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These Factors Helped Harley-Davidson Protect Its 2Q17 Margins

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Harley-Davidson’s 2Q17 margins

In 2Q17, Harley-Davidson’s (HOG) gross profits from the motorcycle and related product segment stood at $607.6 million, which was about 5.6% higher than its $575.6 million gross profit in 2Q16. Harley-Davidson’s gross margin from the segment came in at 36.5%, slightly higher than its 36.4% gross margin in 2Q16. Let’s explore some key factors that helped the company protect its second quarter gross margin.

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Positive product mix

Harley-Davidson’s positive product mix boosted its gross profit by $19.8 million in 2Q17. During the quarter, HOG’s shipments of touring motorcycles rose 13.4% on a YoY (year-over-year) basis, while its cruiser and street motorcycle shipments dropped 11.8% and 1.6% YoY, respectively. Higher sales of touring motorcycles were primarily driven by strong demand for the company’s Milwaukee-Eight engine touring motorcycles.

Touring motorcycles typically yield higher margins for Harley as compared to its cruiser and street motorcycles. Therefore, continued strength in touring motorcycle sales could continue to benefit HOG’s profitability going forward.

Due to the nature of its business and premium product portfolio, Harley’s profitability is still much better than the profitability of other mainstream auto companies. These legacy auto companies (VCR) include Ford (F), General Motors (GM), and Fiat Chrysler Automobiles (FCAU).

Primary headwinds

In 2Q17, there were several factors that hurt Harley-Davidson’s gross margins. Lower sales volumes, the primary factor, reduced its gross profits by $58.9 million. Similarly, increased cost of motorcycle production including higher raw material costs took about $11.5 million from HOG’s 2Q17 gross profits.

Read the next part to learn how Harley-Davidson’s Financial Services arm performed in 2Q17.

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