Few investors who were alive in the 1970s would ever have dreamed that the recreational vehicle would come back into fashion. But in the latest surge of retro fever, the RV lifestyle is back in vogue, and Thor Industries (THO 2.56%) has been riding the wave higher for a couple of years now.
Coming into Wednesday's fiscal second-quarter financial report, some Thor investors were nervous about broader skepticism from the investment community about the sustainability of the expansion in recreational vehicle demand. Thor's results once again put those concerns to rest, and the company sees an even brighter future ahead. Let's take a closer look at Thor Industries and what its latest numbers say about the industry.
Image source: Thor Industries.
Thor isn't hitting the brakes
Thor Industries' fiscal second-quarter results continued a long string of solid performance. Revenue jumped 24% to $1.97 billion, which was even better than the $1.93 billion that most investors were expecting to see from the RV maker. Net income was up 23% to $79.8 million, and that produced GAAP earnings of $1.51 per share.
The bottom-line figure wasn't as strong as the $1.79-per-share consensus forecast among those following the stock, but Thor saw pressure from one-time impacts related to new tax reform laws. The company said that it took a charge of $34 million from having to revalue its deferred tax assets due to the changes in the corporate tax rate. That works out to about $0.64 per share, which was partially offset by a $12.5 million benefit from using the lower rate in the fiscal first quarter. Net of all of those impacts, adjusted earnings were better than most investors had expected.
Thor saw most of the trends that have previously prevailed within its business continue. Growth in towable RV sales was the strongest of Thor's segments, with 27% gains in segment revenue coming from strong demand for affordably priced travel-trailer and fifth-wheel RVs. Pretax segment income jumped by half from year-earlier levels, as Thor boosted its margin from increased operating efficiency and lower overhead costs. Backlogs for the towable segment were up by nearly half a billion dollars to $1.82 billion, reflecting strong demand going into the high spring selling season.
Motorized RV sales growth was weaker but still solid. Segment revenue rose 18%, again coming largely from the moderately priced side of that business. Pretax income was higher by more than 30% from year-ago levels on internal efficiency enhancements, and backlog levels ended just shy of the $1 billion mark.
CEO Bob Martin was particularly surprised by just how strong the period went. "In what has historically been our lowest volume quarter," Martin said, "we achieved our third-highest sales level of any quarter in the company's history." The CEO also pointed to Thor's wide range of cutting-edge products that helped it build market share throughout the 2017 calendar year.
Can Thor keep driving higher?
Thor has high hopes about the future. In Martin's words, "The overall health of the RV industry remains strong and is supported by solid growth of retail shipments, with our dealer inventories at appropriate levels for seasonal consumer demand." Favorable economic conditions are keeping first-time and younger buyers interested in the market.
Yet there's a lot at stake going into the spring season. Dealer inventory is higher by 25% from year-ago levels at more than 155,000 units, reflecting the enthusiasm that Thor-supplied retailers have that positive trends will continue. Nevertheless, that also carries risks if the key season doesn't go as well as hoped.
Thor's assessment of long-term conditions is favorable. Camping-site companies have seen increased demand at their businesses, with campers citing the rising inconvenience of domestic air travel and a greater emphasis on positive experiences while traveling. With tight inventories of used RVs, price differences are narrow enough that Thor thinks it behooves buyers to look at new vehicles as a better value proposition.
Thor investors were happy with the latest numbers, and the stock climbed 4% in after-hours trading following the announcement. At this point, the highway for further growth at Thor looks open, and shareholders are excited about its opportunities for continued fundamental success.
