Harley-Davidson Earnings Preview: Estimates Are All Over the Map

Harley-Davidson motorcycle
Harley-Davidson motorcycle

Harley-Davidson (HOG) investors better strap on their helmets. The iconic U.S. motorcycle manufacturer reports its second-quarter earnings on July 20, and analysts are colliding in their estimates, where profits forecasts range from 26 cents per share to 56 cents.

However, if the actual figure is anywhere within that range, it will be a marked improvement over last year's earnings of 8 cents per share in the same quarter. This near-definite increase doesn't mean that everything is sunny for Harley-Davidson.

Success for Harley still hinges on expanding its consumer base. While brand loyalty is remarkably strong among its current customers, this group is growing older. Repeat buyers, largely baby boomers, account for half of sales. Harley-Davidson must find a way to further diversify its buyers and appeal to new motorcyclists, while not losing the support of existing fans.

International growth is one way Harley is trying to do this. That's a sensible strategy, but it's far from a sure thing, given protectionist attitudes and cultural differences in many countries. And Harley's brand appeal isn't nearly as strong overseas as it is in the U.S.

At a Crossroads

If consumer spending doesn't pick up speed again, Harley may be producing meager returns for an extended period. The motorcycle business is very cyclical, and the most recent economic downturn resulted in a sharp decrease in sales and a rapid increase in debt.

As a response, Harley is aggressively cutting operating costs. This has helped improve margins, but it's hardly a long-term strategy. The firm also cut its dividend by over two-thirds in early 2009 to maintain a supply of cash. While this has provided some degree of stability for the business, investors looking for dividend growth won't be attracted.

Despite the risks, Harley-Davidson is in a position to capture market share throughout the world. Some analysts are optimistic that its efforts to open new dealerships and increase its reach with younger consumers will pay off. If so, Harley-Davidson could become a fast ride again.