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How Harley-Davidson’s Margins Are Trending

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Mar. 31 2016, Published 12:04 p.m. ET

Importance of margins

Previously, we talked about the key geographical markets for Harley-Davidson Motor Company. It’s also important for investors to pay attention to an automaker’s (FXD) profit margins to better understand the profitability of the company. Therefore, in this article, we’ll take a closer look at Harley-Davidson’s margins.

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Harley-Davidson’s margins

Harley-Davidson (HOG) maintains industry-leading high margins. As you can see in the chart above, the company reported 39.6% gross margins for 2015.

This gross margin is much higher than other automakers including Honda (HMC), General Motors (GM), and Ford (F). Honda, which also manufactures and sells motorcycles globally, maintains gross margins of ~23%, much lower than Harley-Davidson motorcycles. This is primarily because premium segment motorcycles that the company manufactures are typically sold with an expensive price tag.

EBITDA margins

Likewise, the company maintains a high EBITDA (earnings before interest, taxes, depreciation, and amortization) margin as well. Last year, Harley-Davidson reported an EBITDA of $1.4 billion with an EBITDA margin of 22.6%.

It’s important for auto investors to know that in 2015, US auto sales were at historic high levels with 17.4 million vehicles sold. Due to this, US automakers such as General Motors, Ford, and Fiat Chrysler (FCAU) reported increased sales in the region. This was primarily due to the higher demand in the heavy vehicles segment. The higher demand in this segment helped automakers to improve their margins too, as heavy vehicles typically yield more profit for automakers as compared to small vehicles.

Positive trend in margins

In recent years, the company has been able to expand its margins. As you can see in the chart, in the last five years, Harley-Davidson’s gross margins have expanded to 39.6% from 35.9% in 2010. Also, this expansion is visible in the company’s EBITDA and profit margins. There are various factors that may affect Harley-Davidson’s margins and profitability. We’ll discuss these factors in the next article of this series.

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