Harley-Davidson's Q3 Hampered By Weak Product Mix

Argus thinks Harley-Davidson Inc (NYSE: HOG)'s third-quarter results were hurt by weak product mix, though its EPS and revenue were in line with the Street analysts' estimates. The firm pointed out that the company's EPS came in below its estimates.

Analyst David Coleman sees the company facing continuous pressure from its rivals who are offering aggressive discounts amid soft demand in the domestic circuit. He is worried about the motorcycle maker's capability to make production adjustments quickly to reflect the changes in consumer trends.

In a research note, the brokerage said, "We note that retail sales declined once again in the third quarter, and, based on our store visits, we believe that the company is struggling to keep top-selling models in stock. To reduce manufacturing costs, Harley has also moved to less expensive parts (including some plastic parts) on certain models, which could dismay hard-core fans."

Related Link: Harley-Davidson's Q3 Results Meet On Earnings, Sales

The analyst pointed out that gross margin fell from 34.6 percent to 33.6 percent in the third quarter. This was attributed to unfavorable product mix, increased manufacturing and selling costs due to drop in shipments. Its operating margin also dipped from 12.5 percent to 10 percent.

Outlook

Argus thinks that it will take some time for Harvey-Davidson to realize any meaningful improvement in sales, as well as, earnings to reflect its restructuring efforts. Therefore, the firm maintains its Hold rating and is ready to revisit the rating subject to signs of sustainable growth in revenue driven by improved product mix.

At last check, the stock traded at $55.01, up 1.51 percent.

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