Investment Firm: Evidence Hints at ‘Retail Bottom’
The latest investment advisory from Robert W. Baird & Co. on the RV industry includes some encouraging information.
Commenting after the release this week of the third quarter financial results from Thor Industries Inc., the Baird advisers said the Thor results provide further evidence that the industry may be near the cyclical “bottom.”
“Thor beat expectations as aggressive cost cuts stemmed the effect of a 41% drop in sales,” Baird stated. “We see more challenges near term, but believe Thor is determined to post a profit this year and is poised to emerge stronger in the next cycle. Improving consumer confidence and easy comps provide potential for Thor and other survivors to post retail growth by the end of 2009.”
In its outlook, Baird added, “While shipments and retail sales remain down year-over-year, the rate of decline has improved. Dealers remain reluctant to accumulate inventory, but consumer confidence edged up – hinting at a retail bottom. While we note that some bankrupt manufacturers may reemerge, Thor has cut costs, accumulated cash and positioned itself as a lean survivor as the market recovers.”
The Baird report had these additional observations:
- Earnings per share ahead of consensus. Thor reported adjusted Q3 (April) earnings per share of $0.15 versus our $0.11 estimate (and $0.10 consensus). Results exclude an $0.11 charge to goodwill. Better RV margins (+$0.06) and lower corporate expenses (+$0.02) were partially offset by lower bus margin (-$0.04) and higher taxes (-$0.01). RV sales fell 48% to $312 million, as expected. Bus sales fell 3% to $103 million.
- Thor Credit. Thor recently announced the launch of Thor Credit, an initiative aimed at making retail credit more readily available. Thor’s balance sheet exposure is limited ($10 million investment) and we are convinced that the program could enhance Thor’s ability to gain market share. The company expects Thor Credit to underwrite roughly $150 million of retail loans in its first year. Thor has $298 million ($5.37/share) in cash & investments and no debt.
- Raising estimates. We are adjusting our Fiscal Year 2009 EPS estimate to $0.31 to primarily incorporate the Q3 upside and a lower tax rate in Q4. We also raised our Fiscal Year 2010 EPS estimate to $0.90 to incorporate a slightly better margin outlook.