Five 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, to boot. Tomorrow, Harley gets its chance to repeat the feat and close out its fiscal 2007 with a bang ... or a backfire.

What analysts say:

  • Buy, sell, or waffle? Of the 18 analysts who ride herd on Harley, only four think it's a buy. An unlucky 13 rate this hog a hold, and one would even sell it.
  • Revenues. Analysts are doing their part to help Harley hit estimates, lowering the bar by predicting an 11% drop in quarterly sales to $1.34 billion.
  • Earnings. Profits are predicted to fall 15% to $0.82 per share.

What management says:
Harley CEO Jim Ziemer played the part of three-headed Cerberus last quarter. One head spoke regretfully of the firm's "disappointing but not unexpected" performance in Q3, but reminded investors that at least the results were "consistent with the Company's revised guidance" of September. The second head peered into the near future, predicting a "challenging ... U.S. retail motorcycle environment" in 2008, marked by "moderate revenue growth, lower operating margin," and single-digit growth in earnings per share. Looking past 2008, however, the third head pronounced itself "optimistic and confident about [Harley's] future." 

What management does:
Which head should you be listening to tomorrow? Obviously, the one taking the short-term view that Harley's in for challenging times the next several months. That's the one that best reflects where the trend seems to be heading at Harley, where margins have been skidding for more than a year.

Margins

6/06

9/06

12/06

4/07

7/07

9/07

Gross

39.4%

39.6%

39.5%

39.1%

39%

38.6%

Operating

25.8%

26.1%

25.9%

25.2%

25.3%

24.4%

Net

16.8%

17%

16.9%

16.4%

16.5%

16%

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:
That said, Harley's third head has a point as well. Yes, things are going downhill at Harley -- there's no arguing the point. But long term, you have to bear in mind just how much more profitable this firm is than most any rival you can name. Honda (NYSE: HMC)? Polaris (NYSE: PII)? Arctic Cat (Nasdaq: ACAT)? Any of the firms that compete with Harley for consumers' discretionary "fun" transportation dollars would kill to get their hands on the hogmeister's double-digit profit margins. Meanwhile, more utilitarian internal combustion engine makers Ford (NYSE: F) and GM (NYSE: GM) are happy to achieve (when they achieve) positive profit margins at all. That's simply not a problem Harley faces.

Mind you, I'm not changing my mind about Harley in the short term. I've beat the dead horse on Harley's inventory problems so long, it's starting to resemble steak tartare, and I fully expect the company will give me a chance to whale on it again when it reports tomorrow. But long term, let me put this as plainly as I can: Harley's inventory problem is obvious. It's fixable. Once management makes up its mind to actually bite the bullet and fix the problem, this stock will become fit to ride again.

What was that about inventories again? Read all about it in:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.