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Why Harley-Davidson’s 4Q16 Margins Could Disappoint

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Nov. 20 2020, Updated 4:21 p.m. ET

Harley-Davidson in 4Q16

Previously, we saw that analysts are expecting Harley-Davidson (HOG) to post lower revenues in 4Q16. No improvement in North American sales and a mixed performance in international markets could be the key reasons for these lower estimates.

Now let’s explore analysts’ estimates for Harley-Davidson’s margins in 4Q16.

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Existing trend recap

In 3Q16, Harley-Davidson’s consolidated gross profits were $436.0 million, a 13.2% fall from $503.0 million in 3Q15. Its gross margin came in at 34.2% compared to 38.1% in 3Q15. The gross margin for its motorcycles and related products was 33.6% in 3Q16 compared to 34.6% in 3Q15.

As we saw earlier in this series, falling margins are one of Harley-Davidson’s key concerns. The company has been able to protect its margins in the United States, but elsewhere, it has become a challenge for HOG to protect those margins.

It’s also important to note that the significance of Harley’s international markets increases when its US sales aren’t promising.

4Q16 margin estimates

Analysts are estimating that Harley-Davidson’s gross margin have shrunk to 32.8% in 4Q16 from 37.9% a year before. Similarly, for fiscal 2016, analysts estimate HOG’s gross margins to fall to 35.5% from 42.1% in the previous year.

Due to ongoing sales challenges in its home market, Harley-Davidson is focusing on expanding its business outside North America. As a result of these efforts, shipments of low-priced motorcycle models have increased due to market-specific demand. That could be the reason why no major change in its revenue trend is expected in the near term.

For the last few years, mainstream automakers (XLY) such as General Motors (GM), Ford (F), and Fiat Chrysler (FCAU) have taken steps to improve their manufacturing efficiencies in order to boost margins.

Next, let’s see what you can look forward to in HOG’s 4Q16 earnings release.

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