Editor’s Note: Robert W. Baird & Co. issued a client newsletter on Tuesday following release of the first quarter financial results of Thor Industries Inc. Excerpts of that newsletter folllow.
Raising estimates and maintaining $36 target price. Preliminary sales topped expectations, leaving us confident in our profit outlook. We see good value in Thor under 12x EPS (excluding nearly $3/share in cash) as macro catalysts unfold (election cycle and tax policy) and estimates trend higher (better retail and higher margin).
RV sales exceed expectations. Thor reported preliminary sales for the October quarter after the close, following its customary process. Sales of $607 million (+21%) exceeded our $591 million estimate and consensus of $586 million. RV sales increased 30% to $507 million, above our $472 million estimate. We estimate that Heartland RV added $45 million to revenue, implying organic RV growth near 19%. Bus sales fell 11% to $100 million, below our $119 million estimate.
Backlog down. The backlog declined modestly, down 22% YOY to $467 million. RV backlog fell to $254 million, down 19% from last year and down 3% sequentially. Without Heartland RV, the backlog would have been down more, of course. Bus backlog fell 25% YOY to $213 million, and fell 6% sequentially. Management noted that right-sized dealer inventory levels led to lower and more reasonable RV backlog, while bus backlog slowed due to the expiration of federal stimulus funding and tighter government budgets. We are raising our revenue estimate slightly, but maintaining our outlook for EPS of $2.50 in F2011.
Retail positive, likely hinges on tax policy. Retail improved in late summer and early fall. CEO Peter Orthwein noted, “Thor’s internal retail sales results through October continue to demonstrate solid year-over-year increases.” We see an extension of current tax policy as a potential near-term catalyst for retail demand.
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Heartland’s new Prowler towables, a brand name that harkens back for decades as one of Fleetwood Enterprises Inc.’s towable mainstays, will consist of a wood-and-aluminum travel trailers and laminated travel trailers and mid-profile fifth-wheels when the line is up and running.
The new Prowler brand is still in its infancy after a brief cameo trade appearance in early October at the Recreation Vehicle Dealers Association International Con/Expo. “We haven’t shipped one Prowler yet,” said Prowler General Manager Nick Eppert. “We’re really going to take the month of November to hand-select some key dealers. We are taking a long-term approach to this brand and do not intend on flooding the market with dealers.”
”This strategy should help to ensure our dealers’ and the Prowler brands’ success in the marketplace.”
Eppert says the Prowler, one of several Fleetwood brands purchased out of the former Fleetwood’s Chapter 11 bankruptcy, will be the only ex-Fleetwood line at Louisville.
“It’s an all-encompassing brand from mid-profile fifth-wheels down to ‘stick-and-tin-trailers,’ which makes it unique,” Eppert added. “And it gives us a totally different look. It’s going to have new wood grain interiors and certain select features that you won’t find in any of our other brands.”
Editor’s Note: Robert W. Baird & Co. issued a client newsletter after this week’s release of the August towable sales figures by Statistical Surveys Inc. (SSI). Excerpts from the Baird Newsletter follow.
U.S. towable registrations increased 11% in August. Dealer sales of towable units increased for the sixth consecutive month in August. Total U.S. towable retail increased 11% (travel trailers up 11%; fifth-wheels up 11%) compared to an 8% drop in motorhomes. Looking to the remainder of 2010, we expect approximately 10-15% retail growth in towables, with Thor taking share.
Towable retail up 11%. Towable demand improved in August. Travel trailer registrations grew 11% while fifth-wheel demand also increased 11%. Towable sales outpaced motorhome sales which fell 8% in August.
Leaders gaining share. Thor continues to take share with retail registrations up 16% in the month. We also note that Heartland RV (No.4 market share and recently acquired by Thor [THO-$31.52-Outperform]) saw registrations increase 41%. Altogether the top five manufacturers have seen retail grow 20% YTD versus 8% YTD industry growth.
Inventory. Dealers have increased towable inventory in 2010 as towable shipments have exceeded retail sales. We believe that dealer inventory is fairly balanced at current levels and future shipments should track in line with retail demand.
Retail SAAR. We calculate a seasonally adjusted rate of retail (SAAR) registrations. The SAAR of towable demand increased to 159.K units in August from 153.6K units in July.
Recent news. Winnebago (WGO-$9.74-Outperform) indicated today (Oct. 18) that it is looking to acquire SunnyBrook RV, the No. 13 player in towables with 1% share.
To subscribe to this or other Baird publications, contact Craig R. Kennison, CFA, at firstname.lastname@example.org or (414) 765-3870.
Editor’s Note: Robert W. Baird & Co. has released its quarterly survey of RV dealers. Excerpts from that report follow.
Better than feared. We contacted 104 RV dealers to assess recent trends. After a tenuous summer, the season ended well. Dealers reported better demand, implying potential upside to our models. We see a short-term opportunity ahead of the election and potential changes to tax policy – especially given our checks. Longer term, we remain concerned as consumers reduce debt, unemployment festers and budget deficits drive higher interest rates, slower growth and higher taxes on discretionary wealth.
Retail. Dealers report better retail results than we assume in our models. Motorhome sales perked up 8-10% while towable sales jumped 16-18%, according to dealers. For perspective, the trend suggests Winnebago Industries Inc. dealers may have sold 50-100 RVs more than we had modeled on a base of over 4,200 annually – helpful, but not enough to declare victory. Dealers expect Thor Industries Inc. and Winnebago to take share, implying above-trend results.
Traffic. Consumer traffic on dealer lots improved in July and August after a sluggish June, then slowed again in September (seasonally less relevant). For our money, it is hard to see a trend in the YTD traffic pattern – but with RV buying interest tied to the wealth effect (home prices and stock values) and consumer sentiment (unemployment and political uncertainty) – the choppy results make sense. Like everything else – it’s the macro, stupid.
Inventory/Orders. As the inventory replenishment rate returns to parity, dealers plan to order 19% more motorhomes and 23% more towables in the next six months – better growth than we include in our models. Dealers are comfortable with inventory levels today. Big picture, it appears the inventory bubble and the corrective bullwhip effect are behind us.
Credit markets. Access to wholesale and retail credit improved. Last quarter, dealers complained that wholesale credit was too tight.
Thor acquisition of Heartland. As expected, dealers were mixed on the Thor acquisition of Heartland RV. Dealers expect both to gain share and some see opportunity to upgrade Heartland parts and service, but some saw parallels to the Fleetwood that dominated the market in the past.
Outlook. We maintain a cautious consumer outlook as confidence stalls, unemployment festers, consumers reduce debt and tax policy targets discretionary wealth. However, our checks seem to take the most dire predictions off the table for now. With the election cycle and the potential for a change in tax policy, we believe recent momentum could persist, providing a better exit point for cautious investors.
To subscribe to this and other Baird newsletters, contact Craig R. Kennison, CFA, email@example.com or (414) 765-3870.
Retail sales of RVs in Canada in June continued their strong, year-long rebound.
Statistical Surveys Inc. has reported that towable sales rose 29.1% in June, while motorized sales rose 35.4%.
Year-to-date, towable sales are up 27.8% while all motorhome sales are up 40.1%, Grand Rapids, Mich.based SSI reported.
By segment with comparisons to June 2009, the results were as follows:
- Travel trailers increased 34.5%.
- Fifth-wheels rose 26.9%.
- Folding camping trailers were up 1.3%.
- Park Models increased 21.9%.
Thor Industries Inc. was the towable leader in June with a 26.6% market share, followed by Forest River Inc. with a 20.2% share.
Year-to-date, Thor led with a 27.1%. Forest River was next with 20%.
Thor was No. 1 in travel trailer sales with a 28.4% share in June. Forest River had a 19.3% share and Jayco Inc. with 17.3%.
Thor was the fifth-wheel leader with a 30.4% share, Forest River was No. 2 with a 20.1% share and Heartland RV with 14% share.
Forest River was the folding camping trailer leader in June with a 29.2% share, followed by Jayco with a 28.1% share.
Thor was the park model leader in June with a 44.9% share. Skyline Corp. was No. 2 with a 24.4% share.
Year-to-date, Thor led in travel trailers (28.3%), fifth-wheels (33.6%) and park models (53.9%).
Forest River led in folding camping trailer sales with a 30.5% share.
Meanwhile, in the motorized area, Class A sales were up 10.6% in June and 20.1% year-to-date.
Class C sales were up 54.3% in June and 57% year-to-date.
Thor was the clear leader in all motorhome sales in June with a 40.7% market share. Forest River Inc. was a distant second with an 18.7% share.
Year-to-date, the competition is much closer with Thor leading with 26% and Forest River with 20.1% shares.
The June towables report was incomplete, as the province of Quebec, Canada’s second largest province, was experiencing delays in reporting data to SSI.
To subscribe to this or other SSI RV reports, contact Scott Stropkai, national RV sales manager, at (616) 281-9898 ext. 128, or (61) 446-8179 (cell).