Few trends have come as more of a surprise to market watchers than the revival of the recreational vehicle, but demand for RVs hasn't been this strong for decades. As a maker of components and accessories for RVs, LCI Industries (NYSE:LCII) took full advantage of the boom in the industry, and the strong growth that it's produced in recent years has led to strong returns for shareholders. Over the past year, though, many have worried about the sustainability of RV growth, and that's led to a big pullback for share prices.

Coming into Thursday's third-quarter financial report, LCI investors were prepared to endure weaker growth rates than they'd seen in the past. LCI was able to surpass those modest expectations, but some nevertheless won't be pleased to see confirmation that the industry's health might be suffering from the threat of a cyclical downturn.

LCI logo of a black circle around letters LCI.

Image source: LCI Industries.

Sluggish growth for LCI Industries

LCI Industries' third-quarter results didn't live up to its recent past. Revenue growth was limited to 9%, with sales coming in at $604 million, and although that was a bit better than most of those following the stock had expected, it was down from a 25% growth rate just three months ago. Similarly, net income of $33.8 million was higher by just 5%, and earnings of $1.33 per share also reflected mid-single-digit percentage growth despite topping the consensus forecast among investors by $0.01 per share.

Just about all of the improvement in LCI's top line came from acquisitions it's made over the past 12 months. Those purchases brought in $56 million in revenue during the third quarter, and without that impact, sales would have fallen by about 1% year over year.

Moreover, the wisdom of LCI's attempts to diversify its exposure beyond the recreational vehicle industry paid off. Sales from original equipment manufacturer motorhome components were up just 4%, and travel trailer and fifth-wheel-related sales dropped more than 5% from year-earlier levels. Yet original equipment manufacturer products for adjacent industries, including marine products, soared by nearly half, and that was responsible for most of the company's overall sales gains. Aftermarket segment sales were up by nearly a third, supporting further growth. The same trends showed on the profit from, with operating income falling 10% for OEM business but rising 22% in the aftermarket.

Fundamentally, LCI kept doing a good job of penetrating the RV industry to as great an extent as possible. Content per travel trailer and fifth-wheel RV was higher by $284 to $3,456 per vehicle. Motorhome share rose by an even more impressive $328 to $2,480 per motorhome.

CEO Jason Lippert explained how strong the period was compared to what's happening in the industry. "We achieved 9% sales growth in the third quarter," Lippert said, "despite a 12% decline in RV wholesale shipments compared to the same quarter of the prior year." The CEO noted the importance of adjacent industries, aftermarket products, and international business to keep LCI's exposure diversified.

What's ahead for LCI?

LCI did make several mentions of challenges, however. RV manufacturers have cut back on production in order to balance inventory levels for their dealers, and LCI president Scott Mereness also noted that LCI has had to "continue to manage costs in today's volatile commodity environment, with cost pressures driven by tariffs and tariff speculation."

One area in which LCI demonstrated optimism about its future was in deciding to authorize repurchases of its stock. The RV component maker said that it had put in place a new $150 million buyback program, representing more than 8% of its outstanding market capitalization, for use over the next three years. In Lippert's words, the program "demonstrates the Board of Directors' and senior management's continued confidence in LCI's long-term strategy and future performance."

Investors managed to get past the slowing growth and were happy about the better-than-expected results, and LCI's stock jumped 8% in morning trading following the announcement. With a successful overall strategy that isn't as reliant on the RV industry as it once was, LCI has taken advantage of its growth opportunities in ways that could help it be less vulnerable to the next cyclical downturn for recreational vehicles.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends LCI Industries. The Motley Fool has a disclosure policy.