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Baird: Gas Prices Slow Anticipated RV Recovery

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May 5, 2011 by   Leave a Comment

Baird logoEditor’s Note: Robert W. Baird & Co. issued a client newsletter following this week’s release of the first quarter results of Thor Industries Inc. Excerpts from the Baird newsletter follow.

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Revenue tops forecast. Preliminary sales topped our forecast ($849 v $835), including upside in RVs and specialty vehicles. Backlog fell against an unusually strong comparison, but appears consistent with our outlook. Margin remains the key. As discounting abates and a February price increase kicks in, we expect profitability to improve. Our checks with industry contacts indicate the pace of the retail recovery has slowed (gas prices), but we see decent value in Thor near $30.

Summary

Solid results. Thor reported preliminary sales for the April quarter. Sales of $849 million (+25%) exceeded our $835 million estimate. RV sales increased 32% to $739 million, above our $730 million estimate. We estimate that Heartland RV added $117 million to revenue, implying organic RV growth near 11%. Industry RV shipments improved 10% in the first two months of the quarter, with towables up 9% and motorhomes up 18% in February and March. Specialty vehicle sales dropped 10% to $109 million as stimulus spending shrinks, but topped our $104 million estimate.

Margin improving? Management cited commodities and other cost pressure in its release, suggesting that margin pressure has not completely vanished. Still, we believe promotional activity has abated. Meanwhile, a February price increase – which also applied to the backlog – should result in better margin after a disappointing first half.

Backlog OK. The total backlog fell 5% YOY to $633 million and is at the lower end of our expected range. The RV backlog decreased to $427 million–down sequentially and below elevated levels last year–but remains healthy as pace of wholesale delivery improves. The specialty vehicle backlog fell sequentially and YOY to $206 million.

Outlook. We maintain a bullish consumer outlook as credit eases, but our checks indicate the pace of the recovery has been slower than anticipated – a concern we attribute to higher gas prices. Still, near $30, we like Thor for value investors as our cyclical thesis unfolds and discounting abates.

This summary of a Baird research report is not intended as investment advice. To participate in Baird surveys and receive research reports, contact Craig R. Kennison, CFA, at ckennison@rwbaird.com.

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