Editor’s Note: Robert W. Baird & Co. staff attended this week’s National RV Trade Show in Louisville, Ky. Following are excerpts from a client newsletter on their field trip.
We recommend the RV sector and consider Thor a top pick near $30. After meeting with key industry leaders at the RVIA trade show, we anticipate a steady recovery in the RV market. We: 1) like the macro backdrop (wealth effect, tax policy, consumer confidence), 2) expect credit to loosen, and 3) see industry survivors (Thor Industries Inc. and Winnebago Industries Inc.) taking share. Our checks suggest Thor’s discounting is temporary, creating a timely entry point near $30.
Industry survivors are cautiously optimistic. We met with the leading dealers, manufacturers, suppliers and creditors at the 48th annual RVIA trade show in Louisville. Buyer attendance was up 9.7% and the mood was optimistic, but cautious. Survivors are taking share, but planning conservatively, anticipating modest retail growth in 2011.
Wealth, taxes and consumer confidence. Despite stiff economic headwinds, we are reluctantly optimistic. Why? Equity markets are up, congress is likely to extend Bush-era tax cuts and consumer confidence is improving – providing the discretionary resources and consumer mindset to increase spending.
Fresh and lean inventory. Sources confirmed what we’ve been seeing in our dealer surveys – inventory is fresh and lean. Less than 10% of dealer inventory is aged beyond 365 days (down from 45% 12-18 months ago) and inventory is turning 2.2x or better (up from under 1x turn). Several key sources told us creditors report near-peak inventory turns.
Access to credit is the differentiator. The most popular feature today isn’t the slide-out or full-body paint, it’s access to credit. Although we expect credit to flow more easily in 2011, credit has emerged as a durable barrier to entry, benefitting stronger competitors – especially Thor.
Bankers’ new word: “Yes.” We expect credit to flow better in 2011. Bank of America is taking steps to triple its business as Ally Bank reenters the market. At the margin, we expect loan approval rates to improve, amplifying industry growth.
The “discount” discount = opportunity in Thor. Investors “discounted” Thor shares after a disappointing quarter. Unexpected discounts to clear excess finished goods inventory squeezed margin – and frustrated some shareholders. But our conversations suggest the discounts are temporary, creating an opportunity in Thor near $30. While the S&P 500 is within 2% of its 52-week high, Thor trades 24% below its high, Winnebago trades 40%. By comparison, Callaway is 31% shy of its high, Harley is 12% shy and Polaris is within 2%.
To subscribe to this or other Baird publications, contact Craig R. Kennison, CFA, firstname.lastname@example.org or call (414) 765-3870.
Citigroup Inc. lowered its price target for Thor Industries, Inc. today (Dec. 1), from $40 to $36, with a “Buy” rating maintained, SmarTrend reported today (Dec. 1).
According to a research note, Citigroup maintained the firm’s 2010 EPS estimate at $2.16, cut its 2011 EPS estimate from $2.49 to $2.24, and lowered its 2012 EPS estimate from $2.81 to $2.62.
Thor Industries produces and sells a wide range of recreation vehicles, as well as small and mid-size buses.
On July 6, Thor Industries was upgraded to “Buy” from “Hold,” with its price target raised to $45 from $28, at Soleil.
The stock is trading at $29.80, which is 15.91% higher than the upgrade price of $25.71.
Thor Industries has a potential upside of 49.3% based on a current price of $29.80, and an average consensus analyst price target of $44.50.
The company has reported $2.3 billion in sales over the past 12 months and is expected to report $2.9 billion in sales in the next fiscal year.
Thor Industries is currently below its 50-day moving average (MA) of $32.23 and below its 200-day MA of $30.18.
In the last five trading sessions, the 50-day MA has climbed 1.63%, while the 200-day MA has remained constant.
Shares of Thor Industries Inc. moved lower Tuesday (Nov. 30) by 12.22% to $29.53 after posting a first-quarter profit increase that missed estimates. Approximately 2.72 million shares traded with market capitalization of $1.65 billion, EFPR reported.
Net income for the first fiscal quarter climbed 1.3% to $23.7 million or 44 cents per diluted share, compared to $23.4 million or 42 cents per share in the prior-year quarter. The reported net income missed the analysts’ estimate of 54 cents a share driven by heavier discounting.
Sales increased 21% to $606.7 million from $502.6 million in the year-ago quarter. RV sales advanced 30% to $506.56 million from $389.93 million last year, benefiting from the remnants of dealer restocking as well as a significantly easier competitive landscape, with many players going out of business or faltering in recent months, which has led to market share gains for Thor. The recently acquired Heartland RV (late September) added $50 million of towable sales. Bus segment sales of $100.12 million were down from last year’s $112.62 million, with orders related to the 2009 economic stimulus having all but flowed through backlog.
The company’s gross margin declined 130bps year over year to 12.6%. The margin was affected by cautious dealer purchasing during the seasonal slowdown and increased promotional activity as manufacturers appear to be aggressively competing for dealer space.
The company also saw incremental expenses of roughly $8.0 million in the quarter related to its Heartland acquisition, an ongoing SEC investigation, and trademark impairment charges related to the combination of its Thor Motor Coach operations.
Following are highlights of some of the developments announced at or reported to RVBUSINESS.com during this week’s National RV Trade Show in Louisville, Ky.
RVIA Releases 3 Videos
The Recreation Vehicle Industry Association has released three new videos in conjunction with the 48th Annual National RV Trade Show underway this week in Louisville, Ky. One of the videos new appears on the RVBUSINESS.com homepage.
RVIA Welcomes Chinese Delegation
A delegation sponsored by the Department of Commerce in Beijing, China, is visiting the 48th Annual National RV Trade Show today and Wednesday in Louisville, Ky.
The Recreation Vehicle Industry Association (RVIA) will host a reception for the Chinese delegation tonight at the Kentucky Exposition Center. The Chinese will be meeting with U.S. vehicle manufacturers and suppliers. Tables have been set up and five interpreters have been hired to assist the attendees communicate with each other.
Some members of the delegation will be visiting the RV/MH Hall of Fame on Thursday in Elkhart, Ind., and visiting one or more RV plants.
RVIA President Richard Coon said there is great potential for the RV industry to enter China. Coon said the Chinese consumers have more disposable income and leisure time than ever before and are interested in learning more about the RV lifestyle.
Newmar Adds MCD Innovations Shades
MCD Innovations announced that Newmar Corp. is installing MCD shades in their 2011 Dutch Star and newly redesigned 2011 Ventana models. The windshield and driver/passenger shades in the Ventana replace the visors and curtains that have been installed in the past. The Dutch Star model also includes the cockpit shade system. In addition, American Duo house shades are available for these models.
Also used in both coaches on the driver’s side window is the innovative, patent-pending MCD SwayShade, the unique roller shade configuration that travels forward as it is pulled down so as to cover the lower front corner of the driver’s window, which a normal shade cannot do. Newmar specified this unique shade for both the Ventana and Dutch Star.
“With Newmar’s high standard of craftsmanship and their ability to lead the industry with their innovative products, we are pleased that they have selected the American Duo Shade System for two of their most popular coaches,” said MCD Innovations CEO Dave Townsley. “ We look forward to working with Newmar and providing their customers the best the industry has to offer in solar protection, outward visibility and privacy.”
“Newmar is constantly looking to partner with the best Suppliers in the Industry to provide our discerning customers with the quality products that they deserve in their motorhome. MCD American Duo Shades will be a valued addition to our Dutch Star and Ventana Diesel Brands,” said Kyle McCrary, director of luxury motorhomes and product design at Newmar Corp.
Accidents Hamper Show Traffic
Multiple accidents on Interstate 65 southbound near Eastern Parkway just north of the Kentucky Exposition Center in Louisville, Ky., site of this week’s National RV Trade Show, have closed two lanes this morning, a MetroSafe Communications supervisor told the Louisville Courier-Journal.
There were reports of injuries, but the supervisor did not know the severity or how many people were injured. A Trimarc incident report said six vehicles were involved.
All southbound lanes were closed for about an hour after one accident was reported about 5:40 a.m., but the two left lanes were re-opened just before 7 a.m.
No further details were immediately available.
Morin Named Canadian Dealer of the Year
Daniel Morin, owner of Roulottes Desjardins, St-Jerome, Quebec, was named Canadian RV Dealer of the Year by the Recreation Vehicle Dealers of Canada (RVDA of Canada).
Morin’s award was announced and presented Monday night (Nov. 29) during the Canada Night Dinner held at the Galt House in Louisville. Morin is a 41-year veteran of the RV industry. He was a founding member of the RVDA of Quebec, past chairman of the RVDA of Canada and past director of Go RVing Canada board.
Thor Falls Short of Analysts’ Forecasts
Thor Industries Inc. fell short of profit forecasts provided by Wall Street analysts who follow the giant RV company.
Thor said Monday its fiscal first-quarter profit edged higher amid a 21% jump in revenue, Businessweek reported.
The company reported net income of $23.7 million, or 44 cents a share, for the three months ended Oct. 31. That compares with net income of $23.4 million, or 42 cents a share, in the prior-year quarter.
Analysts surveyed by Thomson Reuters expected earnings of 54 cents a share, on average.
Revenue increased to $606.7 million from $502.6 million a year earlier.
Thor said RV sales rose 30 percent versus the same quarter last year, while bus segment sales declined 11 percent.
Peter Orthwein, Thor’s chairman, said gross margins were affected by increased discounting as dealers remained cautious entering the slowest season of the year.
Shares in Thor Industries rose 14 cents to $33.78 in aftermarket trading after falling 91 cents, or 2.6 percent, to $33.64 during the regular session.
Editor’s Note: Robert W. Baird & Co. issued a client newsletter following Monday’s release of the first quarter results of Thor Industries Inc. Excerpts from the Baird newsletter follow.
Discounting squeezes margin. Thor reported disappointing profits on more aggressive discounting and a variety of accounting charges. Thor previously had reported preliminary sales. As we noted following an October dealer meeting, many dealers are reluctant to carry inventory over the off-season – driving Thor to discount to take share. Big picture, we are lowering our estimates but see value near $30 as demand improves and macro catalysts (tax policy, consumer confidence) potentially support discretionary spending.
Q1 results fall short. Thor reported Q1 (Oct) results after the close yesterday. Adjusted EPS was $0.48 versus our $0.57 estimate (and $0.54 consensus) with the downside driven by heavier discounting. Sales of $607 million (+21%) were in line with preliminary results.
Noisy EPS. EPS was more complex than normal and we made several adjustments to exclude legal expenses (-$0.04), acquisition-related accounting items (-$0.03), a trademark impairment ($-0.02), and an extraordinary gain (+$0.06). Net of the adjustments, EPS fell $0.09 short of our estimate as a lower tax rate (+$0.04) and lower share count (+0.02) were more than offset by weaker margins.
More discounting. Big picture, Thor is offering steeper discounts than we modeled – particularly in towables. Based on our conversations, we believe the company is discounting aggressively to get units into the channel as dealers are reluctant to order into the off season. Retail continues to improve and discounts position Thor to take share.
RV Field Trip. We are hosting a field trip at the RVIA in Louisville and will have a chance to meet with Thor and other RV industry leaders. We hope to have more insight later.
Lowering estimates. We are lowering our 2011 EPS estimate to $2.15 to incorporate Q1 results and expectations for additional impairment charges and off season discounting. We see good value in Thor near 12x EPS (excluding $3/share in cash) and would be more aggressive near $30.
Lowering estimates. We are lowering our 2011 EPS estimate to $2.10 to incorporate Q1 results and expectations for additional impairment charges and off season discounting. We see good value in Thor near 11x EPS (excluding $3/share in cash) and would be more aggressive near $30.
UPDATE: Thor filed its 10-Q this morning. We have adjusted our estimates after refining several assumptions based on new data. Specifically, we incorporated higher amortization expense, a higher share count, and slightly higher expectations for Heartland revenue. Net, our new F2011 EPS estimate is $2.10 vs. $2.15 and our F2012 EPS estimate is $2.65 vs. $2.75.
Estimates. We lowered our F2011 EPS estimate to $2.10 from our original $2.50 after incorporating Q1 results and expectations for further impairment charges and discounting. We also lowered our F2012 EPS estimate to $2.65 from our original $2.80.
To subscribe to this or other Baird publications, contact Craig R. Kennison, CFA, at email@example.com or call (414) 765-3870.
Thor Industries Inc. today (Nov. 29) announced results for the first quarter ended Oct. 31. Sales for the quarter were $606,684,000, up 21% from $502,552,000 last year, according to a news release. After expenses including those related to the acquisition of Heartland RV on Sept. 16, net income for the quarter was $23,688,000, up 1% from $23,429,000 last year. Earnings per share for the quarter were 44 cents versus 42 cents last year.
RV sales in the quarter were $506,563,000, up 30% from $389,929,000 last year. Towable RV sales in the quarter were $422,449,000, up 23% from $342,136,000 last year. Towable RV sales for the quarter ended October 31, 2010 include $50,119,000 of sales from Heartland RV. Motorized RV sales in the quarter were $84,114,000, up 76% from $47,793,000 last year. Bus segment sales in the quarter were $100,121,000, down 11% from $112,623,000 last year.
RV income before tax in the quarter was $34,104,000, up 8% from $31,642,000 last year. Towable RV income before tax in the quarter was $33,100,000 up 5% from $31,540,000 last year. Motorized RV income before tax in the quarter was $1,004,000, up significantly from $102,000 last year. Bus segment income before tax in the quarter was $9,419,000, up 12% from $8,380,000 last year.
Corporate net costs were $9,737,000 in the quarter versus $2,769,000 last year and included legal and professional expenses related to the acquisition of Heartland RV and the company’s ongoing SEC review totaling $3,503,000. In the towable RV segment, margins were adversely impacted by purchase accounting costs related to the Heartland acquisition, including expensing of inventory step-up costs, amortization of Heartland’s backlog, and amortization of certain intangible assets totaling $2,477,000. In the motorized RV segment, the company incurred a trademark impairment charge of $2,036,000 related to the combination of its Thor Motor Coach operations. Bus segment margins were positively impacted by a gain on involuntary conversion related to property and business interruption insurance. Thor’s lower tax rate in the quarter reflects a favorable state tax settlement.
“In the first quarter Thor invested heavily in growth and future profitability through the acquisition of Heartland RV, capital expenditures of approximately $16,500,000, and development of exciting new products which will be shown at this week’s RVIA Expo in Louisville, KY,” said Peter B. Orthwein, Thor chairman. “Beyond the costs related to Thor’s acquisition of Heartland RV, gross margins were impacted by increased discounting as dealers remained cautious entering the slowest season of the year. Thor’s retail RV sales continue to be strong which is encouraging.”
Analysts, on average, expect Thor Industries Inc. to report earnings of 53 cents per share on sales of $583 million on Tuesday (Nov. 30). SmarTrend reported
For the full year, analysts expect the company to post earnings per share of $2.48. In the year-ago period, the company reported EPS of 42 cents on sales of $503 million.
In the previous quarter, the company reported EPS of 71 cents, topping consensus estimates of 63 cents.
SmarTrend currently has shares of Thor Industries in an Uptrend and issued the Uptrend alert on Sept. 17, 2010, at $27.11. The stock has risen 27.5% since the Uptrend alert was issued.
Thor is the world’s largest manufacturer of recreation vehicles, with a U.S. network of approximately 1,200 dealers selling brands such as Airstream, Breckenridge, CrossRoads, Dutchmen, Heartland, Komfort and Keystone RV.
“We benchmarked current options and needs in the industry and will offer a very competitive wholesale financing product for RV dealers,” Tim Russi, Ally Financial executive vice president for North American Operations, stated in a news release. “Our program is tailored to the recreation vehicle business with attractive terms and flexible credit lines that will accommodate the seasonal fluctuations in RV inventory. We view our retail and wholesale financing, along with remarketing tools, as a full-service offering for dealers.”
Thor RV Group President Ron Fenech said, “Dealer wholesale financing is a critical part of the RV business. We are thrilled to have a strong national lender like Ally stepping in to provide Thor dealers with competitive financing for their inventory.”
Qualified dealers may obtain wholesale financing from Ally Financial for all or a portion of their inventory. Ally Financial has a dedicated sales team devoted to the RV business. Representatives will be on hand next week at the 48th Annual National RV Trade Show in Louisville, Ky., to introduce the wholesale financing program.
Ally Financial became the preferred retail finance provider for Thor Industries RVs in April. Ally currently extends retail financing in about 40 states, with plans to expand its RV retail financing nationwide by the end of the year.
Ally Financial is diversifying its business as an independent bank holding company devoted to the broad automotive industry.
About Ally Financial Inc.
Ally Financial Inc. (formerly GMAC Inc.) is one of the world’s largest automotive financial services companies. The company offers a full suite of automotive financing products and services in key markets around the world. Ally’s other business units include mortgage operations and commercial finance, and the company’s subsidiary, Ally Bank, offers online retail banking products. With more than $173 billion in assets as of Sept. 30, 2010, Ally operates as a bank holding company. For more information, visit the Ally media site at http://media.ally.com.
Topeka, Ind.-based CrossRoads RV will be introducing its new Rushmore luxury fifth-wheel at booth 1101 at the Kentucky Exposition Center during the 48th Annual National RV Trade Show Nov. 30-Dec. 2 in Louisville, Ky.
“Rushmore has been under development for the better part of a year and after extensive research with retail customers and dealerships alike, we feel we have built the highest valued fifth wheel in its price point,” Matt Popovic, national sales/product manager, stated in a news release. “The sole purpose of designing Rushmore was to create high volume retail turns. Unshoppable standard features such as specific dinner plate storage, spacious bedrooms with true walk-around beds (both king and queen), dual pantries, Champagne full-body exterior and luxurious interiors complimented with 100% natural cherry cabinetry will make selling the Rushmore very simple and fun.”
Popovic claims the Rushmore “has all the necessary components to make an immediate impact in the market” with its two-year bumper-to-hitch and five-year structural warranty, online direct link parts ordering and CrossRoads’ rapid reimbursement plan that CrossRoads has put into place to promote dealer/manufacturer relations.
“The ability our dealers have to make good grosses, capture additional market share and meet the needs of the most discriminating retail customer is and will continue to be our No. 1 focus in product development.,” he said. “In today’s highly competitive market, dealerships must have the ability to hold sensible profits on both the front and back end. Rushmore is here to ensure this.” MSRP starting at $49,999.
Popovic can be reached at (260) 593-3850 ext. 233.
CrossRoads RV manufactures a wide variety of travel trailers, fifth-wheels and park models at five plant locations. Its products are distributed by dealers throughout the United States, Canada, France, Japan, China and Australia. CrossRoads RV is a division of Thor Industries Inc. More information on the company can be obtained online at www.crossroadsrv.com or by calling (888) 226-7496.
Goshen, Ind.-based Dutchmen RV, a division of Thor Industries, will unveil its all-new Aerolite “SS” Super Slide Series of travel trailers at the 48th Annual RV Trade Show Nov. 30-Dec. 2 at the Kentucky Exposition Center in Louisville, Ky.
“This new series incorporates an exciting new exterior look and interior that is second to none” said Steve Paul, vice president/general manager of Dutchmen’s Aerolite group. “Not only did we upgrade the exterior with an all-new platinum grey finish and exciting graphics package and front cap, but we completely updated the interior — including a new cherry wood color and an exclusive ‘dual arched aerospace’ ceiling design.”
According to Paul, the new line goes directly after the Ultralite segment of the market. “We continue to see the Ultralite segment of the market as offering tremendous growth as consumers look to pull larger trailers with smaller tow vehicles,” he added. The Super Slide series is currently available in six great floor plans,
The Aerolite “SS” Series as well as the rest of the Aerolite line can be seen at the Dutchmen Display, South Wing Booth 1101 at RVIA.
For more information, visit www.dutchmen.com or call (574) 537-0600.