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Why Harley-Davidson Lowered Its 2015 Margin Guidance



Operating margin

Previously, we’ve looked at Harley-Davidson’s (HOG) 3Q15 revenues and shipments. In this part of the series, we’ll explore the trend in the company’s operating profits. We’ll also analyze its management’s guidance for the next quarter.

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Operating profit fell

  • In 3Q15, Harley-Davidson’s Motorcycle segment generated an operating profit of $143 million—$3 million less than what the company reported in the corresponding quarter last year. In 3Q15, the Motorcycle segment contributed almost two-thirds of the company’s consolidated operating income.
  • The Motorcycle segment’s operating margin in 3Q15 was 12.5%—0.4 percentage points lower than in 3Q14.
  • The Financial Services segment generated an operating income of $73 million in the quarter. This was $5 million less than in the corresponding quarter last year.
  • According to Harley-Davidson, the Financial Services segment received high net interest income, as the company’s outstanding receivables had risen in previous quarters.
  • However, higher net interest income was offset by low rates that Harley-Davidson has offered in recent promotional activities. Provisioning for bad loans also came in higher in 3Q15. According to Harley-Davidson, 80% of its loan origination this year has been to prime customers. Subprime loans have accounted for the remaining 20% of its loan originations in 2015.


  • According to Harley-Davidson, “The company now expects full-year 2015 operating margin of approximately 16 percent to 17 percent for the motorcycles segment, compared to prior guidance of 18 percent to 19 percent for full-year operating margin.”
  • Harley-Davidson has been facing competitive pressure from its non-US-based competitors in the US market. Non-US-based companies have gained an edge due to a rising US dollar.
  • US-based car companies including Ford Motor Company (F) and General Motors (GM) have also been at a competitive disadvantage to their Japanese (EWJ) peers including Honda Motor Company (HMC).

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