Baird Expects Bullish Tone at Louisville Show
The 50th Anniversary National RV Show is barely underway and industry observers are already forecasting a bullish outlook for the industry.
Officials with Robert W. Baird & Co. are hosting a field trip to the trade show this week in Louisville, Ky., including meetings with Thor Industries Inc., Winnebago Industries Inc., Drew Industries Inc., Bank of America, Ally Bank and the Recreation Vehicle Dealers Association (RVDA).
“We expect a bullish tone driven by optimistic dealers and strong orders, underpinned by budding signs of a housing recovery,” Baird stated in a note to investors. “We will be interested to monitor retail trends, dealer sentiment, inventory, orders and margin pressure – along with the impact of macro drivers like housing, the fiscal cliff, and tax policy on discretionary wealth (including talk of changes to the mortgage interest deduction which current benefits RV buyers).”
This positive outlook comes the same day that the Recreation Vehicle Industry Association (RVIA) released its 2013 forecast, forecasting wholesale shipments will rise 4.5% in the coming year.
Baird noted the recent first quarter financial results released on Monday by Thor Industries Inc. leads the industry upturn. Highlights of that report follow:
Optimistic dealers drive solid quarter. After posting impressive preliminary sales and a robust backlog Nov. 5, Thor reported on Monday a modest EPS shortfall due to discounting and one-time items. Dealers are confident, supporting a healthy backlog and inventory growth. “We remain optimistic as negative equity evaporates (housing), but would be selective on valuation – especially as inventory grows. Industry fundamentals continue to improve, but with tax policy up for grabs and dealer inventory back in balance, we prefer to pick our spots.”
EPS shortfall. Thor reported a modest EPS shortfall ($0.58 vs. $0.61) due to one-time items ($0.63 consensus). As a reminder, Thor previously reported robust revenue growth (+30%) and a strong backlog (+41%) – driving investor enthusiasm for the stock. A legal settlement and severance costs reduced EPS by $0.02, although Thor generally emphasizes GAAP (not pro forma) EPS.
Discounting persists. Management twice referred to elevated discounting, suggesting the environment has not improved. As the industry shifts the order cycle from November (RVIA show) to September (Elkhart show), manufacturers make every effort to book business early. Again this year, Thor offered to cover floorplan costs for Elkhart orders – but only for orders placed at the show.
Dealer optimism drives inventory growth. Dealer inventory in Thor products increased 14% as dealers bet on a recovery. After a long destocking period, management characterized inventory levels as “appropriate.” Meanwhile, recent checks and strong OEM backlogs indicate a confident dealer base. The Baird RV Dealer Sentiment Index hit 68 in October (100 point scale), the second-highest reading since we began tracking the metric in 2006. Meanwhile, Thor reported a 73% jump in the RV backlog earlier this month.