Sales for Thor Industries Inc. are on the road to recovery after being slammed by high gas prices, scarce credit and recession-racked consumers, Businessweek reported. U.S. consumers are favoring less expensive and more fuel-efficient models, analysts and industry experts say.
Americans’ willingness to spend, if not splurge, on so-called second homes on wheels could in turn provide a clue to positive trends in the broader economy.
“The RV industry is a great leading indicator for the overall health of the economy,” says Kathryn I. Thompson, founder of Thompson Research Group in Nashville, Tenn. Over the last decade, manufacturers have produced an average of 309,000 RVs a year, according to the Recreation Vehicle Industry Association (RVIA).
On Sept. 28, Thor, the largest U.S. maker of recreational vehicles, reported a 51% jump in last quarter’s sales from a year ago. Profit rose 64%, with net income exceeding by 16% the estimates of analysts surveyed by Bloomberg.
The recession took its toll on the industry. In March 2009, two of the largest RV makers — Monaco Coach and Fleetwood Enterprises — filed for bankruptcy protection.
LOOSER CREDIT, NOT GREATER DEMAND
On Sept. 24, the RVIA released August data showing that the 177,300 RVs shipped to dealers so far in 2010 had exceeded levels at this point in 2009 by 70%. In 2009, the number of RVs shipped to dealers was 58% below the 390,500 RVs shipped in the peak year of 2006, according to the RVIA.
A key factor in the RV recovery has been credit, says Robert M. “Mac” Bryan, vice president of the RVIA. Because of the credit crisis, neither consumers nor dealers could borrow to buy RVs, which in the case of motorized homes can cost at least $200,000. Much of the improvement in 2010 does not reflect a “change in demand, but an improvement in financing in vehicles,” Bryan says, as the financial crisis has eased and banks have reentered the RV financing market.
So far in 2010, the rebound in actual retail demand has been “fairly modest,” says Bret Jordan, an analyst at Nashville-based investment firm Avondale Partners. “The retail consumer never really came back in a big way,” says Jordan, who is based in the firm’s Boston office.
There are, however, signs that this could be changing. “After a tenuous summer, the season ended well,” Robert W. Baird analyst Craig Kennison wrote on Sept. 29 while unveiling the results of a survey of 104 RV dealers.
Baird’s survey showed that some parts of the RV industry are doing better than others. Sales of motorhomes rose 8% to 10% in the third quarter of 2010. Towable RVs, meanwhile, jumped 16% to 18%.
TRADING DOWN TO TOWABLE RVS
Consumers are deciding on towable RVs partly because of cost, but also because extra features have made them competitive with motorhomes, Jordan says. A “high-end towable vehicle” can cost $60,000 while a high-end motorhome with a diesel engine can be $200,000. Many new towable trailers now feature “slide-outs” — portions of the trailer that can be expanded when parked to increase living space. “You’re getting comparable living space” to motorhomes, he says, adding: “There is a lot of utility in towables for the cost.”
In 2006, pricier motorhomes made up 14.3% of all recreational vehicles produced. So far in 2010, that share has fallen to less than 10%.
“You are seeing the trade-down effect,” Thompson says. “People aren’t necessarily giving up the RV lifestyle but they’re choosing less-expensive products.” RVs priced below $150,000 are “doing OK,” she says, while “anything below $100,000 is doing the best.”
According to Thompson, such trends could hurt Winnebago Industries Inc., the motorhome maker headquartered in Forest City, Iowa. They could favor Thor, for which towable RVs made up 70% of sales last quarter, she says. A maker of RVs under the Airstream, Dutchmen, Komfort, CrossRoads, and other brand names based in Jackson Center, Ohio, Thor announced on Sept. 17 the acquisition of Heartland Recreational Vehicles LLC, another specialist in towable RVs, for $100 million in cash and 4.3 million shares of Thor stock — or a total value of $247 million based on the recent share price. On Oct. 1, Thor said it would boost its quarterly dividend, from 7¢ to 10¢ per share.
BIG EXTRA: ADDITIONAL FLAT-SCREEN TV
Winnebago shares are down 14% so far in 2010, while Thor shares are up 9%.
To make cheaper RVs more attractive to consumers, manufacturers have piled on extra “bells and whistles,” Jordan says, like including three flat-screen televisions, instead of just two.
In response to the volatility of gas prices in recent years, RV manufacturers have made their products more fuel-efficient. “We’re seeing a great deal of attention [paid] to the greening of the RV,” Bryan says. RVs are being made of lighter materials and the efficiency of furnaces, air conditioners, water heaters, and other appliances has been improved, he says.
There are further recent indications of returning retail demand. The Pennsylvania RV and Camping Show, an annual event held in Hershey, Pa., bills itself as “America’s largest RV show.” The exhibition, from Sept. 13-19, saw record attendance that was up 9% from last year and the number of RV units on display rose 43%.
Tiffin Motorhomes, a privately held RV company based in Red Bay, Ala., told show organizers that sales were 44% higher than last year.
“People had been holding back on purchases and now they were ready to buy,” says Heather Leach, marketing and education director at the Pennsylvania RV and Camping Association (PRVCA).
RV DEALER: CUSTOMERS REMAIN “LEERY”
Exposure to the U.S. consumer is just one factor that makes the RV industry a good economic barometer, Thompson says. The industry is also affected by important credit trends, including the availability of short-term credit for dealers buying inventory and of long-term credit for customers buying RVs. The industry is also a good window into factors that affect U.S. manufacturing, such as raw material and labor costs.
The economic environment continues to concern the industry. Consumer spending rose 0.4% in August, according to data released Oct. 1 by the U.S. Commerce Dept. According to an unidentified RV dealer quoted in a Sept. 7 survey by Thompson Research Group: “Customers [remain] leery, kind of careful about everything.”
Nonetheless, industry participants say they are confident about the RV’s long-term appeal, especially as Baby Boomers retire and younger Americans seek affordable vacations. “Assuming gas prices remain reasonably affordable, it’s a cheap way to have a vacation,” Jordan says. “It’s cheaper than a second home.”
Park campgrounds are as busy as ever, Bryan says, a fact that underscores the appeal to Americans of the RV lifestyle. According to the National Park Service, the number of RV campers at National Parks rose 6.8% from 2008 to 2009. “Recreational vehicles have a very bright future,” Bryan says.
Editor’s Note: The Thompson Research Group monitors the RV industry for its investor clients. Following are highlights from TRG’s recent dealer survey conducted in the first quarter of 2010 from a pool of dealers that account for in excess of 50% of the U.S. RV industry sales. As such, these results provide a good leading indicator of broader consumer discretionary retail credit and sales trends, in addition to wholesale/inventory financing trends.
- Retail sales trends have improved for both motorized and towable RV segments.
- Sales outlook improved from prior RV dealer surveys.
- Financing remains a focus – retail credit modestly better.
- Dealers still reporting low motorized inventories.
We received more consistent feedback on positive towable retail trends vs. motorized sales trends. That said, motorized retail sales trends clearly have improved sequentially, and we will continue to monitor its progress. We are still relatively early in the RV retail sales cycle, but initial signs are encouraging. The Street remains focused on retail sales trends, as we believe this ultimately dictates the trajectory of the recovery of the RV industry.
To subscribe to this service, go to www.thompsonresearchgroup.com.
Two Wall Street firms that follow the RV industry offered somewhat different views of Thursday’s second-quarter results of Winnebago Industries Inc. But both arrived at more or less the same conclusion.
The firm of Robert W. Baird & Co. came out somewhat bullish on the stock in a client newsletter and said it was raising its forecast for Winnebago profits.
The newsletter stated in part, “Winnebago reported a smaller operating loss – suggesting lower breakeven levels than previously thought – a good sign. The backlog is robust (+246%), but better shipments reflect strong orders and inventory replenishment – not a recovery in retail (-2%). We raised our estimates to reflect lower breakeven levels and a good mix of diesel units, driving our price target to $15.”
The firm further said of Winnebago: “We raised our F2010 EPS estimate to $0.20 from a loss of $0.15 to incorporate the Q2 upside and improved profitability. We also raised our F2011 EPS estimate to $0.80 from $0.56.
Meanwhile, the Thompson Research Group halved its current fiscal year forecast, cutting it from 50 cents a share to 25 cents and its Fiscal 2011 estimate from $1.17 to 95 cents.
“We believe consumer retail demand is the most important metric in which to focus going forward, and ultimately will dictate future wholesale order trends. The primary driver for lowered FY 2010 and FY 2011 estimates was scaled back gross margin assumptions, which likely were too optimistic in the first place. We also modestly scaled back our top line assumption for FY 2011 but would add that we still are assuming a fairly robust 41% top line growth. Our analysis assumes what we believe is a 1-to-1 retail replacement in 2010. Our FY 2011 estimate assumes achieving 50% of peak volumes and operating margins less than half of peak levels. We view a $1.50 recovery EPS as a reasonable target, and assuming a conservative 15x P/E multiple implies a $22-$23 stock price. A potential flaw in our analysis hinges on the trajectory of the recovery in motorized retail sales. We continue to focus on retail sales trends in the channel, and our Q12010 RV dealer survey to be published in early April should shed additional light on the current status of retail trends.”
RVB readers who wish to keep pace on the firms’ views on these and other RV stocks are encouraged to subscribe to their services. Contact Baird at (800) 792-2473. Contact TRG at (615) 891-6203.
Editor’s Note: The Thompson Research Group (TRG) tracks the RV industry for its investor clients. Here are excerpts from a recent client newsletter following release this week of the year-end retail sales figures from Statistical Surveys Inc. (SSI). Towable retail sales increased 4.9% in December to 5,940 units. This marked the first year-over-year increase in towable retail sales since October 2007.
“We are very encouraged to see the long awaited return to increases in towable retail sales. Coupled with Thor’s record breaking backlogs released two weeks ago and feedback from recent RV shows, it appears the towable segment is continuing to gain traction in a recovery. We believe next month’s retail sales data, which will include some of the previously mentioned shows, will show continued improvement. We remain highly focused on retail sales trends going into the spring and summer selling season, as this determines the trajectory and sustainability of the current RV industry recovery.”
TRG reiterated its “buy” ratings for Thor Industries Inc., Drew Industries Inc. and Winnebago Industries Inc.
Editor’s Note: Thompson Research Group (TRG) tracks the RV industry for its investor clients. Following are excerpts from a recent TRG clint newsletter, based on the investment firm’s meetings with management of Thor Industries Inc.:
- Backlogs for the quarter ending in January are the highest since Hurricane Katrina demand. Towable backlogs equal $369 million or 90 days and motorized backlogs equal $80 million or 60 days The latter includes an order for 550 rental units from Cruise America which will be filled through June.
- Repos are significangly improved; dealer used inventory is low. For the first six months of Thor’s fiscal year ending in January, repos are valued at $2 million vs. $19 million last year. Management confirmed that used RV dealer inventories are at historic lows.
- Wholesale financing much improved, retail getting better. Management confirmed GE is starting to take over wholesale financing for dealers that were once floored by Textron, which exited the RV wholesale financing market approximatley a year ago. The retail lending market has improved from last year’s virtual grounding halt of all lending. That said, the lending practices have changed meaningfully and are more prudent (i.e., down payments of 10%-20%, average FICO score of 750).
- Thor management expressed an interest in utilizing its cash position to acquire “related” businesses.
Wall Street investment firms issued glowing reports following this week’s release by Thor Industries Inc. of its second-quarter financial results. Excerpts from their client newsletters follow:
Craig Kennison of Robert W. Baird & Co. noted that “Thor’s sales grew 89% to $429 million – better than our $367 million estimate and $373 million consensus. RV sales increased 148% to $335 million, above our $268 million estimate. Bus sales increased 2% to $94 million versus our $99 million forecast.”
“Strong backlog and robust industry wholesale shipments reflect more normal order rates after dealer inventory bottomed this winter. Thor RV backlog increased 157% YOY to $449 million and represents 74% of our next-quarter revenue estimate. Notably, a Class C order by an RV rental company represents a large portion of the RV backlog.”
“As the RV cycle turns, Thor remains positioned well, with a healthy cost structure, exposure to the relatively stronger towable market, and an opportunity to gain share. The wholesale restocking trends appears to be in full swing, supporting better results. We raised our 2010 and 2011 EPS estimates to $2.00 and $2.50, respectively, to reflect improving fundamentals.”
Likewise, Kathryn Thompson from Thompson Research Group concluded that Thor’s backlog numbers “exceeded even our relatively higher expectations. In our opinion, Thor’s strong Q2’10 preliminary earnings report were not necessarily an anomaly, and we think this signals a continuing trend.”
TRG upgraded its forecast for Thor and Drew Industries Inc. on Sept. 22 “based on strong Hershey retail feedback and confirmation that production schedules were set through November.”
Last month, TRG reported “a continuation and perhaps even an acceleration of strong retail trends at the Tampa RV Super Show.”
As a result, TRG reiterated its “buy” rating on Thor and expects additional earnings improvements in coming quarters.
Thor’s strong results also have positive implications for Winnebago Industries Inc. and Drew, TRG noted.
Editor’s Note: The Thompson Research Group (TRG) provides periodic reports on the RV industry to its investor clients. This current report follows release on Tuesday of the November motorized retail sales figures from Statistical Surveys Inc.
November 2009 Motorhome sales decline 6.7%. This marks the first single-digit decline in retail sales in 2009. Note that November 2009’s data excludes data from Georgia and New Mexico.
- November 2009 motorhome retail sales fell 6.7% to 1,038 units.
- Class A retail sales fell 13.2% to 637 units in November. November’s 13.2% decline in retail sales is the lowest since October 2007.
- Class C retail sales increased 5.8% to 401 units in November vs. a 22.9% decrease in October. This marks the first increase in Class Cs since August 2007.
- We were very encouraged to see the additional directional improvement in motorhome retail sales. We had heard steady feedback from retailers that motorhome retail trends had started to improve, and November’s retail data is the first meaningful tangible evidence of this trend. We understand that while many manufacturers last year took anywhere from three weeks to two months time off during the holiday season, many this year took only a week off of production. Winnebago Industries reported Q1’10 earnings showing a massive 350% increase in total backlogs and a 666% increase in Class A backlogs. We will gain greater clarity on retail demand this week when we attend one of the largest retail shows in Florida, the RV SuperShow in Tampa. We reiterate our Buy on Thor Industries Inc., Drew Industries Inc. and Winnebago Industries Inc.
Editor’s Note: The Thompson Research Group (TRG) issued this “snapshot” of the RV industry following today’s release of the November wholesale RV shipments by the Recreation Vehicle Industry Association (RVIA).
November 2009 total RV wholesale shipments surged 128.3% to 13,700 units. This is a vast improvement from the October 23.0% YOY increase and marks the fourth positive increase in wholesale shipments since July 2006 (excluding Oct-07 “false bottom”).
- Towable shipments increased 140.4% in November. Travel trailers led the segment with a robust 161.5% increase in shipments to 3,400 units after the 35.5% increase last month.
- Motorhome wholesale shipments surged 50% YOY to 1,200 units, led mostly by the 100% increase in Class C motorhomes.
- TRG opinion. We believe volume is the most important metric going forward. Given November 2008 was a very easy comp, last month’s wholesale gains still show a strong upward trend that we have been acutely focused on for the past quarter. A multitude of factors are signaling a turnaround in the RV space. Last week, WGO (Winnebago Industries Inc.) reported earnings, and backlogs increased an astounding 350%. Industry-wide seasonal/holiday plant shutdowns have been reduced dramatically. The recent national RVIA show confirmed our expectations as financing trends are easing, especially for the larger, more stable companies. Just this week, the nation’s largest RV dealer, Freedom Roads, completed their syndicated floor financing with a $314MM line of credit. Thor Industries Inc. doubled down on their bet by providing an additional $10MM to Freedom Roads in December. We believe we are at an early inflection point in industry fundamentals that will provide meaningful earnings growth for Thor, Drew Industries Inc. and Winnebago. We continue to recommend THO, DW and WGO.
Editor’s Note: The Thompson Research Group issued this investor report last Friday, following the release of the October wholesale RV shipment report by the Recreation Vehicle Industry Association (RVIA).
October 2009 total RV wholesale shipments rose 23% to 16,600 units. This is an improvement from the September 13% YOY (year over year) increase and marks the third positive increase in wholesale shipments since July 2006 (excluding Oct. 2007 “false bottom”).
- Towable shipments increased 26.9% in October. Travel trailers led the segment with a robust 32.4% increase in shipments to 9,800 units after the 31.4% increase last month.
- Motorhome wholesale shipments fell 6.2% YOY but show directional improvement.
- TRG opinion. As a reminder, the national RVIA show starts next week. Strong October shipment numbers foreshadow what we think will be a strong show. While the implosion of finance was the over-riding theme at last year’s show, we expect a greater focus on to what degree higher order trends is a function of low inventories versus improved retail trends. Fall retail shows have pointed to an overall modest recovery in retail trends. Because of improved order outlooks, we are hearing manufacturers are taking only a week or two of production off at the end of December versus three weeks to two months time off last year. Also, manufacturers are re-hiring workers and increasing production. Drew Industries Inc. (DW) and Winnebago Industries Inc. (WGO) both recently reported earning upside surprises, and we expect Thor Industries Inc. (THO) will also beat Street expectations when the company reports final Q1’10 earnings in conjunction with the RVIA show.
We continue to recommend THO, DW and WGO.
The Thompson Research Group remains bullish on the RV industry in its latest client newsletter.
Founder and research director Kathryn Thompson stated, following this week’s release of the September towable sales figures from Statistical Surveys Inc., that “recent survey work suggests a positive dealer buying sentiment going into the most important industry event of the year,” the National RV Trade Show Dec. 1-3 in Louisvile, Ky.
The Wall Street investment firm maintains its “buy” rating for the stocks of Thor Industries Inc., Winnebago Industries Inc. and Drew Industries Inc.
Following are key points from her newsletter.
- Travel trailer retail sales fell 22.6% to 7,510 units in September. Thor maintained top market share with 28.7% share (up 71 basis points year-over-year).
- Fifth-wheel retail sales fell 28.5% in September vs. a 27.1% decrease in August. Thor currently occupies the No. 1 position in the category with 37.6% market share.
“We surveyed 62 dealers this week, and 78% will be participating in next month’s show. Out of those dealers, 60%-plus indicated that they will be purchasing towable products. An improvement in wholesale shipments is two-fold with dealers restocking depleted inventory and a presence of improved retail demand. Fall retail show orders were above expectations, and that has translated to increased manufacturer orders. Thor, Jayco, and Heartland RV (all towable manufacturers) recently announced additions to their workforce because of increased demand. Because of improved order outlooks, we are hearing manufacturers are taking only a week or two of production off at the end of December versus three weeks to two months time off last year.
“In planning for the Louisville show in a week, we had at least one private RV manufacturer contend that they may be unable to meet us because of the overwhelming dealer request for meetings to place orders. This is all before the show even starts, which can generate up to 20%-30% of annual orders. Overall, we expect the news out of the Louisville show to be very encouraging. We would be buyers of THO, DW, and WGO going into the RVIA show.”
Kathryn I. Thompson
Founder/Director of Research
TRG|Thompson Research Group
The latest wholesale shipments report released last Friday by the Recreation Vehicle Industry Association (RVIA) was just what the Wall Street investment community needed to reinforce its contention that the RV industry has hit bottom and is on the way back
Three leading RV industry watchers, Kathryn Thompson, founder and director of the Thompson Research Group, Craig Kennison of Robert W. Baird & Co. and John T.G. Rogers of Janney Montgomery Scott, each offered encouraging words following the August RV shipments release, which revealed that shipments rose 5.3% in August, to 17,800 units.
Thompson noted that shipments’ upward movement marked “the first increase since July 2006 (excluding Oct-07 ‘false bottom’).”
She said the 9.9% increase in towable shipments “confirms findings from our Q3 2009 RV Dealer Survey published on 9/18/09. Travel trailers increased a strong 20.7% to 11,100 units vs. a decrease of 10.5% in July (8,500 units).
Meanwhile, while motorhome shipments fell 35.3% year-over-year, they showed “directional improvement.”
“Class A shipments fell 44.4% vs. last month’s 55.6% decrease. It is important to note that directionally Class A shipments have been trending up for the past four consecutive months. When Class A shipments reversed the downward direction in early 2001, Winnebago Industries Inc. traded up 200%+ over the next 12 months. We see this trend playing out with WGO today, and like the towable segment, we are starting to hear similar confirmations on real demand backing up volumes.”
Thompson concluded, “Going into our Q3 ’09 RV Dealer Survey, we placed acute focus on the status of dealer inventories and clarity regarding volume outlook. We received additional confirmation since our published Q3 ’09 survey that led us to believe the towable segment of the RV industry is seeing a real confirmation of a return in retail demand (vs. inventory replacement), prompting our upgrade of Thor Industries Inc. and Drew Industries Inc. We are starting to hear similar feedback in regards to the motorized segment, which would have positive implications for Winnebago.”
Kennison noted the year-over-year improvement in towables constituted “the first positive comp in 22 months.”
“The towable data are directionally consistent with our expectations for Thor — as we forecast Thor’s shipments to increase 30% in FQ1 ending October. We expect the trend to continue as comps ease and the destocking trend runs its course,” he stated.
“Shipments have remained below retail sales as dealers reduce inventory. We expect to see this trend run its course in towables as dealers begin to restock the lower-priced, faster-turning units. Additionally, Thor recently reported an increase in its backlog, suggesting dealers are beginning to reorder at a more normal rate. Dealers continue to destock in motorhomes, but this too is an unsustainable trend long term,” he stated.
Kennison calculated the seasonally adjusted annual rate (SAAR) for Class A and Class C motorhomes at 13,400 units in August, up from 12,600 units in July, and the SAAR for towables at 174,500 units in August, up from 136,500 units in July.
Meanwhile, Rogers said the sector appears poised for steady growth, according to The Business Insider.
“We continue to believe consumer tastes, demographics and the economics of RV ownership will support continued growth over the long term,” he wrote in a client note.
Rogers said White Plains, N.Y.-based Drew Industries Inc., which makes parts for recreational vehicles, will be a major beneficiary of the sector’s return to growth.
“Management has done an excellent job of managing costs during the downturn, and with its strong balance sheet and adequate access to capital, Drew is well positioned to capitalize on competition weakness,” the analyst said, reiterating his “Neutral” rating on the stock.
However, the analyst cautioned that although he sees an eventual return to normalized sales of RVs, the timing of that is uncertain.
In late morning trading, Drew Industries rose $1.48, or 7.2%, to $21.98, Winnebago added 88 cents, or 6.8%, to $13.81 and Thor increased $1.54, or 5.6%, to $29.14. Earlier in the session, the stock hit a new 52-week high of $29.32.
Editor’s Note: Staff members of Thompson Research Group recently traveled with Thor Industries Inc. management in the Northeast and visited key Thor Industries and Drew Industries Inc. manufacturing facilities in the Midwest. The following are takeaways from those meetings that were shared in a recent newsletter to investors.
- Towable backlog improvement, not just restocking.
- Motorhome segment still quite tough.
- Floorplan lending environment modestly better.
- Efficiency cuts continue.
“To date we had not yet adjusted our model to reflect Thor’s preliminary Q4’09 revenues released the first week of August. Taking this into account, we are raising our Q4’09 earnings per share (EPS) from 23 cents to 28 cents. We are also raising our FY’10 EPS estimate from 70 cents to $1.10. Our FY’09 and FY’10 Drew estimates remain unchanged.”
“Consensus is that Thor and Drew will continue to operate manufacturing plants at current levels, if not higher, through September. At that time, the RV industry will know what volumes will look like over the next six months and whether or not to cut back or continue. Early indications point to a towable recovery before a motorhome recovery. Of the towable-focused RV and RV related manufacturers, we are more positively inclined to Thor because of its growing bus business versus Drew’s manufactured housing business that has experienced a death spiral for the better part of the last decade. Motorhome producer Winnebago Industries Inc. will be a solid survivor, but we think that the motorized segment is at least 6-12 months behind any towable segment recovery.”
Wall Street analysts maintained their somewhat neutral stance toward investing in the RV industry in the client newsletters they sent out following this week’s release of the May retail RV registration figures from Statistical Surveys Inc. (SSI).
SSI reported that May Class A registrations fell 51% to 928 units while Class C registrations dropped 52% to 781 units. Class A diesel registrations fell 42% and Class A gas registrations fell 50%.
“Retail continues to outpace wholesale as dealers reduce motorhome inventory levels and manufacturers slow production. Conditions remain difficult, but we should see declines moderate as consumer confidence improves and comps become easier,” said Craig Kennison of Robert W. Baird Co.
The seasonally adjusted annual rate of retail registrations for May was 17,600 units, down from 23,800 units in April, he noted.
“While registrations were again down significantly, retail has remained higher than wholesale each of the past 13 months, suggesting inventory continues to come out of the channel,” he said.
Meanwhile, Kathryn Thompson of Thompson Research Group said in part, “May’s retail sales deterioration is consistent with dealer feedback that motorhome sales remain extremely challenging. As we have discussed in previous notes, we believe that Thor, Winnebago and Drew Industries will be the eventual survivors from this steep downturn. That said, Thor’s financial strength has enabled it to prosper relatively better than other competitors in the current environment.”
TRG recommended a “hold” position on these three publicly traded stocks.
Kathryn Thompson, a prominent analyst of the RV industry who was frequently quoted by RVBUSINESS.com when she was affiliated with Avondale Partners, has now formed her own firm, Thompson Research Group.
The equity research firm will continue to do much of the same type of research she performed at Avondale Partners, “perhaps with a greater emphasis on industry work,” she stated.
“We should be gearing up our RV dealer survey over the next two weeks,” she said.
Meanwhile, in her new capacity, Thompson issued a “hold” recommendation for shareholders of Drew following the recent release of Drew’s first-quarter results.
“Management seemed relatively upbeat on the quarter end conference call about the recent improvement in business relative to Q1’09,” she stated. “We would point out that after passing through the desert of Q1, any improvement will be meaningful. Management indicated that several customers have backlogs filled through the annual summer RV industry shutdown in July. April 2009 sales improved 19% vs. March 2009, a higher than typical seasonal increase.”
She conclued, “With shares of DW having run 161.3% since early March vs. an S&P 500 increase of 28.8% over the same time period, we think that valuation has gotten ahead of itself at this time. While we are encouraged to see some signs of a seasonal uplift in the business, we are by no means out of the woods yet. Financing remains tight at the wholesale level which is limiting dealer inventory replenishment. Until there is a meaningful return in consumer confidence (thereby improving retail inventory turns), we believe financial providers to the industry will limit providing additional flooring dollars to dealers. Additionally, if the consumer continues to remain tight, we anticipate dealers will continue to lower inventories heading into the fall, and will be unlikely to ramp up meaningfully orders of new product (i.e. we could see sequential decreases in orders). At this time, we are hard pressed to see additional upside in shares at this time.”