Baird: Volatility, Gas Slow August Coach Sales

Robert W. Baird & Co. issued a client newsletter to investors following the motorhome sales report for August by Statistical Surveys Inc. The following offers a summary of the results.

U.S. motorhome retail flat in August. Motorhome sales were flat in August, according to Statistical Surveys Inc.. Elevated gas prices and weak consumer confidence continue to put pressure on results. Looking to the remainder of 2011, consumers seem less active and dealers are not looking to restock aggressively; however, promotions at recent manufacturer open houses could be causing dealers to order units earlier in the season.

• Motorhome retail registrations in the U.S. were flat in August. Class A registrations fell 4%, while Class C registrations increased 7%. Low consumer confidence and a fear of debt continues to hurt demand.

• Gas/Diesel. Class A cas units were weak in August, down 6% following over a year of significant outperformance. Class A diesel units were down just 1%, following six months of double-digit declines.

• Retail SAAR. The seasonally adjusted annual rate of U.S. motorhome retail registrations for August before revisions, increased to 18.5K units, from 17.5K units in July. In 2010, U.S. dealers sold 19.5K motorhomes.

• Dealer inventory. Motorhome dealer inventory bottomed a year ago, and in 2010 wholesale unit shipments outpaced retail sales by roughly 6%. Dealers held inventory relatively stable in August.

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.

 

Baird: OEMs Making Deals During Open House

Robert W. Baird & Co. conducted a survey of 115 RV dealers to assess recent trends. The following offers a summary of the results.

Elkhart deals stimulate orders. Traffic is mixed, yielding better towable (+5-7%) than motorhome (-5-7%) demand. Inventory is in decent shape, but dealers would not be inclined to take on more RVs except for some aggressive promotions in which wholesale floorplan interest is paid by manufacturers (esp. Thor Industries Inc. and Forest River Inc.). We consider RV stocks oversold and see a strong backlog exiting the Elkhart show, but consumer fundamentals remain weak.

• Retail mixed while debt remains taboo. Traffic was mixed in Q3 (July/Aug. flat; Sept. down), but dealers tell us consumers remain under water and afraid of debt. Retail towable volume improved 5% to 7%, according to dealers, with lower price points (less financing) selling best. Motorhome volume fell 5% to 7%, with lower-priced gas units outselling diesel.

• Inventory OK – but finance promotions drive orders. Inventory is in decent shape, but dealers might have been inclined to destock heading into winter if not for aggressive deals at the Elkhart show – especially in towables (Thor and Forest River). Dealers report 111 days of towable inventory (down from 114 days last year) and 101 days of motorhome inventory (down from 109) – yet more dealers consider inventory “too high” than in June. Dealer towable order plans, however, are up 8-10%, supported by Elkhart promotions.

• Wholesale credit easing as competition intensifies. Credit has eased at the wholesale level as banks compete for business. Both “GE and Ally have never been so doggone nice,” according to one dealer. Meanwhile, Thor and Forest River partnered with GE to cover floorplan interest for the winter, which are “hard not to take advantage of” according to another dealer. Retail credit remains tough, especially with trade-ins still under water.

• Dealer confidence rebounds, but election cycle looms. On the bright side, dealer confidence recovered to 49 (50=neutral) after plummeting during the summer. Still, a number of dealers are wary of the looming election cycle, when brutal negative ads tend to weigh on the consumer psyche. Others point to November 2012 as a catalyst, but that is more than a year away (to state the obvious).

• Fundamentals weak, but stocks oversold. Fundamentals remain soft – driving a cautious if not pessimistic mood among dealers. We consider RV stocks oversold and anticipate a strong backlog exiting the Elkhart show – leaving us to see an opportunity for patient/value investors.

Note: Contact your Baird representative for a complete copy of the 42-page dealer survey.

 

Baird: Demand Weakens in Latter Half of 2011

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the August shipments report from the Recreation Vehicle Industry Association (RVIA). Excerpts from the Baird newsletter follow.

Shipments down again in August. Total RV shipments fell 3% in August on weak motorhome results (-23%) and relatively flat towables (-1%). Facing an uncertain economy and sharp drop in consumer confidence in August, consumers seem less likely to buy and dealers are less likely to stock – leading to slower RV orders in the back half of 2011.

• Total August RV shipments down 3%. Overall trends improved slightly following a weak July (-9%), but have deteriorated significantly from the 8% growth seen in the first half of 2011. Following seasonal restocking in the first half, retail failed to recover and dealers have slowed orders. Recall that dealers reduced inventory during the last cycle, limiting the destocking pressure if retail lags. In our recent dealer survey, dealers indicated plans for modest growth in orders for the back half of 2011.

• Towable shipments down 1%. Travel trailer shipments improved 1% in August, while fifth-wheel shipments fell 4%.

• Motorhome shipments fell 23%. Class A shipments fell 15% in August, while Class C shipments dropped 33%. For perspective, we model Winnebago shipments to drop 18% in the August quarter, which compares to industry shipments which fell 14% in the same period. Winnebago reports results October 13.

• SAAR. We calculate a seasonally adjusted annual rate of shipments. The SAAR of motorhome shipments decreased to 20.4K units in August, from 21.9K units in July (23.6K units were shipped in 2010). The SAAR of towable shipments increased to 205K units in August, from 183K units in July (199K units were shipped in 2010).

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.

 

Baird: July Coach Report Reflects Soft Market

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the July motorhome sales report from Statistical Surveys Inc. Excerpts from the Baird newsletter follow.

U.S. motorhome retail demand was down again in July. Motorhome sales fell 6% in July, according to Statistical Surveys Inc. We believe the drop was driven by high gas prices, unfavorable weather and weak consumer confidence. Looking to the back half of 2011, consumers seem less active and dealers are not looking to restock aggressively – likely resulting in fewer RV orders, consistent with our models.

• Motorhome retail registrations in the U.S. fell 6% in July: Class A registrations fell 5%, while Class C registrations fell 8%. High gas prices and low consumer confidence hurt demand.

• Gas/Diesel: Class A-Gas growth (+9%) was more than offset by weak demand for Class A-Diesel units (-21%).

• Retail SAAR: The seasonally adjusted annual rate of U.S. motorhome retail registrations for July before revisions, fell to 17.4K units, from 18.2K units in June. In 2010, U.S. dealers sold 19.5K motorhomes.

• Dealer inventory: Motorhome dealer inventory bottomed a year ago, and in 2010 wholesale unit shipments outpaced retail sales by roughly 6%. Dealers lowered inventory in July, a trend we expect to continue for the balance of the year as dealers manage inventory more conservatively into the off-season.

• Used RV values on the rise: Used RV prices are rising, according to The Black Book. Used motorhomes are up 4% to $42,146, on average. Used towables are up 2% to $10,455. We note that a rise in used prices on Harley-Davidson appears to have spurred better demand as trade-in consumers have something of value to trade. Meanwhile, retail lenders can become more comfortable lending when the underlying collateral is appreciating.

• Dealer convention registrations up: Dealer registrations at the RVDA dealer meetings in Las Vegas Oct 3-7 are up so far.

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.

 

Baird: Tight Inventory Levels Hurt July Shipments

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the July shipments report from the Recreation Vehicle Industry Association (RVIA). Excerpts from the Baird newsletter follow.

Shipments down in July. Total RV shipments fell 9% in July — the largest monthly decline since 2009 — on declines in both motorhomes (-11%) and towables (-9%). Following seasonal restocking at dealerships in the first half, and a slower-than-expected retail recovery through the selling season, dealers seem reluctant to accumulate inventory.

• Total July RV shipments down 9%. Overall shipment trends have deteriorated following flat shipments in June and a stronger May (+14%). As seasonal restocking ends and retail trends have slowed, orders have moderated. Recall that dealers reduced inventory during the last cycle, limiting the destocking pressure if retail lags. In our recent dealer survey, dealers indicated plans for modest growth in orders for the back half of 2011.

• Towable shipments down 9%. Travel trailer shipments dropped 13% while fifth-wheel shipments grew 5%. Year-to-date towable shipments are up 4%. For perspective, Thor has reported preliminary results for its quarter ended July. We model Thor towable shipments down 7.5% (excluding Heartland), versus industry shipments up 3% in the quarter.

• Motorhome shipments fell 11%. Class A shipments fell 10%, while Class C shipments dropped 13%. We continue to expect pressure on shipments in the second half, as dealers seem reluctant to stock heading into winter, but note that comps become easier beginning in fall. Year-to-date motorhome shipments are up 6%. For perspective, we model Winnebago shipments to drop 18% in its August quarter. Through the first two months of the quarter, industry shipments are down 10%.

• SAAR. We calculate a seasonally adjusted annual rate of shipments. The SAAR of motorhome shipments decreased to 21.9K units in July, from 23.3K units in June (23.6K units were shipped in 2010). The SAAR of towable shipments fell to 183K units in July, from 243K units in June (199K units were shipped in 2010).

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.

 

Baird: Gas, Low Confidence Stall Towable Sales

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the June motorhome sales report from Statistical Surveys Inc. Excerpts from the Baird newsletter follow.

U.S. retail flat in June. Dealer towable sales were flat in June according to Statistical Surveys Inc., as retail trends slow. But towable results continue to outpace motorhomes (note that data is frequently revised upward). Elevated gas prices and low consumer confidence hurt results. Facing an uncertain economy in the back half of 2011, consumers seem less likely to buy and dealers are less likely to stock – leading to potentially fewer RV orders.

• Towable retail flat. U.S. towable sales were flat in June and are up 7% YTD. Travel trailer registrations increased 2% (+8% YTD), while fifth-wheel demand fell 8% (+3% YTD). Keep in mind, data is frequently revised upward, and we would expect growth overall in the month as data is updated.

• Inventory. Dealers restocked units throughout the winter and spring as shipments exceeded retail sales, but inventory is still relatively lean. Dealers in our most recent survey indicated that channel inventory is fairly balanced at current levels, but as confidence deteriorates, we expect dealers to manage inventory conservatively in the second half of 2011.

• Retail U.S. SAAR. We calculate a seasonally adjusted rate of retail registrations. The SAAR of U.S. towable demand (including fifth-wheels and travel trailers) fell to 147K units in June, from 157K units in May. Just over 150K units were sold in the U.S. in 2010.

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.

 

Baird: Uncertain Economy Impacts Coach Sales

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the June motorhome sales report from Statistical Surveys Inc. Excerpts from the Baird newsletter follow.

U.S. motorhome demand down in June. Motorhome sales fell 2% in June, according to Statistical Surveys Inc. We believe elevated gas prices, unfavorable weather and weak consumer confidence put pressure on results. Facing an uncertain economy in the back half of 2011, consumers seem less likely to buy and dealers are less likely to stock – leading to potentially fewer RV orders.

Motorhome retail registrations in the U.S. fell 2% in June. Class A registrations increased 2%, while Class C registrations fell 5%. High gas prices and low consumer confidence hurt demand.

Gas/Diesel. Class A-Gas growth (+15%) continues to support weak demand for Class A-Diesel units (-13%).

Retail SAAR. The seasonally adjusted annual rate of motorhome retail registrations for June before revisions, fell to 18.0K units, from 20.6K units in May. In 2010, U.S. dealers sold 19.5K motorhomes.

Dealer inventory. Motorhome dealer inventory bottomed a year ago, and in 2010 wholesale unit shipments outpaced retail sales by roughly 6%. Dealers increased inventory just slightly in June, and for the balance of the year, we expect dealers to manage inventory more conservatively as confidence deteriorates.

Important note. Data for certain months is incomplete due to reporting delays from Maine and Minnesota. We caution against attaching undue significance to data from a single month. The data tend to fluctuate from month to month, and are frequently revised.

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.

 

Baird Lowers Estimates on Growing Volatility

Editor’s Note: Robert W. Baird & Co. issued a client newsletter last week in response to market volatility. Excerpts from the Baird newsletter follow.

• Lowering estimates as wealth and confidence deteriorate. We are cutting our estimates to reflect the damage to wealth and confidence this week has wrought. The debt debate, economic slowdown, and potential for higher taxes on wealth likely will take a toll on the RV consumer. Fortunately, dealer inventory is in better shape than 2008-2009, limiting the impact this time. As investors shed risk, shares already appear to discount another recession, so we advise sellers to seek a better exit price.

• Confidence crisis: We are proactively trimming our RV estimates to reflect a more cautious near-term outlook for the confidence-driven industry. Recent volatility in the equity markets and instability in Washington have the potential to curtail the already anemic recovery. Facing an uncertain economy, consumers are less likely to buy and dealers are less likely to stock – leading to potentially fewer orders for Thor and Winnebago. While our early-summer checks still showed growth at retail, investors are less confident about the next 6-12 months.

• Thor: We met with Thor in Indiana during investor meetings last week. Investors remain concerned with the economy, margin pressure (discounting), management changes and market share trends. Management did not comment on future performance, but did strike a cautious tone that matched our sour view of the next six months. We are lowering our F2012 EPS estimate to $1.80 from $2.00, but the stock already appears to discount a pessimistic scenario (retail downturn, share losses, modest destocking). Meanwhile, the board of directors raised the dividend 50% after the market closed, raising the yield to 3.3% (although some shareholders preferred a buyback). Thor has $3.86/share in cash and no debt.

• Winnebago: We are lowering our F2012 EPS estimate to $0.20 from $0.46 to acknowledge the strong link between consumer/dealer confidence and demand for Winnebago motorhomes. However, like Thor, the market appears to discount a pessimistic scenario. Importantly, unlike the 2008-2009 correction, dealer inventory is in better shape, implying a less severe destocking cycle this time – allowing Winnebago to stay in the black. Separately, we like Winnebago’s plan to expand into towables, fueling incremental growth. The company has $2.25/share in cash and no debt.

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.

 

Baird Survey: Dealers OK with Lean Inventory

Editor’s Note: Robert W. Baird & Co. issued a client newsletter offering an overview of a dealer survey designed to get a pulse on the  retail environment during the second quarter. Excerpts from the Baird newsletter follow.

Retail up despite traffic headwinds. We contacted 95 RV dealers to assess recent retail trends. Traffic deteriorated throughout the quarter, as elevated gas prices and unfavorable weather weighed on consumer confidence. Despite weaker traffic, retail improved in both motorhomes (+4-6%) and towables (+12-15%), but the recovery has been slower than expected. Inventory remains lean, but dealers plan to stock conservatively heading into winter.

• Strong conversion rates support retail demand. Traffic fell throughout Q2, but retail sales held up better as dealers cited better close rates. Demand improved in both motorhomes (+4-6%) and towables (+12-15%), with particular strength in lower ASP “stick-and-tin” models. Gas prices and weather continue to pressure results at retail, but many dealers indicated improved trends in recent weeks. Although our survey does not overlap perfectly with the quarter-end for Winnebago or Thor, these trends are better than what we assume in our models.

• Inventory in good shape. Dealers are comfortable with current inventory levels, and expect to enter the off-season with lower-than-usual inventory as demand moderates and accelerated curtailments incentivize faster turns. Just 25% of dealers consider inventory “too high,” a healthy sign. Inventory turns have increased slightly into mid-summer, but remain solid for both motorhomes (125 days) and towables (112 days).

• Sentiment down on weaker consumer. Dealer sentiment fell again in Q2, on higher gas prices, lower consumer confidence, and bad weather during the prime selling season.

• Increased competition benefiting credit environment. Finance availability and terms are improving, according to dealers. The aggressive entrance of Ally Bank into the space seems to be having an impact on rates and creating some credit availability for FICO scores under 700. However, curtailments still kick-in at the 6-month mark, causing many dealers to hold very low inventory levels through winter.

• Recent retail data. Statistical Surveys Inc. recently released May motorhome retail data. Motorhome sales fell 3% in the month. Our positive retail checks (through June) imply demand improved a little recently, possibly due to better weather and lower gas prices.

• Outlook. Demand growth has moderated in the upper-single to low-double-digit range, and inventories remain lean. Dealers seem reluctant to accumulate inventory, but we do not expect another destocking cycle. While the retail recovery has not been as strong as expected through the first half of the year, we see good value in Winnebago and Thor at depressed levels.

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

 

Baird: Weather, Gas Impact May Coach Sales

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following the May motorhome retail sales report from Statistical Surveys Inc. Excerpts from the Baird newsletter follow.

U.S. motorhome demand down in May. Motorhome sales fell 3% in May, according to Statistical Surveys. We expect elevated gas prices, unfavorable weather and weak consumer confidence put pressure on results. With dealer inventory at appropriate levels, shipments increasingly depend on better retail results to drive the recovery.

• Motorhome retail registrations in the U.S. fell 3% in May. Class A registrations decreased 3%, while Class C registrations also fell 3%. A cold, rainy spring, likely hurt demand in the seasonally strong month. Elevated gas prices and the related effect on consumer confidence were also a headwind.

• Gas/Diesel. Class A-Gas growth (+7%) continues to support weak demand for Class A-Diesel units (-15%).

• Retail SAAR. The seasonally adjusted annual rate of motorhome retail registrations for May before revisions, fell to 19.7K units, from 23.3K units in April. In 2010, U.S. dealers sold 19.5K motorhomes.

• Dealer inventory. Motorhome dealer inventory bottomed a year ago, and in 2010 wholesale unit shipments outpaced retail sales by roughly 6%. Dealers continued to restock units in May, as shipments outpaced retail. We expect dealers to manage inventory more conservatively following the seasonally strong spring/summer selling season.

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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