Hymer Buyout, Inventories Spur Dip in Thor 2Q (3/6/2019)

Story by RVBusiness
Thor Industries Inc. today (March 6) announced net sales of $1.29 billion for its second fiscal quarter, ended Jan. 31, compared with the record second-quarter revenue posted in the prior year.
 
Net loss for the second quarter of fiscal 2019 was $5.4 million, or 10 cents per diluted share, compared to a profit of $79.75 million, or $1.51 per share a year ago.
 
Second-quarter results reflect acquisition-related costs totaling $42.1 million, or 75 cents per share. The company acquired German-based Erwin Hymer Group in February. 
 
Second quarter fiscal 2019 financial results reflect the impact of balancing production with market demand, as wholesale shipments declined relative to retail sales as dealers continued to sell through existing inventories before placing orders for new product, and various acquisition-related costs.
 

Buyout & Inventories Spur Dip in Thor 2QBuyout & Inventories Spur Dip in Thor 2Q

"We made considerable progress on a number of fronts in the second quarter, supported by a positive start to the 2019 retail show season, with a number of the larger shows posting strong attendance levels, which supports our view of a stable long-term retail environment," said Bob Martin, Thor president and CEO. "We were also pleased to have closed our acquisition of Erwin Hymers just after the end of the second quarter. This transformational acquisition represents a major step forward in our long-term strategic growth plan, and our entire team is focused on integrating EHG and providing strong returns for our shareholders. While we are optimistic for the long term, we also expect to face challenging conditions in the near term, as dealers continue to reduce inventory levels and we experience difficult comparisons to the record third-quarter results posted in fiscal 2018."
 
Second-quarter net sales decreased 35.8% for the towable segment, 33.7% for the motorized segment and 34.5% overall. Overall gross profit margins declined to 11% in the quarter, compared to 13.7% in the prior-year period, primarily reflecting the impact of lower sales levels and higher relative sales discounts and promotions compared with unusually low levels in the prior year. The levels of promotions and discounting during the quarter was more in line with historical seasonal averages.
 
Overhead costs increased as a percentage of sales due to lower fixed cost absorption over the reduced net sales in the quarter. Net income in the quarter was also adversely affected by an unusually high effective tax rate. The company's second-quarter effective tax rate was 389.1% compared to a tax rate of 43.5% in the prior year because the $31.2 million non-cash, mark-to-market loss on the foreign currency forward contract is not deductible for income tax purposes.
 
The company expects to return to a more normalized effective tax rate of 23% to 25% by the end of its fiscal second half of 2019, before consideration of any discrete tax items and the acquisition of the Erwin Hymer Group.
 
As dealers continue to rationalize inventory levels following the unusually high seasonal order and wholesale delivery patterns in the first nine months of fiscal 2018, Thor has taken steps to adjust its production levels accordingly. A number of Thor's production facilities have reduced their production unit rates, while others have shifted to four-day production weeks. These reductions, combined with the start of the stronger spring and summer selling season, are expected to result in reductions in Thor's finished goods inventory.

Finished goods inventory levels were elevated at Jan. 31, in part due to the unusually bitter winter weather which forced most of the company's operations to close for several days at the end of the fiscal second quarter. As a result of these factors, Thor expects that production and wholesale sales will be balanced with overall retail demand by the end of the normally stronger second half of the fiscal year.
 
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