Baird Trims Forecast for Thor; Remains Bullish

March 9, 2010 by RV Business Leave a Comment

Editor’s Note: Robert W. Baird & Co. follows the RV industry for its investor clients and routinely issues reports following major corporate announcements. Following are excerpts from its latest client newsletter, after Monday’s release of the second quarter and six-month earnings statement by Thor Industries Inc.

Thor missed expectations as margins were unable to clear the high bar set over the last several quarters. Revenue grew 90%, in line with Thor’s preliminary report, but operating margin fell 140 basis points below our estimate. We are tempering our estimates, and would look for opportunities to accumulate on weakness as the RV recovery unfolds.

Summary

EPS falls short on weaker RV margins. Thor missed expectations, reporting EPS of $0.22 versus our $0.32 estimate (and $0.28 consensus). Recall that Thor had previously reported preliminary sales results – so the downside is all on the cost side. EBIT margin improved to 4.4% from -10% last year, but was 140bp below our model. The downside was in the towable segment while motorhome results exceeded expectations. The bus segment continues to perform well.

Positioned well for recovery. A robust wholesale recovery is underway in the RV segment as dealers replenish depleted inventory ahead of the spring selling season. Thor is well positioned to capitalize on the improving demand and continues to take share – especially with the largest dealer network, FreedomRoads (now 21% of Thor RV revenue). Towable backlog improved 175% to $368 million while motorhome backlog was up 98% to $81 million.

Adjacent markets augment growth. Thor recently announced the acquisition of SJC Industries, an Elkhart, Ind.-based manufacturer of ambulances that generated $45 million in revenue in 2008, according to FactSet. We view this business as complementary to the current bus business and have incorporated a modest revenue tailwind into our model.

Adjusting EPS estimates. We are trimming our EPS estimates to incorporate Q2 results and tempered margin expectations in the RV segment. Better retail demand is needed for the industry recovery to be sustainable – but the near-term dealer restocking and market share growth should support our earnings outlook.

Details

Estimates. We lowered our F2010 EPS estimate to $1.85 from $2.00 to incorporate the Q2 downside and slightly lower margin assumptions. We also lowered our F2011 EPS estimate to $2.40 from $2.50.

Wholesale and Retail. Towable and motorhome shipments have increased significantly the past few months, while retail has moderated. As conditions improve and comps remain easy, we expect to see the trend continue.