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Thor Industries Keeps Motoring Down the Road

By Dan Caplinger - Mar 6, 2017 at 4:58PM

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The RV specialist hit new records, but some investors weren't satisfied.

Recreational vehicles have hit a stretch of popularity that the industry hasn't seen since the 1970s, and Thor Industries (THO 3.75%) has found itself in the right place at the right time. The RV specialist has made every effort it can to boost its growth to take advantage of favorable conditions, both by ramping up its existing internal operations and by looking for strategic combinations like its recent acquisition of industry peer Jayco. Coming into Monday's fiscal second-quarter financial report, Thor investors were looking for very strong growth, and even though the company largely delivered on that front, some concerns about the pace of further gains throughout the rest of the fiscal year weighed on Thor stock after the report.

Let's take a closer look at Thor Industries to see how it did and what's ahead for the RV specialist.

RV owner sitting on a couch in his RV.

Image source: Thor Industries.

Thor watches sales, earnings climb higher

Thor Industries' fiscal second-quarter results showed just how much momentum the RV specialist has right now. Sales were up 63% to $1.59 billion, easily outpacing the $1.51 billion that investors had expected to see. Net income also soared, rising 45% to $64.8 million and working out to earnings of $1.23 per share. That was $0.01 better than the consensus forecast among those following the stock.

Taking a closer look at the numbers, Thor once again saw a huge part of its growth come from the Jayco acquisition. The purchase of the RV peer Jayco added $431 million in revenue, or about 44 percentage points of sales growth for Thor. Although the acquisition diluted gross profit margin, it was accretive in terms of gross profit. Moreover, more than half of the increase in backlog levels at Thor came from Jayco products.

Thor's segments performed well. Sales of motorized RVs nearly doubled from year-ago levels, and the moderately priced class C line of RVs saw the biggest sales gains, nearly tripling from the fiscal second quarter of 2016. Class A motorhomes also saw good gains of more than 60%, but the class B category was the only poor performer for the company, seeing sales slump by about a fifth. Net prices per unit were strong, with double-digit percentage gains in the class A and class C categories. Overall, pre-tax operating income from the motorized RV segment was up nearly 40%, and backlogs nearly doubled to $767 million.

At the same time, the towable RV segment posted big gains of its own. Revenue climbed 55%, with the travel trailer unit seeing even stronger growth of nearly three-quarters. Rises in the fifth-wheel category were a bit more modest but still rose by more than a third, and pre-tax operating income climbed by nearly half from year-ago levels. Backlogs gained 87% to $1.32 billion.

CEO Bob Martin again was pleased with Thor's results. "We experienced a positive start to the spring retail show season around the country," Martin said, and "growing demand from new consumers broadening our market has continued, with younger families increasingly buying more affordable priced travel trailers and smaller motorhomes." The CEO has high hopes that those positive trends will lead to lasting longer-term growth as well.

Can Thor Industries satisfy growth-hungry investors?

Thor also has confidence in its ability to build on its past success. Martin highlighted efforts to boost production to meet demand, saying that "expansion projects announced at Keystone, Jayco, and Heartland should begin to ramp up over the remainder of fiscal 2017 and into fiscal 2018."

Moreover, if anything, Thor thinks that industry conditions are likely to keep improving. Rather than seeing slowing sales, Thor keeps seeing rising demand at the entry-level point, and the company hopes that it can eventually upgrade those customers to pricier RVs over time. With rising show attendance and a host of new consumers adopting the RV lifestyle, Thor believes it can keep competitive pressures at bay and avoid the discounting pressure that hurt it several years ago during previous business cycles.

Yet the one negative for Thor was in its comments about its fiscal year 2017 outlook. The company said that it expects double-digit percentage revenue growth and improving earnings, but it warned that lower sequential and year-over-year growth rates could come later in the year.

Perhaps because of that outlook, Thor investors seemed a bit disappointed, and the stock fell 4% in after-hours trading following the announcement. Yet things continue to look favorable for the RV industry, and Thor is in a good position to keep growing to meet healthy demand going forward.

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