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.

Baird: Weather, Gas Impact April Coach Sales

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

Action
U.S. motorhome demand was down in April. Motorhome sales fell 6% in April, according to Statistical Surveys. We believe unfavorable weather, elevated gas prices and continued weak consumer confidence put pressure on results in early spring. With dealer inventory near equilibrium, shipments increasingly depend on better retail results to drive the recovery.

Summary
• Motorhome retail registrations in the U.S. fell 6% in April. Class A registrations decreased 11%, while Class C registrations fell 2%. The late arrival of spring in most regions likely pressured retail sales in the month. Elevated gas prices and the related effect on consumer confidence were also a headwind.

• Winnebago retail: Through the first two months of the Winnebago quarter ended in May, Winnebago sales were down 11%, versus our full-quarter estimate of plus 10%. So, Winnebago would need a better May, or stronger Canada results to make up for the shortfall. The current trend implies a retail downside near 1,300 units versus our 1,527-unit estimate. Keep in mind, the SSI data is frequently revised upward, which would close this gap.

• 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 in April, as shipments of 2,600 units outpaced retail of 2,200 units.

• 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: Thor Tops Forecast, Margins Improve

Editor’s Note: Robert W. Baird & Co. issued a client newsletter following Thor Industries Inc.’s 3Q financial report. Excerpts from the Baird newsletter follow.

Action
Margin recovery under way: Thor beat expectations as margin recovered – reversing a discouraging trend that had some investors on the sidelines. Until the pace of retail demand improves, we expect some discounting to persist – but our earnings per share (EPS) estimate of $2.06 in F2011 and $3 in a recovery scenario still seem reasonable. Big picture, we like Thor for patient investors as our cyclical thesis unfolds – but note that the recovery has slowed with the economy.

Summary
• EPS upside: EPS topped our estimate ($0.72 vs. $0.68) and the consensus forecast ($0.67). Recall that Thor already reported preliminary sales (+25%), which topped our forecast ($849 million v $835 million) due to healthy dealer demand (+11%) and the Heartland RV acquisition.

• Margin recovers as discounting abates: Operating margin recovered on better volume and smaller discounts – a significant trend reversal after a string of disappointing quarters. Our checks indicate that some discounting persists, but has stabilized. Thor raised prices in February and has worked to manage promotional spending better recently.

• Outlook: Our investment thesis and $38 target price hinge on a cyclical recovery that has yet to gain momentum. In a reasonable scenario in which the RV market returns to 70% of peak demand scenario, we see the potential for Thor to earn over $3 per share. However, despite easier credit, debt-laden consumers appear to have little appetite for more – especially with higher gas prices and weak employment trends.

Details
• Industry Wholesale and Retail: Towable and motorhome shipment growth moderated through the back half of 2010 and into early 2011 on tougher comps due to restocking in early 2010. Retail growth has remained modest in early 2011, and with the bulk of the selling season just beginning, the recovery has been weaker than previously expected as consumer confidence and gas prices weigh on demand.

Q3 Summary
• Dealer Inventory: Contingent floorplan liability, a proxy for dealer inventory levels, increased 41% year-over-year (YOY) to $841 million (up 7% sequentially). After bottoming in 2010, we believe dealer inventories are at appropriate levels, evidenced by dealers’ willingness to stock units into the spring selling season. Going forward, we expect wholesale restocking at a 1:1 rate with retail sales.

• Backlog: Total RV backlog fell 5% YOY and 9% sequentially to $427 million. Towable backlog fell 3% YOY from record levels last year, but was up 5% sequentially. Motorhome backlog fell 14% YOY and 45% sequentially from elevated levels last quarter. The total RV backlog represents 58% of our next-quarter RV revenue estimate. The bus backlog fell 6% YOY and 7% sequentially to $206 million.

• Balance Sheet and Cash Flow: Thor ended the quarter with $59 million ($1.06/share) in cash and investments. The company has no debt. Balance sheet inventory increased 32%, with some inventory growth attributable to the Heartland acquisition.

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: Class C Shipments Fuel April Upswing

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

Action

April shipments up 2%. Total RV shipments increased 2% in April, as motorhome shipments increased 8%, while towable shipments increased just 1%. Growth weakened from March, as dealers slowed restocking rates into the beginning of the retail selling season. Dealer inventory remains in good shape and as replenishment rates stabilize, we expect shipment growth to closely track retail demand in 2011.

Summary

We regularly compile and report monthly RV data as they are released. This research note, based on data released by RVIA, is part of that series.

•Total RV shipment growth slows in April. Overall shipments grew just 2% in April following strong shipments in March (+17%). Dealers tell us inventories are appropriate, having built normal seasonal inventory ahead of the stronger spring selling months. For the remainder of the year we expect wholesale shipments to track relatively in line with retail demand.

•Motorhome shipments increased 8%. Class A shipments were unchanged while Class C shipments increased 15%. We continue to expect modest motorhome shipment growth into spring against difficult comps, with retail results determining shipment growth during the season.

•Towable shipments up 1%. Travel trailer shipments increased 1% while fifth wheel shipments were flat. Year-to-date towable shipments are up 7%.

•SAAR. We calculate a seasonally adjusted annual rate of shipments. The SAAR of motorhome shipments increased to 26.6K units in April, from 26.4K units in March (23.6K units were shipped in 2010). The SAAR of towable shipments dropped to 198.8K units in April, from 231.8K units in March (199.2K units were shipped in 2010).

We caution against attaching undue significance to data from a single month. The data tend to fluctuate from month to month.

When referring to motorhomes, we generally mean Class A and Class C motorhomes (excluding Class B). When referring to towables, we generally mean fifth wheels and travel trailers (excluding truck campers and folding campers). When referring to RVs, we generally mean Class A, Class C, fifth wheels, and travel trailers. These refined classifications provide better comparisons to the companies we cover.

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: March Weather Hinders Coach Sales

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

Action
U.S. motorhome demand down modestly in March. Motorhome sales fell 1% in
March, according to Statistical Surveys, but Thor Industries Inc. (+16%) fared better, likely due to
rental shipments. We believe weather was a headwind in the month. The shape of
the recovery has been flatter than originally expected, and we continue to believe
improved retail demand will drive shipment growth, as dealer inventories have
bottomed.

Summary
• Motorhome retail registrations in the U.S. fell 1% in March. Class A
registrations decreased 2%, while Class C registrations were unchanged. The late
arrival of spring in most regions was probably a headwind to retail sales in the
month.

• Gas/Diesel: Class A-Diesel registrations fell 24% while Class A-Gas registrations
increased 21%.

• Rental units: Rental companies purchased 290 rental units in March (285 Class Cs
and 5 Class As), versus 238 rental units in March of last year. Excluding this
increase, consumer demand fell almost 5% in March.

• 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 in March, as shipments of 2,700 units outpaced retail of 1,800 units.

• 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.

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