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Thor Industries Finishes Its Fiscal Year Strong on Jayco Gains

By Dan Caplinger – Sep 27, 2016 at 12:51PM

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The RV specialist got a big kick forward from its recent acquisition.

Investors in recreational vehicle specialist Thor Industries (THO -4.82%) have been excited about the company's prospects lately, and the ascent in its stock price to new all-time highs has mirrored record business performance. In particular, the recent acquisition of Jayco added more depth to the Thor lineup, and coming into its fiscal fourth-quarter financial report on Monday, Thor investors had hoped that the merger would result in even better growth prospects going forward. Thor's results were impressive, again shattering records and painting a pretty picture looking ahead. Below, we'll go into more detail on the latest from Thor Industries and why shareholders are responding favorably.

Image source: Thor Industries.

Thor thunders higher

Thor Industries' fiscal fourth-quarter results left no doubts about which way the company's momentum is carrying it. Revenue jumped 22% to $1.29 billion, topping even the aggressive expectations of investors for roughly 20% growth. Net income rose by a fifth to $82.8 million, and that produced earnings of $1.57 per share. That beat the consensus forecast among those following the stock by $0.24 per share.

Taking a closer look at Thor's results, the company's performance clearly benefited from the addition of Jayco. For the motorized RV segment, which has historically been Thor's stronger business, sales growth accelerated to 35%. The company said that strong growth was centered on products that new consumers entering the market like to buy, including more modest, moderately priced class A and C motorhomes. Pre-tax income rose by 12%, and backlogs jumped 71% to $462 million. Part of that increase came from Jayco, but demand for motorized products was also strong.

The towable RV segment showed even clearer effects from the Jayco acquisition. Sales climbed 20%, and Thor pointed to rising demand for lower-priced travel trailers as well as a month's worth of Jayco revenue in explaining the increase. Pre-tax profit jumped by more than a quarter, and backlogs more than doubled to $735 million.

CEO Bob Martin was happy about how much positive momentum Thor has generated. "We saw continued year-over-year industry growth in most product categories," Martin said, "and were able to capitalize on opportunities to expand our production capacity and output to meet the growing demand for affordably priced travel trailers and motorhomes." The CEO also noted how dealers have responded favorably to Thor's product lines.

Can Thor Industries keep speeding ahead?

Yet perhaps the most exciting thing about Thor is how much the Jayco acquisition could help it going forward. In Martin's words, "The success of Jayco is an integral part of our future growth plans and is a critical action item within our strategic plan." Yet the CEO also sees other signs of future success, including its dealer open house event, which sported record attendance and enthusiasm about its 2017 product lineup.

Thor also sees plenty of potential in looking at other possible growth avenues. CFO Colleen Zuhl gave a priority list on available cash flow, saying that Thor would first "support and grow our core business, both organically and through acquisition," and then turn to increasing dividends, paying down debt, and looking at a possible stock buyback or special dividend as circumstances warrant.

The one thing that Thor investors need to be prepared for is a possible decline in profit margin figures. In its outlook, Thor noted that because Jayco offers products that have a lower gross margin, Thor's overall gross margin could get diluted by the acquisition. Nevertheless, investors will accept that downside in exchange for what the company called a "meaningful accretion to earnings per share for the full year" in fiscal 2017.

Shareholders in Thor Industries were pleased with the report, sending the stock up by 2% Tuesday morning following the Monday after-hours announcement. If Thor can fully integrate Jayco's operations into its own business structure and find ways to improve both lines of products, then even greater gains than investors expect could be waiting in the years to come.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Thor Industries. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Thor Industries
$79.95 (-4.82%) $-4.05

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