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Baird: January Shipments Reveal Mixed Results

March 2, 2012 by · Leave a Comment 

Editor’s Note: Robert W. Baird & Co. issued a client newsletter to investors following the January shipments report. The following offers a summary of the results.

Shipments were mixed in January as total RV wholesale improved 5% on strength in towables despite declines in motorhome shipments. Towable results continue to outpace motorhomes as dealers appear more willing to stock up on the lower priced, faster moving models ahead of the spring selling season.

Towable shipments up 7%: Travel trailer shipments improved 10% in January, while fifth-wheel shipments were flat. Wholesale growth has slowed in December and January, following a previous two months where wholesale improved 25% — probably driven by orders from fall open houses. Dealers in general seem comfortable increasing inventory ahead of the upcoming selling season.

Thor gaining share: For Thor’s quarter ended January, industry towable shipments improved 11% and industry motorhome shipments fell 17%. Thor reported preliminary RV revenue up 15% for the quarter, implying market share gains in the offseason stocking period — probably supported by promotions offered at the manufacturer open houses in the fall.

Motorhome shipments down 11%: Class A shipments fell 9% in January, while Class C shipments dropped 13%. Motorhome weakness in the second half of 2011 (shipments down 16%), seems to have continued into 2012, as dealers are more reluctant to stock slower turning motorhome units. Through two months of Winnebago’s February quarter, industry motorhome shipments are down 16%. We model Winnebago wholesale units up 3% in the quarter. We expect Winnebago to report results March 22.

• SAAR: We calculate a seasonally adjusted annual rate of shipments. The SAAR of motorhome shipments increased to 22.1K units in January, from 18.6K units in December (24.8K units were shipped in 2011). The SAAR of towable shipments fell to 209K units in January, from 230K units in December (213K units were shipped in 2011).

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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Baird: Retail Sales Improve as Confidence Grows

January 16, 2012 by · Leave a Comment 

Editor’s Note: Robert W. Baird & Co. conducted a quarterly survey of 122 RV dealers to assess recent trends. The following offers a summary of the results.

Retail improves as confidence rebounds. Retail improved during the seasonally weak quarter as consumer confidence rebounds. Inventory is healthy, but dealers may defer orders after taking advantage of incentives at the fall Elkhart show. We see value for patient investors and note a recent lift in investor sentiment after an awful year.

Decent off-season retail: Traffic was mixed, but dealers reported growth in motorhomes (+5-7%) and towables (+7-9%) during the seasonally weak December quarter. Better consumer confidence and favorable weather appeared to help. Separately, Statistical Surveys Inc. reported that U.S. motorhome retail improved 2% in November, corroborating our observations.

Inventory levels hold steady: Dealers report 117 days of towable inventory (down from 119 days last year) and 127 days of motorhome inventory (down from 133). However, some dealers are still taking delivery on orders placed at the fall Elkhart show, which offered heavy incentives on towables. Thirty five percent of towable dealers consider inventory “too high” versus just 15% of motorhome dealers.

Dealer sentiment rises above key threshold: Dealer sentiment rose above 50 for the first time since October 2007, hitting 55 in our most recent survey of current conditions (50 is neutral). The move coincides with a recovery in consumer confidence we consider essential to a broader recovery in the RV sector.

Credit trends remain favorable, but unchanged: Access to both wholesale and retail credit remains healthy, but largely unchanged. Dealers liked the GE Capital promotion, which covered floorplan interest costs through the winter on product from Thor and Forest River.

Outlook: After an awful year for RV stocks, investor sentiment is beginning to recover as consumers and dealers grow more optimistic. We see value for patient investors, noting that inventory is healthy and expectations for 2012 retail seem reasonable (Thor retail up 3%, Winnebago up 1%), setting the stage for better shipments if the economy recovers. Thor has $3.77/share in cash and no debt, with a chance to earn over $3/share in a recovery scenario. Meanwhile, Winnebago has $2.45/share in cash and no debt, with the potential to earn over $1/share in a recovery scenario.

Note: Contact your Baird representative for a complete copy of our 39-page dealer survey.

 

 

 

 

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Baird: Industry Cautious, Deals With New Normal

December 2, 2011 by · Leave a Comment 

Robert W. Baird & Co. issued a client newsletter offering observations gleaned from its “RV field trip” at the 49th Annual National RV Trade Show in Louisville, Ky. The following are highlights from the report.

Notes from RV field trip. We met with key dealers, lenders, suppliers and manufacturers at the RVIA trade show in Louisville. The mood was more cautious than last year, with many veterans accepting a “new normal” awaiting a better economy. Our models are consistent with this outlook, yet investor sentiment has soured. We acknowledge the lack of catalysts, but valuation doesn’t make sense to us, creating an opportunity for patient investors.

Industry insiders expect flat retail. Industry veterans, including bankers, dealers, suppliers and manufacturers expect flat retail in 2012 – largely consistent with the expectations embedded in our Thor and Winnebago models. The RVIA industry shipment forecast for 2012 calls for wholesale down 2.6% – roughly consistent with this outlook. After a weaker end to 2011 following more optimistic expectations a year ago, industry players are being more conservative looking ahead.

Dealer inventory is fresh and balanced. Key floorplan lenders, including GE Capital and Bank of America, report that dealer inventory is fresh and balanced. Aged inventory (over 365 days old) is under 10% and dealers are turning inventory 2.25x-2.50x, a stronger pace than is typical. Investors are concerned that a promotional deal to subsidize wholesale finance costs during the winter may backfire, but lenders we met with were very comfortable with inventory levels.

Credit trends are unchanged. Credit trends eased last year, stimulating early 2011 sales before the recovery soured. Based on our conversations, access to both wholesale and retail credit remains healthy, but largely the same. Dealers are utilizing 64% of available floorplan capacity, down from 67% last year – and FICO credit scores remain very high (795 vs. 790).

Outlook. Without a macro catalyst, investor sentiment may struggle to recover, but sector valuations already discount a no-recovery scenario. Net, we see value for patient investors, but acknowledge the need for a much better macro outlook to drive shares higher. A stronger consumer confidence report is a good start.

Additional Notes:

Shipments/Retail

• Many were concerned about how orders would fare at the Louisville show after open houses in Elkhart, Ind. Manufacturers indicated orders have been solid, and that some dealers who ordered at Elkhart have actually reordered at Louisville.

• Discounting persists, but has not worsened.

• Regions with commodity or agricultural exposure are relatively strong.

Retail Credit Conditions

• Appetite for lending is robust, but demand on the consumer’s part to take on debt is low.

• Possible elimination of second mortgage interest tax deductibility would be a headwind.

• Advances are lower than during peak years (110% of invoice from 140%).

• Average FICO scores remain high (795 from 790).

• Approval rates are high (64%) especially considering more stringent requirements.

• Rates are relatively low (about 4% on average).

Wholesale Credit Conditions

• Wholesale credit is widely available, as lenders look to build their portfolios.

• Curtailments are kicking in earlier than during the boom years (6-12 months versus 18 months).

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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R.W. Baird Sees ‘Decent Value’ In Thor’s Shares

November 7, 2011 by · Leave a Comment 

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

Better sales/orders confirm the sky isn’t falling. Preliminary sales significantly exceeded expectations driven by strong orders at the Elkhart dealer open house. Heading into the off season, we maintain a cautious outlook as the economy struggles, but see decent value in Thor shares noting its market leadership, solid balance sheet, 2.4% dividend yield, and history of strong returns on capital.

Revenue. Preliminary sales for the October quarter improved 11%, significantly exceeding our forecast ($674 million vs. $581 million) and consensus ($594 million). For perspective, industry RV shipments fell 1% in the first two months of the quarter (towables up 1%; motorhomes down 22%).

Solid backlog. The total backlog improved 9% to $510 million, up from $467 million, driven by a better RV orders coinciding with the Elkhart dealer open house. The RV backlog improved 18%, to $300 million, consistent with our expectations. Dealers placed orders sooner this year in response to the increasingly important Elkhart industry open house in September – likely accounting for some of the strength. The bus backlog fell 1% to $210 million, slightly better than our expectations.

Raising estimates slightly. We are raising our Q1 EPS estimate a penny to 40 cents after incorporating the incremental revenue, but maintain a cautious margin outlook. As we noted in September, Thor partnered with GE to cover floorplan interest expense at the increasingly competitive Elkhart show. Still, the revenue upside inspires more confidence.

Outlook. We see the potential for Thor to earn over $3/share in a cyclical recovery in which the RV market returns to 70% of peak demand, but the odds of a robust recovery have diminished for now. Facing stubborn unemployment, heavy debt, and anemic economic growth, consumers lack the confidence that inspires an RV purchase.

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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Baird: Sept. Shipments Flat, Q3 Sees Declines

October 28, 2011 by · Leave a Comment 

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

Wholesale RV shipments were mixed in September. Total RV shipments were relatively flat on weak motorhome results (-21%) and modest growth in towables (+4%). Facing an uncertain economy and weaker consumer confidence, 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 September RV shipments flat: Overall trends have deteriorated significantly, with wholesale down 4% in calendar Q3 following 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 destocking pressure if retail lags.

Towable shipments up 4%: Travel trailer shipments improved 6% in September, while fifth-wheel shipments fell 2%. For perspective, we model Thor towable shipments down 7% (excluding Heartland).

Motorhome shipments down 21%: Class A shipments fell 17% in September, while Class C shipments dropped 29%. For perspective, we model Winnebago shipments down 3% in the November quarter – but it is early and percentage swings are more volatile during the off season.

SAAR: We calculate a seasonally adjusted annual rate of shipments. The SAAR of motorhome shipments decreased to 17.2K units in September, from 20.4K units in August (23.6K units were shipped in 2010). The SAAR of towable shipments fell to 177K units in September, from 205K units in August (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.

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Baird: Dealers Conservative Heading Into Winter

October 17, 2011 by · Leave a Comment 

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

U.S. towable retail up modestly. Dealer towable sales increased 3% in August, according to Statistical Surveys (data is frequently revised upward), generally in line with results from our recent dealer survey. Results improved sequentially, but growth has been slow on weak consumer confidence and an uncertain economy. While retail remains weak, lean dealer inventories and incentives at recent manufacturer open houses could support orders heading into winter.

Towable demand up 3%. U.S. towable sales improved 3% in August, and are up 7% YTD. Travel trailer registrations improved 4% (+8% YTD), offsetting fifth wheel sales down 2% (+3% YTD). Keep in mind, data is frequently revised upward.

Inventory. Dealers restocked units throughout the winter and spring as shipments exceeded retail sales, but dealers in our recent survey confirmed inventory is still relatively lean. We expect dealers to remain conservative heading into winter, but do not expect destocking, despite weaker retail.

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) increased to 168K units in August, from 157K units in July. Just over 150K units were sold in the U.S. in 2010.

Important note. The data excludes or is incomplete with respect to Minnesota and Maine. 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 upward.

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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Baird: Volatility, Gas Slow August Coach Sales

October 13, 2011 by · Leave a Comment 

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.

 

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Baird: OEMs Making Deals During Open House

October 10, 2011 by · Leave a Comment 

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.

 

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Baird: Demand Weakens in Latter Half of 2011

September 29, 2011 by · Leave a Comment 

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.

 

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Baird: July Coach Report Reflects Soft Market

September 15, 2011 by · Leave a Comment 

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.

 

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