As recreational vehicle (RV) dealers' inventories continue to normalize, Thor Industries (NYSE:THO) is seeing a return to profitable growth. The manufacturer issued its fiscal second-quarter 2020 earnings report Monday morning. Despite otherwise benign business conditions, the COVID-19 coronavirus epidemic could pose a threat to Thor's sales and margins in the near term. Below, we'll review the last three months, as well as management's discussion on the possible impact of the coronavirus in the back half of the fiscal year. Note that all comparable numbers refer to the prior-year quarter.
Thor Industries: The headline numbers
|Metric||Q2 2020||Q2 2019||Change|
|Revenue||$2.0 billion||$1.29 billion||55%|
|Net income||$28.7 million||($5.4 million)||N/A|
|Diluted earnings per share||$0.52||($0.10)||N/A|
Important details from the quarter
- Thor generated the majority of its revenue boost from its February 2019 acquisition of European RV manufacturer Erwin Hymer Group (EHG). EHG contributed $637.1 million to the company's top-line advance this quarter.
- North American sales improved by 5.9% to $1.33 billion. The North American RV segment was propelled by an 11.6% jump in towable RV sales, to $983.9 million, which offset a 7.5% decrease in motorized RV sales, to $343.7 million.
- The company's gross margin rose 180 basis points to 12.8%. Management attributed the increase to its efforts to control material and labor costs, as well as a lift from the 12.5% gross margin generated by the new European RV segment.
- Thor products on independent dealer lots in North America declined by 16.5% to 115,000 units. Management stated that it believes the process of dealer inventory rationalization over the last 18 months is now complete and that dealer orders will now more appropriately reflect actual consumer demand.
- Thor finished the quarter with a healthy 19% increase in its North American order backlog, to $1.73 billion. Combined with the European segment's backlog of $1.14 billion, the company's consolidated unfilled orders now total approximately $2.9 billion.
- During the quarter, Thor announced the opening of a new subsidiary, "Hymer USA," which will manufacture European-designed RVs and incorporate European manufacturing techniques acquired from EHG in its production process. The subsidiary projects to have its first vehicles available for sale in the fourth quarter of calendar year 2020.
Thor doesn't provide quantitative earnings guidance. In the company's press release, CEO Bob Martin observed that after having achieved normalized inventory levels, dealers are now building up vehicle quantities ahead of the peak summer selling season. Martin relayed that while the consumer discretionary specialist still expects calendar 2020 North American sales to be "flat to modestly down," it sees potential upside for this segment through the remainder of the fiscal year (which ends in July 2020).
Management also addressed the elephant in the RV lot -- that is, the possible impact of the novel coronavirus on Thor's outlook. The company disclosed that it's in close contact with key vendors to understand the availability of crucial components in its manufacturing process to meet production schedules. Addressing both the present and near term, Thor asserted the following:
"As of today:
- We have not experienced any production shutdowns at any of our facilities in the U.S. or Europe as a result of the coronavirus.
- We are monitoring our raw material availability closely and where needed, establishing alternative sources of supply.
- We have not seen any reduction of dealer orders nor any negative impact on retail sales.
- We do not expect the virus to delay the start-up of our newly announced Hymer USA facility."
Martin noted that "absent the uncertainties related to coronavirus," the company remains optimistic entering the peak selling season.
From these statements, investors can infer that Thor doesn't face an imminent supply or production issue (though this could of course change). And dealers haven't held back on ordering for the peak season. Thus, the near-term variable for the second half of fiscal 2020 might well be the extent to which the COVID-19 outbreak crimps consumer demand in North America and Europe. As the U.S. markets faced a drastic sell-off yet again on Monday, some investors decided not to wait around to gauge future consumer sentiment and perhaps overreacted out of fear: Thor's shares plunged by 20% midmorning following the release of its report.