Wall Street Sees Positives in August Shipments
The latest wholesale shipments report released last Friday by the Recreation Vehicle Industry Association (RVIA) was just what the Wall Street investment community needed to reinforce its contention that the RV industry has hit bottom and is on the way back
Three leading RV industry watchers, Kathryn Thompson, founder and director of the Thompson Research Group, Craig Kennison of Robert W. Baird & Co. and John T.G. Rogers of Janney Montgomery Scott, each offered encouraging words following the August RV shipments release, which revealed that shipments rose 5.3% in August, to 17,800 units.
Thompson noted that shipments’ upward movement marked “the first increase since July 2006 (excluding Oct-07 ‘false bottom’).”
She said the 9.9% increase in towable shipments “confirms findings from our Q3 2009 RV Dealer Survey published on 9/18/09. Travel trailers increased a strong 20.7% to 11,100 units vs. a decrease of 10.5% in July (8,500 units).
Meanwhile, while motorhome shipments fell 35.3% year-over-year, they showed “directional improvement.”
“Class A shipments fell 44.4% vs. last month’s 55.6% decrease. It is important to note that directionally Class A shipments have been trending up for the past four consecutive months. When Class A shipments reversed the downward direction in early 2001, Winnebago Industries Inc. traded up 200%+ over the next 12 months. We see this trend playing out with WGO today, and like the towable segment, we are starting to hear similar confirmations on real demand backing up volumes.”
Thompson concluded, “Going into our Q3 ’09 RV Dealer Survey, we placed acute focus on the status of dealer inventories and clarity regarding volume outlook. We received additional confirmation since our published Q3 ’09 survey that led us to believe the towable segment of the RV industry is seeing a real confirmation of a return in retail demand (vs. inventory replacement), prompting our upgrade of Thor Industries Inc. and Drew Industries Inc. We are starting to hear similar feedback in regards to the motorized segment, which would have positive implications for Winnebago.”
Kennison noted the year-over-year improvement in towables constituted “the first positive comp in 22 months.”
“The towable data are directionally consistent with our expectations for Thor — as we forecast Thor’s shipments to increase 30% in FQ1 ending October. We expect the trend to continue as comps ease and the destocking trend runs its course,” he stated.
“Shipments have remained below retail sales as dealers reduce inventory. We expect to see this trend run its course in towables as dealers begin to restock the lower-priced, faster-turning units. Additionally, Thor recently reported an increase in its backlog, suggesting dealers are beginning to reorder at a more normal rate. Dealers continue to destock in motorhomes, but this too is an unsustainable trend long term,” he stated.
Kennison calculated the seasonally adjusted annual rate (SAAR) for Class A and Class C motorhomes at 13,400 units in August, up from 12,600 units in July, and the SAAR for towables at 174,500 units in August, up from 136,500 units in July.
Meanwhile, Rogers said the sector appears poised for steady growth, according to The Business Insider.
“We continue to believe consumer tastes, demographics and the economics of RV ownership will support continued growth over the long term,” he wrote in a client note.
Rogers said White Plains, N.Y.-based Drew Industries Inc., which makes parts for recreational vehicles, will be a major beneficiary of the sector’s return to growth.
“Management has done an excellent job of managing costs during the downturn, and with its strong balance sheet and adequate access to capital, Drew is well positioned to capitalize on competition weakness,” the analyst said, reiterating his “Neutral” rating on the stock.
However, the analyst cautioned that although he sees an eventual return to normalized sales of RVs, the timing of that is uncertain.
In late morning trading, Drew Industries rose $1.48, or 7.2%, to $21.98, Winnebago added 88 cents, or 6.8%, to $13.81 and Thor increased $1.54, or 5.6%, to $29.14. Earlier in the session, the stock hit a new 52-week high of $29.32.