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.”