Editor’s Note: Robert W. Baird & Co. distributed a client newsletter following release on Wednesday of the preliminary fourth-quarter and year-end results for Thor Industries Inc. Excerpts from Baird’s newsletter follow.
Maintain Outperform rating. Thor reported strong revenue for its July quarter, and continues to see healthy retail growth supported by share gains. Backlog fell as expected, but remains at an appropriate level for anticipated demand. We consider valuation attractive, despite concerns over weak consumer confidence and unfavorable tax policy, and maintain our outperform rating.
Preliminary sales above expectations. Thor reported preliminary sales for the July quarter, following its customary procedure. Sales grew 51% to $664 million, above our $576 million estimate ($617 million consensus). RV sales increased 67% to $564 million, above our $459 million estimate. Bus sales fell 3% to $100 million, well below our $117 million forecast, as stimulus funding slows.
Backlog down but remains healthy. Management reported backlog down 17% to $489 million. RV backlog fell 13% to $261 million, while the Bus backlog was down 21% to $228 million. Stronger production and shipments in the quarter (nearly $50 million in revenue upside versus consensus) contributed to the falling backlog, as Thor worked to fulfill a previously unsustainable backlog. Management believes the current backlog is appropriate for the current level of demand. The backlog represents 89% of October-quarter revenue – historically, the backlog represents 80-90% of next-quarter revenue.
Strong retail on share gains. Retail is tracking with our expectations. Thor reported growth at retail in June and July despite weakening consumer confidence. Thor is taking share at retail, a trend we expect to continue (with help from the new Redwood brand). Management expects industry retail growth of 10% in 2010 and 2011, but expects to drive stronger results on improving market share.
Outlook. We remain concerned about weak consumer confidence and the impact of tax policy on discretionary wealth, but see good value here, noting $5/share in cash.