The RV industry may be the poster boy for cyclicality. During a boom economy in 2005, Winnebago (NYSE: WGO ) shipped 70,000 units. Flash-forward to 2009, and that figure was down 86% to just 10,000. The entire industry collapsed but seems to have bottomed that year. Others, such as Thor Industries (NYSE: THO ) , are also recovering on the back of an industrywide rebound that is expected to be the highest in seven years.
The winning results
On June 26, Winnebago reported fiscal-third-quarter results. Revenue popped 13.5% to $247.7 million. Excluding a one-time sale in the year-ago period, revenue leaped 23.7%. Operating income jumped 52.1% and net income soared 48.6% to $11.4 million or $0.24 per diluted share.
The gains were credited from motorhome unit sales from new products and floor-plans, higher profit margins, better leverage, and a much better overall market. It was the strongest quarterly revenue the company has seen since 2005, and its growth rate was even stronger than other competitors such as Thor Industries.
The power of Thor
Meanwhile, Thor Industries reported its fiscal-third-quarter results on June 2. Sales popped 13% to $1.05 billion. Net income from continuing operations flew 13% to $55.1 million or $1.03 per diluted share. It was a record third quarter in terms of sales. The growth numbers certainly weren't bad, though they didn't register at Winnebago's pace.
Bob Martin, CEO of Thor Industries, stated that the reason results weren't even better is due to "production capacity challenges" as it ramps up its new facility. The company is seeing some short-term costs and inefficiencies as a result. He also blamed industrywide tight labor markets and a shortage of capacity at transport companies for higher costs despite the robust demand.
If you ask why the demand gained for each company, executives from Winnebago and Thor Industries give a lot of credit to their great products. No doubt that's partially true, but the industry certainly isn't creating many obstacles.
According to the Recreation Vehicle Industry Association, there are many reasons why the RV business is experiencing a revival. First, the association sees a trend toward more healthy living and more access to nature and outdoor activities. Second, there is a growing perception of value. The average family of four can save between 23% and 59% on their vacation costs by using an RV. Third, RVs cater to the growing number of owners who like to travel with pets and engage in tailgating.
Other benefits include easier access to financing and IRS allows the interest to be tax deductible as a second home mortgage interest. New advances in green technologies, lightweight RVs, and fuel efficiency have also been a plus. Also, extra busy lifestyles have resulted in shorter vacations for many people and RVs allow quick weekend getaways with little planning according to surveys.
According to analysts, baby boomers are the biggest buyers, accounting for 60% of RV sales; this group is expected to continue to grow both in size and spending power... as long as the economy improves. But, if history is any guide, when the economy goes sour Winnebago and Thor Industries could see their sales get slaughtered.
And that makes sense: When stocks are down, commission checks are cut, home values are down, and everyone's worried about the future, an RV is seen as a luxury purchase that can be delayed. Add the fact that higher interest rates mean higher payments for financing one, and that perceived cheap monthly cost goes up.
Foolish final thoughts
The recreational vehicle industry can kind of feel like a game of musical chairs. It sounds as though Winnebago and Thor Industries have great near-term and long-term futures, but the medium term is uncertain. These companies seem to be great contrarian buys to hold for the very long term. For now, it's anybody's guess where they are headed, but it looks like Winnebago may be chipping away a bit at Thor Industries' dominance.
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