin lane, there's hardly more than a bobble in the rolling rate at which Harley turns revenues into profits from one quarter to the next. Where the percentages do change, though, the trend is ever so slightly to the upside.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

39.1

39.3

39.3

39.4

39.4

39.6

Op.

25.7

25.9

25.9

25.9

25.8

26.1

Net

16.7

16.9

16.9

16.9

16.8

17.0
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:
Another trend that pleases the eye: watch how Harley's unit sales, revenues, and profits are growing in relation to one another. Over the first three quarters of this year, units sold increased 6.2%, revenues 7.5%, and profits per share 15.2%. Nice. Thus the firm continues to be able to raise prices on existing models, up-sell customers to more expensive models, and generally expand its margins to transform single-digit sales growth into strong double-digit profits growth. Also helping the bottom-line performance is the fact that the firm continues to buy back its stock, concentrating firmwide earnings among fewer shares outstanding.

So what's not to like at Harley? Why all the gloomy faces among the analysts? From my perspective, there's just one thing that's not working -- but it's a biggie. The firm's balance sheet shows a significant divergence between year-over-year growth in sales and inventory over the past six months, with the former up 9%, and the latter rising 26%. Simply put, the hog corral is looking a mite crowded these days, and it's filling up nearly three times faster than hogs are sent to market.

That kind of development gives rise to the fear that, at some point, Harley might be forced to cut prices and watch its margins contract in order to move product. If and when we hear that backfire boom, the stock price would be bound to suffer.

Competitors
Harley may be one of a kind, but in the competition for consumers' discretionary transportation dollars, the firm competes more broadly with firms such as:

  • Ducati Motor (NYSE:DMH)
  • Honda (NYSE:HMC)
  • Polaris (NYSE:PII)
  • Arctic Cat (NASDAQ:ACAT)

Get the lowdown on Harley's international expansion plans in "Fool on Call: Hog Wild!"

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Fool contributor Rich Smith does not own shares of any company named above.