After stumbling badly at the close of last year, Harley-Davidson (NYSE:HOG) got things back in gear and has put together back-to-back "earnings beats" so far in 2008. Can it remain in-lane in fiscal Q3? We find out tomorrow morning.

What analysts say:

  • Buy, Sell, or Waffle? Of the 16 analysts who ride herd on Harley, only four think it's a buy. 11 more rate this hog a hold, and one would butcher it.
  • Revenues. Analysts predict an 8% slide in sales to $1.42 billion.
  • Earnings. Profits are predicted to tumble even further, down 26% to $0.79 per share.

What management says:
Only four "buys," huh? So it seems that "beating estimates" ain't all it (used to be) cracked up to be. But you can understand why. The last time Harley reported earnings, sales dropped 3% and EPS fell 17%, which was still considered an "earnings beat" -- but those are hardly the kinds of numbers to get investors' motors runnin'.

Nor, for that matter, are Harley's expectations for the full year. In July, the best management could promise us for fiscal 2008 was an 8% decline in units shipped and an EPS shortfall twice as large -- 15% to 20%.

What management does:
Why is the plunge in profits so much larger than the slide in sales? One word: Margins. At all levels -- gross, operating, and net -- the rolling profit margins at Harley have been falling all year long. And so, slipping sales are exacerbated by it earning fewer dollars on those sales it does make.

Margins

4/07

7/07

9/07

12/07

3/08

6/08

Gross

39.1%

39.0%

38.6%

37.9%

37.7%

36.8%

Operating

25.1%

25.2%

24.3%

23.2%

22.8%

21.6%

Net

16.4%

16.5%

16.0%

15.2%

14.9%

13.9%

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:
A U.S. economy that's slouching determinedly towards Gomorrah has already wrecked the stocks of Harley's four-wheeled kin at Ford (NYSE:F) and General Motors (NYSE:GM), making the hogmeister's recent 40% decline in stock price look almost tame by comparison.

Perhaps investors are hoping that Harley will weather the storm on the back of U.S. commuters switching to higher mileage (if lower wheelage) vehicles. This trend is certainly helping Harley rivals like Honda (NYSE:HMC) and Vespa reap beaucoup business from scooter sales.

If that's the case, though, I fear these investors are in for a rough ride. For one thing, scooters sell for as little as half what a low-end Harley costs. For another, Harley's financials are starting to look dicey again. With sales (by revenue) rising 2% so far this year, accounts receivable have simply exploded -- up 60% so far this year. Free cash flow has evaporated this year, too, and unless Harley gets things turned around in a hurry, I expect the stock price to follow.

Here's another couple articles on Harley to peruse, whilst you await the earnings news:

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