"Why aren't we flying? Because getting there is half the fun. You know that..."-Clark Griswald
The recession wasn't much fun for leisure companies serving cash-starved consumers. Companies like RV manufacturer Thor Industries (NYSE: THO ) had to make do with more than a 50% drop in demand in 2009. The combination of near-retirees working longer and existing retirees ratcheting belts knocked industrywide RV shipments from a peak of 385,000 RVs in 2005 to just 165,000 in 2009.
The open road beckons... again
Lucky for Thor, retirees are feeling more financially fit thanks to a 176% increase in the stock market since March, 2009. As a result of rising confidence, the appetite for the home-away-from-home industry is marching back. July marked the 19th straight month of year-over-year growth for industry RV shipments, with 15% more RV's being shipped from makers to dealers than a year ago.
July's improvement brought year-to-date shipments to 201,000 units, up 13% versus 2012. And, that has industry watchers estimating total shipments will eclipse 300,000 this year for the first time since 2007.
So far, this year, the priciest are the best sellers. Sales of motorhomes, which cost more than towables, have climbed 35% year to date through July. Sales of Class A motorhomes, like those sold by Thor's Motor Coach brand -- the largest brand of Class A RVs with 21.9% market share -- are up 30% this year.
The more cost conscious towable RVs are selling more quickly too, growing 13.1% to 201,000 units.
Retirees like to travel
Traditionally, retirees have spent 17% of their annual budget on leisure, according to the Bureau of Labor Statistics. Since more baby boomers are retiring, the amount retirees spend on travel is growing too.
That's good news for Thor. The company is the biggest maker of towable RVs with 35.47% market share. Across all its brands and call classes of motor homes, Thor is the leader with a 25% market share.
As a result, Thor's sales hit a record $1.02 billion in the fourth quarter, good for 15% year-over-year growth. Sales of RVs, which grew 18.6% from last year, accounted for the lion's share of its revenue, or $913.2 million.
Within RVs, the biggest contributor to Thor's revenue was towables. Sales of tow-behind RVs like those made by Thor's Keystone -- the largest maker of such RVs -- grew 12.6% to $745 million.
Keystone's Bullet ultra-lite travel trailer has been especially strong. Sales grew 25.5% in the first four months of 2013, making it the number-one selling travel trailer in the $20,000 to $25,000 segment. But, while towables contributed the largest percentage of revenue in dollars, motorhomes are growing most quickly. Sales of those RVs jumped 55.8% to $167.9 million.
The strong end to the year translated into full-year sales of nearly $3.7 billion, up 19.6% from fiscal 2012. Again, motorhomes saw the biggest growth for the fiscal year, climbing 67% to $591.2 million. Importantly, this sales strength is set to continue as Thor's backlog increased 31.7% to $441.5 million. The backlog of motorhomes nearly doubled to $213 million.
The strength has refocused Thor
At the end of July, the company announced it was selling its bus business to Allied Specialty Vehicles for $100 million. That removes $450 million in Thor annual sales, but also gets rid of a low-margin slow grower at a time when RVs are growing much more quickly.
As part of Thor's plan to double down on RVs, the company bought the Indiana RV production campus formerly operated by Navistar to make its Monaco brand in June. The move gives Thor the ability to more quickly and cheaply boost capacity to meet its backlog. And the facility's paint booths decrease Thor's reliance on third-party vendors, helping to remove bottlenecks.
Additionally, Thor acquired towable RV maker Livin' Lite at the end of August. That deal gives Thor intellectual property tied to lighter aluminum designs, while adding $24 million in annual sales. Once Livin' Lite is integrated, Thor thinks it can ramp sales thanks to its larger distribution network.
The final take
Of course, Thor isn't alone in the RV space. It competes with Berkshire Hathaway's Forest River, which has grown just about as big as Thor in towable RVs, and it competes against Winnebago Industries (NYSE: WGO ) , which owns 18% of the motorized market. Those are tough competitors.
Forest River has leveraged Berkshire's balance sheet to help fuel significant market share growth. In the first seven months of this year, Forest River's sales are 26% higher than last year. Combined, Thor and Forest River make up nearly 70% of RV industry sales.
Winnebago is more highly leveraged to the motorhome market, suggesting more rapid growth for motorized RVs will impact it more. As a result, sales at Winnebago grew 40% and net income improved 191% in the third quarter.
Both are relatively cheap too, with Winnebago and Thor trading just 0.84 and 0.80 times sales, respectively. Thor has a slightly lower forward price earnings multiple at 15.6 versus 18.8 for Winnebago. Thor's profit margin outpaces Winnebago's at 12.75%, and that ratio should improve given Thor's bus divestiture.
Both Winnebago and Thor are likely to enjoy growth as more baby boomers retire daily, and the economy finds itself on firmer ground. As a result, sales are likely to enjoy tailwinds into next year. If so, it may be a good time to consider the RV industry and an investment in Thor.
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