Editor’s Note: Robert W. Baird & Co. recently partnered with the Recreation Vehicle Dealers Association (RVDA) to contact 133 RV dealers regarding demand and sentiment during the third quarter. The following is a summary of the results.
RV momentum continues. Demand remains strong and inventory appears lean-to-balanced. We maintain a bullish fundamental outlook and would look to be more aggressive on weakness. We believe improved asset values (homes and investments) are fueling a wealth effect for RV buyers, releasing pent-up demand. With lean-to-balanced dealer inventory, it is a good environment for manufacturers. Meanwhile, we are losing confidence that a better opportunity will present itself.
Retail remains healthy. Dealers reported robust growth in motorhomes (+18-20%) and towables (+11-13%) in the third quarter. Baird believes better used values combined with a better housing market and higher stock prices have helped reduce the negative equity that had prevented consumers from purchasing new RVs.
Inventory is lean-to-balanced. Dealer inventory appears lean in motorhomes and balanced in towables. Measured in days, inventory appears flat versus last year – but motorhome dealers want more while towable dealers want less. A limited supply of Class A chassis has exacerbated the inventory shortage.
Discounting has abated. Dealers report a less promotional environment, suggesting better margins for manufacturers. In motorhomes, 30% of dealers report fewer OEM discounts versus 7% that report more. The same trend holds for towables, where 26% of dealers report fewer OEM discounts versus just 8% that report more.
Sentiment near record highs. The Baird/RVDA dealer sentiment index remains near record levels. Dealers are concerned that an ineffective government and the Affordable Care Act could throw a wrench in the engine – but overall, optimism reigns.
Please contact your Baird representative for a complete copy of the dealer survey.
Robert W. Baird & Co. met with Thor Industries Inc. management and dealers during this week’s Elkhart County RV Open House. The following offers excerpts from Baird’s note to investors.
Notes from Elkhart show. We met with management and dealers at the dealer open house in Elkhart, Ind. The meetings showcased important extensions to the product portfolio. Dealers showed substantial interest in a new Class A product. Dealer inventory remains lean (motorhomes) to balanced (towables), according to our checks.
New products and positioning. Thor introduced a host of new products, most notably the new Vegas and Axis Class A models. Class A chassis have been in limited supply, with most manufacturers on allocation through early next year. To work around the supply constraint, and meet an attractive low price point near $70,000, Thor is building these new Class A models on Class C chassis – an apparent first in the industry.
Dealer inventory lean to balanced. Management characterized dealer inventory as lean to balanced, according to Thor – largely consistent with our checks. Expect strong motorhome backlogs as Thor and other manufacturers struggle to keep pace with demand while chassis supply remains limited.
Less discounting than last year. Promotional activity has become the norm in the RV industry, especially in towables, but Thor is discounting less than it did last year. Management indicated the pricing environment has improved substantially versus last year, likely the result of better management incentives and improved discipline under the leadership of new CEO Bob Martin.
Expanding into new markets. We gained a better appreciation for the upside associated with the recent Livin’ Lite RV LLC acquisition. The brand allows Thor to enter two new markets:
• Camping trailers: Thor will enter the high-end portion of the camping trailer segment, a market Thor had not addressed in the past.
• China: Thor is exporting American-made Livin’ Lite RVs to China – a remarkable development. Volume is small, but the opportunity holds promise as the Chinese middle class expands.
Editor’s Note: The investment firm of Robert W. Baird & Co. issued a client newsletter after this week’s release by Statistical Surveys Inc. of the summary of retail sales of motorhomes in May. Excerpts from the Baird newsletter follow.
U.S. motorhome retail up 28%. According to data from Statistical Surveys, motorhome (Class A & C) retail increased 28% in May. Class A sales jumped 29% while Class C retail improved 27%. Thor motorhome retail demand increased 35% in May, the first month of the company’s fiscal Q4. Winnebago reported results for its May quarter on June 27.
Motorhome retail registrations in the U.S. increased 28% in May. Class A registrations improved 29% while Class C reported registrations increased 27% in May. The robust growth is consistent with the strong retail trends reported in our recent dealer survey. According to SSI, year-to-date Class A retail improved 28% while Class C demand jumped 31% through May. Industry comparisons become more difficult in June.
Thor retail up 35% in May. Thor U.S. motorhome retail demand jumped 35% in May, which represents the first month of Thor’s fiscal Q4. The growth was driven by robust demand for Class A models (+47%) and strong growth in Class C (+25%). We model Thor North American motorhome retail growth of 35% in fiscal Q4, consistent with the early-quarter trends.
Winnebago. Winnebago already reported fiscal Q3 results on June 27, so the data are not incremental. Winnebago results implied North America motorhome retail improved 23% in the May quarter.
Editor’s Note: Robert W. Baird & Co. recently partnered with the Recreation Vehicle Dealers Association (RVDA) to contact 146 RV dealers regarding demand during the second quarter. The following is a summary of the results.
Solid industry trends continue. Dealers indicated that peak-season trends are very strong – particularly in motorhomes. Retail demand was robust – new motorhome demand jumped 28% while new towable demand improved 11%. Meanwhile, inventory is lean-to-balanced and dealer sentiment remains high, leaving manufacturers well-positioned as the evaporation of negative equity spurs new retail demand. We remain bullish on fundamentals and would look to add on weakness.
Peak-season strength. Dealers reported robust growth in motorhomes (+27-29%) and solid demand for towables (+10-12%) in April-June. Dealers also noted strong demand for used RVs (particularly motorhomes), driving used values higher according to dealers. We believe better used RV values (combined with a better housing market and higher stock prices) have helped reduce the negative equity that had prevented consumers from purchasing new RVs.
Dealers short on motorhomes. Dealer inventory appears lean in motorhomes and balanced in towables. On a days inventory basis, motorhome inventory appears flat relative to last year (99 days vs. 101 days), but by a 9:1 ratio dealers indicated that inventory was “too low” versus “too high.” The desire for inventory is also evident in the strong motorhome backlogs Winnebago (+130%) and Thor (+105%) recently reported. A limited supply of Class A chassis has exacerbated the inventory shortage. The number of days of towable inventory also appears flat, but slightly more dealers consider inventory “too low” than “too high” – a sequential improvement. Recall that dealers stocked up ahead of the retail season – a bet that paid off.
Dealer sentiment high. Dealer sentiment remains near record levels, based on our proprietary index, but fell slightly versus April. Some dealers pointed to Internet competition and supply shortages as sources of frustration, but strong retail trends and favorable credit conditions keep confidence high. We note that credit has been a tailwind in recent years but could face a challenge as interest rates rise – a trend to watch.
Editor’s Note: The investment firm of Robert W. Baird & Co. issued a client newsletter following Thursday’s release of Winnebago Industries Inc.’s fiscal third quarter report. Portions of the Baird newsletter follow.
Robust backlog highlights impressive quarter. Winnebago drove home an impressive quarter, highlighted by strong retail growth and robust dealer orders. Big picture, bullish fundamental outlook is unchanged. We expect better shipments as consumer demand grows (fueled by new products and less negative equity) and confident dealers restock depleted inventory.
Strong retail and dealer demand. Winnebago reported an excellent quarter. The budding RV recovery is now in full bloom as once-reluctant consumers are starting to buy. We believe that the negative equity cloud (consumers that were under water in their RV, home and retirement portfolio) has begun to lift, stimulating better replacement demand. Better home values and a stronger stock market have helped – but Winnebago is also leading with new products that dealers crave. Confident dealers continue to replenish depleted dealer inventory, fueling robust orders and a stunning backlog.
Revenue. Revenue surged 40% on strong retail and dealer demand.
Retail. Implied motorhome retail jumped 23%, ahead of our forecast (strong rental).
Inventory. Dealer inventory increased 36%; checks confirm room for further restocking.
Backlog. The motorhome backlog surged 130%.
Dealer confidence and new products fuel huge backlog. The motorhome backlog increased 130% to 2,846 units, nearly 2 times our Q4 shipment forecast. The abnormally high backlog is a function of strong retail demand, confident dealers, new products, and the limited availability of motorhome chassis, which has encouraged some dealers to order aggressively to ensure some deliveries.
The investment firm of Robert W. Baird & Co. issued a client newsletter following Thursday’s release of Thor Industries Inc.’s third quarter report. Portions of the Baird newsletter follow.
Raising price target. Earnings per share (EPS) exceeded expectations on significantly better margin. The margin trend is encouraging as it appears sustainable. We raised our F2013 and F2014 outlook and see potential to earn near $4.50/share in a robust recovery scenario, supporting our revised $48 price target. Fundamentally, we continue to expect demand to recover as negative equity evaporates. Meanwhile, dealer inventory increased 14% to support retail growth but appears fresh. The weak margin overhang has begun to clear, supporting a brighter outlook.
EPS upside. Adjusted EPS significantly exceeded consensus expectations (97 cents vs. 88 cents), driven by solid margin upside. A lower tax rated added 4 cents. Adjusted EPS excludes a 15 cent loss related the sale of the ambulance business. Management previously had expected second-half operating margin to be “consistent with” the second half of last year – but with adjusted EBIT margin 50bp better in Q3, trends clearly have improved. Recall that Thor previously reported strong revenue growth (+13%) and a healthy backlog (+24%) in May.
Encouraging margin recovery. After a period of excessive discounting, promotional pricing has “stabilized.” Thor discounted to defend lot space early in the season, betting that strong retail would support follow-on orders at better margins. With retail up 12% and margin improving, the plan worked. Meanwhile, actions to drive a 200bp margin recovery over three years are gaining traction, supporting a more optimistic profit scenario.
Big picture. We are warming to Thor as margin pressure abates. As the leading RV manufacturer, Thor is particularly well positioned to capitalize on a robust cyclical recovery. We believe the negative equity overhang that has delayed the replacement cycle has begun to clear, supporting a more optimistic outlook. We raised our price target to $48 and would look to add, especially on a pullback.
The investment firm of Robert W. Baird & Co. issued a client newsletter following this week’s release of retail RV sales activity in March reported by Statistical Surveys Inc. (SSI). Portions of the Baird newsletter follow.
U.S. towable retail down 1% in March. According to data from Statistical Surveys Inc., unit retail sales in major towable categories (travel trailers and fifth-wheels) decreased 1% in March, decelerating from the recent strong growth against a difficult comparison (+22%). Thor demand declined 1% in March, the second month of the company’s fiscal Q3, leaving quarter-to-date retail down 1%. Thor reported preliminary sales on May 2. Winnebago (a smaller player in the towable market) retail improved 1% in March.
March towable demand declined 1% (travel trailers and fifth-wheels). Travel trailer demand improved 1%, while fifth-wheel retail sales declined 4%. The towable market faced a difficult comparison in March (+22%), but the comparison eases in April (+2%). Data indicate that towable demand increased 9% through March.
Thor retail declines slightly. Thor U.S. travel trailer and fifth-wheel retail fell 1% in March, which represents the second month of Thor’s fiscal Q3. Weaker demand in fifth-wheels (-9%) offset growth in travel trailers (+3%). We model Thor North American retail growth of +8% in fiscal Q3, but note that the preliminary SSI data are frequently revised higher.
Winnebago. Winnebago U.S. towable retail improved 1% in March, the first month of the company’s fiscal Q3. We model Winnebago North American retail growth of +15% in fiscal Q3. Towables represent just 10% of revenue for the company, which entered the market in 2011 with under 1% share — note that given Winnebago’s small market position, even a few incremental units can lead to large swings in growth rates.
Editor’s Note: The investment firm of Robert W. Baird & Co. issued a client newsletter after this week’s release by Statistical Surveys Inc. of the summary of retail sales of motorhomes in the month of March. Excerpts from the Baird newsletter follow.
U.S. Motorhome retail +25%. According to data from Statistical Surveys, motorhome (Class A & C) retail increased 25% in March. Class A sales improved 11% while Class C retail jumped 43%. We believe timing of rental units may be creating monthly volatility. Thor motorhome retail grew 31% through two months of the company’s fiscal Q3 (+69% in March, +1.5% in February). Thor reported Q3 preliminary sales May 2. Winnebago motorhome retail improved 1% in its first month of fiscal Q3.
Motorhome retail registrations in the U.S. increased 25% in March. Class A registrations improved 11% while Class C reported registrations rebounded to +43% growth in March after declining 1% in February. We note that the timing of rental fleet sales may be skewing March Class C data higher (after skewing it lower in February). Year-to-date Class C retail improved 27% while Class A demand improved 21%. Industry comparisons become easier in April and May before picking up in the summer.
Solid QTD results for Thor. Thor motorhome retail increased 69% in March after a stagnant February (+1.5%) – we believe the timing of rental fleet units may have contributed to the monthly volatility. Through the first two months of Thor’s fiscal Q3, the company’s U.S. motorhome demand improved 31% – a result that may dampen fears of an excessive inventory build after the weak February retail report and Thor’s solid preliminary sales report. We model Thor North American retail growth of 20% in fiscal Q3.
Winnebago. Winnebago U.S. motorhome retail increased just 1% in March. We model Winnebago North American retail growth at 20% for the May quarter. We remain comfortable with our forecast, noting the early stage of the quarter, frequent upward data revisions, and expectation for additional retail reports prior to Winnebago’s quarterly report.
Bob Martin, president and COO of Elkhart-based Thor Industries, addressed the 2013 Baird Growth Stock Conference in Chicago on May 8, and his talk covered Thor’s past, present and future, as well as some of the bigger trends in the RV industry in general.
The Elkhart Truth reported that Martin talked in some detail about recreational vehicles and the growth in the motorized RV market, as well as why Thor is in the bus market and why the company just sold its ambulance business.
In his prepared remarks and in answer to audience questions, Martin laid out a look at Thor:
• 96 brands in its subsidiaries (Keystone alone has more than 20 brands)
• Largest RV manufacturer in the industry.
• 36.3% of the RV market.
• 33% of the travel trailer market.
• No. 1 in the fifth-wheel market, with market share greater than 50%.
• No. 2 in motorhomes, but growing this year.
• 8,800 employees overall.
• 96 production facilities across seven states.
• More than 6 million square feet of combined indoor production.
To read the entire Elkhart Truth article click here.
Editor’s Note: The investment firm of Robert W. Baird & Co. issued a client newsletter after this week’s release of the February towable RV sales report by Statistical Surveys Inc. (SSI). Excerpts from the Baird newsletter follow.
U.S. towable retail up 4% in February. According to data from Statistical Surveys, unit retail sales in major towable categories (travel trailers and fifth-wheels) increased 4% in February, decelerating from the rapid growth in January against a more difficult comparison (+17%). Thor demand remained flat in February, the first month of the company’s fiscal Q3. Winnebago (a smaller player in the towable market) already reported results for the February quarter.
February towable demand grew 4% (travel trailers and fifth-wheels). Travel trailer demand increased 4%, while fifth-wheel retail sales improved 3%. The towable market faced a difficult comparison in February (+17%) and faces an even tougher comparison in March (+22%). Data indicate that towable demand increased 14% through February. After likely adjustments, the SSI data appear to be consistent with the Q1 Baird/RVDA dealer survey. RV dealers told us towable retail improved 9-10% in the first quarter of 2013.
Thor retail flat in February. Thor U.S. travel trailer and fifth-wheel retail remained flat in February, which represents the first month of Thor’s fiscal Q3. Weaker demand in fifth-wheels (-6%) offset growth in travel trailers (+4%). We model Thor North American retail growth of 8% in fiscal Q3, but note that the preliminary SSI data are frequently revised higher.
Winnebago. Winnebago already reported fiscal Q2 results on March 28. Winnebago results implied North American towable retail declined 1% – we use the Winnebago data in our model. Towables represent just 10% of revenue for the company, which entered the market in 2011 with under 1% share — note that given Winnebago’s small market position, even a few incremental units can lead to large swings in growth rates.