In this segment from Market Foolery, Chris Hill and Bill Barker discuss the latest quarterly results from RV industry leader, Thor Industries (NYSE:THO). The company's shares have gained over 60% in the past year, benefiting from broad strength in the space.
But for all the tailwinds behind RV sales, investors were expecting another big beat last week, and the stock sold off following the release. Here is what you need to know.
A full transcript follows the video.
This podcast was recorded on March 7, 2017.
Chris Hill: Second quarter profits for Thor Industries came in a little higher than expected, so did their revenue, and yet shares down 8%. Is this a guidance thing? Is this a valuation thing? Thor Industries has had a heck of a nice run, so I'm wondering if at least part of what we're seeing in the market today is just the fact that the stock was trading at a premium.
Bill Barker: Yeah, it's a valuation thing. It was a good quarter. A couple things -- one, the last three or four quarters, things have been very good in the RV industry, and Thor is the leader. Whereas people think Winnebago is the most known name, Thor has Airstream and a whole bunch of other brands under its roof. Then, Forest River, which is owned by Berkshire Hathaway, is the No. 2 player. It's been a great time for RVs. Gas prices are good. Interest rates, which is what most purchasers need, is good financing rates, they're good. And the job market has been good. So RVs have done very, very well, and Thor has as well. It was up almost 100% last year as a stock. It had a good quarter.
But whereas the last three or four quarters it beat expectations by about $0.20 to $0.25 a share on almost each one of those last couple of quarters, it only beat by $0.01 this time, so I think people were pricing in another blowout quarter. One of the reasons for that is, Thor doesn't really give guidance, so the results tend to have a greater differential against expectations than for most companies which guide pretty narrowly, and by the time earnings are reported, the analysts have been given the guidance on what the actual results are going to be. So, there aren't big surprises.
Hill: So, when you say they don't give guidance, is that even during the quarterly conference call? Or is it just like, "No, we'll do our quarterly report, we'll answer any questions you have, and then you're not going to hear us give any kind of guidance until three months from now?"
Barker: Well, they don't do quarterly conference calls. They provide -- this is how they do it. One of the things they're proud of is they don't provide non-GAAP earnings, they don't provide adjusted earnings. They're like, "Here's what we report: GAAP earnings. That's the only number we're going to give you, is what the earnings are according to GAAP." Then, they give a pretty detailed quarterly write-up. They do take, you can arrange some calls with them individually, but they don't do a published conference call. But they produce, in written form, "Here are the questions we think you're most interested in." They provide a written-out Q&A. So, I think it's a different way of doing it. I think it's worked out very well for investors, as to where their priorities are.
Hill: Now I'm wondering if anyone has done a study on the average return of companies that take this approach to Wall Street analysts, and by that, I mean, not offering guidance. Because the only other company that leaps to mind is Berkshire Hathaway. Berkshire doesn't really do that, they have their annual report and that kind of thing. I mean, they put out their quarterly reports, but they don't really do that. And I'm just wondering if -- on the one hand, you can look at an approach like that and think, maybe they're trying to sweep something under the rug. The other way of interpreting that is, "We don't have time for this. We're busy running our business, and we're not going to hold your hand, Wall Street analysts. Ask whatever you want to ask and we'll get back to you if we want."
Barker: Yeah, the principal reason not to give any guidance is not to be held to managing to the quarter. If you're going to give quarterly guidance, and then there are good reasons to do things that are in the long-term interest of shareholders but are going to cost you in the short-term, it's easier to present that story when you haven't guidance, then missing, which tends to be a pain, and analysts get mad at you and investors get mad at you. It's been good times for Thor, where they've just been able to wallop expectations. It's not a closely followed company. There are only maybe four analysts that are producing any estimates at all. You have a small number of analysts, and you have less guidance from the company, they'll tell you about how much they're going to be spending that year on capital expenditures and things like that. You can tell from industry numbers, what likely sales are going to be. People can follow this without big surprises.
And it's been great times. Total sales were up around 60%. A lot of that had to do with an acquisition they made of Jayco, which was the No. 3 player before they acquired Jayco. So, they have backlog up almost 100% over this time last year. Earnings were up around 50%. Revenues were up more than earnings because of the Jayco operation is still much less efficient than the Thor that has been around, and we're going to see whether Thor management can get the margins of Jayco to where the rest of their operations are. If they can, it's going to be an even more profitable company.