Are Thor Industries and Winnebago Industries Back With a Vengeance?

Retail stores and restaurants aren't the only ones to have been affected by the snow storms that hit the U.S. this winter. Thor Industries (NYSE: THO  ) and Winnebago Industries (NYSE: WGO  ) , makers of towable and motorized RVs, may have also been driven into a ditch by Old Man Winter. However, in light of a recent announcement from Thor Industries, the RV markets' winter woes may now be a thing of the past and set for a spring thaw.

What happened before
Back on Feb. 4, CEO Bob Martin of Thor Industries warned of "severe winter weather that has plagued the Midwest this year." As a result, sales results for the quarter ending Jan. 31 came in at much lower levels than expected. 

It wasn't for a lack of demand, either. Backlog ended at $845 million, significantly higher than the $636 million in sales it achieved. The problem was that the snow caused road closures on certain days. Key parts couldn't come in. Deliveries of RVs couldn't go out. Production was lost. Demand was there, but the storms just got in the way. 

Was it an excuse?
The trouble with blaming bad weather is that a lot of companies have been accused of using it as an excuse to cover up other problems. As a result, investors often take these types of announcements with a grain of salt until further evidence surfaces.

Further evidence has now surfaced. On Feb. 18, Thor Industries announced that it is expanding its motorized production capacity by buying a facility. This suggests that the company expects the upsurge in demand for motorized RVs to be sustainable for the foreseeable future. Both Thor Industries and Winnebago have been seeing soaring motorized RV sales and backlog. 

Hints in the release
It is interesting to note that the facility  that Thor Industries is purchasing once produced towable RVs, but there has been a bit of a shift in demand toward motorized RVs. The reason for this, according to the Recreational Vehicle Industry Association, is an improving economy and cheaper financing available than before that allow consumers to upgrade from towable to motorized.

Thor Industries says that the facility will be used to "meet continued strong demand for products produced by the Company's Thor Motor Coach (TMC) subsidiary." CEO Bob Martin notes that "the recovery of the motorized RV market gain[ed] strength over the past year," and the company has "immediate production needs." This implies that the orders keep pouring in and the backlog keeps growing. Perhaps even the brutal weather is making people think about owning an RV that they can jump into and head south at a moment's notice.

Meanwhile, company president Jim Kime pointed out some additional bonuses. He mentioned that "the increased capacity will allow us to reduce overtime and the current stress on our existing plants and better align our production volumes with higher demand for our products."

"Reduced overtime" implies cheaper labor and therefore cheaper input costs. It sounds like you should expect higher profit margins overall for the company on a per-motorized-RV basis. Kime added, "We jumped at the chance to expand production for what is shaping up to be another strong year of growth."

Foolish final thoughts
So far analysts have not responded to the news about Thor expanding production, but look for them to raise estimates, especially for the next fiscal year ending July 2015. With a current analyst estimated P/E of between 13 and 14 along with fast growth and further expansion potential, Thor Industries makes a compelling value and growth idea. Fools looking for those qualities should consider giving Thor Industries a closer look.

That being said, Fools should take note that the RV industry tends to be cyclical. The economy, credit availability, and fuel prices all affect demand, and down cycles are sometimes quite painful. For example, in 2008-2009, 53 RV companies went out of business as demand imploded. If the economy or credit availability begin to take a dive again, or if fuel prices spike once again to $4-$5 per gallon, it may become time to hit the road early on RV stocks.

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8/21/2014 4:04 PM
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