Harley-Davidson’s 1Q17 Margins Might Shrink


Nov. 20 2020, Updated 4:17 p.m. ET

Harley-Davidson’s 1Q17

Previously, we discussed that analysts expect Harley-Davidson’s (HOG) 1Q17 revenues to fall. No improvement in the company’s sales in North America and mixed performance in international markets in recent quarters could be the main reasons for analysts’ weak estimates.

Now, let’s explore analysts’ estimates for Harley-Davidson’s margins in 1Q17.

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Existing trend recap

In 4Q16, Harley-Davidson’s gross profits from its Motorcycle and Related Products segment stood at $287 million. The profits were ~11% lower than the company’s gross profit of $321 million in 4Q15.

Similarly, Harley-Davidson’s 4Q16 gross margin was 30.7% lower than its gross margin of 31.9% in 4Q15.

As we noted earlier in this series, falling margins are one of Harley-Davidson’s key concerns. While the company has been able to protect its margins in the US market, it has become a challenge for Harley-Davidson to protect its margins in other markets.

1Q17 margin estimates

Analysts expect Harley-Davidson’s consolidated gross margins to fall to 35.0% in 1Q17 from 37.4% in 1Q16. For fiscal 2017, analysts estimate that the company’s consolidated gross margins will remain flat at 35.2%—compared to 35.1% in fiscal 2016.

In the past year, Harley-Davidson increased its efforts to expand its business outside North America due to ongoing sales challenges in its home market. As a result of its efforts, shipments of low-priced motorcycle models increased. The demand for its low-priced model is high outside the US. As a result, analysts don’t expect a major improvement in Harley-Davidson’s margins in the near term.

For the last few years, mainstream automakers (XLY) such as General Motors (GM), Ford (F), and Fiat Chrysler (FCAU) took steps to improve their manufacturing efficiencies in order to boost margins. Last year, Harley-Davidson also decided to reduce its manufacturing-related costs by improving efficiencies.

In the next part, we’ll discuss what investors can expect from Harley-Davidson’s 1Q17 earnings event.


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