U.S. Markets close in 2 mins.

Is a Beat in Store for Harley-Davidson (HOG) for Q1 Earnings?

Zacks Equity Research

Harley-Davidson, Inc. HOG is set to report first-quarter 2017 results on Apr 18, before the market opens. In the last quarter, the company posted an earnings miss of 15.62%. While Harley-Davidson managed to beat earnings in the other three of the last four quarters, the company recorded an average miss of 1.62%.

Let us see how things are shaping up for this announcement.

Harley-Davidson, Inc. Price and Consensus

Harley-Davidson, Inc. Price and Consensus | Harley-Davidson, Inc. Quote

Factors Influencing This Quarter

Harley-Davidson commanded a 51.2% share of the 601cc-plus motorcycle registrations in the U.S. in 2016. The large market share provides scale advantages over most competitors. Furthermore, the company maintains an extremely strong franchise. The company also plans to boost its marketing expenses by 65% and product development expenses by 35% this year, to boost demand.

The company is expanding its product portfolio to increase customer base. The recently-launched model year 2017 Touring motorcycles are also witnessing strong demand. Further, the motorcycle manufacturer is also developing its first electric motorcycle, Project LiveWire. The company recently launched a more affordable motorcycle, Street Rod 750.

Moreover, Harley-Davidson has been working on improving its financial position. The company is also focused on geographical expansion and increasing shareholder returns.

However, stiff competition is expected to continue to hurt retail sales this year as competitors rely on discounts and product introductions to boost sales. An unfavorable mix is expected to put pressure on margins. The company also reduced guidance due to softness in the U.S. market, high competition and global economic uncertainty. Weakness in the Financial Services segment also poses a concern for the company.

Harley-Davidson expects motorcycle shipments in 2017 to be either at the same level or slightly lower than 2016. In first-quarter 2017, the company expects to ship 66,000 to 71,000 motorcycles, compared with 83,036 motorcycles shipped in the year-ago period.

Earnings Whispers

Our proven model shows that Harley-Davidson is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Harley-Davidson is +8.08% as the Most Accurate estimate is $1.07 million while the Zacks Consensus Estimate is pegged at 99 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Harley-Davidson currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of Harley-Davidson’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

Price Performance

Harley-Davidson’s shares rallied 4% in the last three months, outperforming the Zacks categorized Auto Manufacturers-Domestic industry’s 1.14% rise.

Stocks to Consider

Here are some companies in the Auto industry you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Cummins Inc. CMI has an earnings ESP of +1.69% and carries a Zacks Rank #2. The company’s first-quarter 2017 financial results will release on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNH Industrial N.V. CNHI has an earnings ESP of +33.33% and carries a Zacks Rank #2. The company’s first-quarter 2017 financial results are expected to release on May 5.

General Motors Company GM has an earnings ESP of +9.72% and carries a Zacks Rank #3 (Hold). The company’s first-quarter 2017 financial results will release on Apr 28.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
General Motors Company (GM): Free Stock Analysis Report
CNH Industrial N.V. (CNHI): Free Stock Analysis Report
Cummins Inc. (CMI): Free Stock Analysis Report
Harley-Davidson, Inc. (HOG): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research