Harley-Davidson Inc., the biggest U.S. motorcycle maker, said a complex revamp of the factory that makes its priciest models cut production of those bikes, which hurt margins. The stock fell 7 percent.

Harley dropped to $34.59 at the close in New York, the biggest drop since Aug. 18, erasing the stock’s gain for the year, according to Bloomberg.

As part of its shift to a more flexible workforce, Harley is consolidating its York, Pennsylvania, factory to one production line from four. Workers moved from other parts of the factory are being trained on assembly of 20 different models. That process slowed production of touring and custom bikes, among Harley’s more expensive and most profitable models.

“Maybe we haven’t done as a good a job communicating the magnitude of this,” Keith Wandell, Harley’s chief executive officer, said in an interview. “Shame on us because we had some issues in the quarter that precluded us from producing as many touring bikes as we would have like. Are we disappointed? Absolutely. Are we discouraged? No. Every day, we get further through.”

Third-quarter gross margin narrowed to 33.7 percent from 34.9 percent a year ago. Sharon Zackfia, an analyst with William Blair & Co., estimated gross margin of 36.8 percent in the quarter.

Production issues at York increased the mix of Harley’s cheaper bikes, such as the $8,000 SuperLow. That shift lowered gross margin by $26.6 million, Harley said in a presentation on its website.

“Sales skewed more toward the Sportsters, and of all the possible reasons for a margin decline, mix shift is one of the more innocuous,” Zackfia said in an interview.

The changes at York will be “largely complete” by the end of next year, Chief Financial Officer John Olin said in a conference call today. U.S. output will be limited until the end of 2013, he added. This quarter’s mix will “improve modestly,” he said.

Sales increased 13 percent to $1.23 billion, short of the $1.28 billion average of 13 analysts’ estimates. Harley, which also produces Fat Boy and V-Rod motorcycles, sells fewer bikes in the cold-weather months. The company has reported quarterly losses in each of the last two fourth quarters.

Net income in the three months ended Sept. 25 rose 107 percent to $183.6 million, or 78 cents a share, compared with $88.8 million, or 38 cents a share, a year earlier, Harley said today in a statement. The average estimate of eight analysts surveyed by Bloomberg was 75 cents.

Retail sales rose 5.4 percent in the U.S. and 5.1 percent worldwide, the company said. The worldwide sales gain was the second consecutive quarter of increasing deliveries. Before the second quarter, the company last reported an increase in U.S. sales in the fourth quarter of 2006. The company reaffirmed its forecast of 228,000 to 235,000 motorcycle shipments this year.