Thor Industries (THO 1.13%) has a huge backlog, which would normally be a great sign for the business. Recreational vehicle (RV) production is expensive, and it's helpful to have contracted orders on hand that represent consumer interest -- even if those contracts aren't binding.

But above a certain level, backlog reflects manufacturing challenges and inventory risk. That's a big reason Thor's management highlighted its reduction as a major priority heading into the summer months. Let's take a closer look at that goal, which was laid out in Thor's recent earnings announcement.

Sales and earnings trends

The main operating metrics were all strong. Thor announced a 35% sales increase, marking just a modest slowdown compared to the prior quarter's 42% spike. Its European division shrank, but that decline was more than offset by surging demand in the U.S. market for towable and motorized RVs.

The earnings picture was bright, too, with gross profit margin improving to 17% of sales from 14% a year ago. Thor is having no trouble passing along higher costs to RV shoppers today. "We achieved yet another quarter of record net sales and earnings," chief financial officer Colleen Zuhl said in a press release.

The warning flags

It wasn't all good news in the report, though. Thor said it is seeing slowing growth in the U.S. industry right now that implies softer demand ahead. The towable RV segment might start shrinking soon after several years of booming growth.

Management also hinted at a falling profit margin ahead as the boom times settle back into more-normal growth patterns. To be clear, Thor is predicting one of the best years ever for the RV industry in 2022, with solid earnings and sales growth on the way.

Yet executives are noting that sales trends are slowing, and that operating margin might land at 16% of sales compared to the 17.3% rate it recently achieved.

The backlog

That slowdown helps explain why Thor is working hard to turn its backlog into actual customer sales. That metric is sitting at nearly $14 billion today, an elevated level, according to management.

Reducing the backlog involves boosting production and keeping the supply chain moving as efficiently as possible. Thor is practiced at challenges like these, which means investors should see progress on these goals over the next few quarters.

Looking ahead

In addition to a declining backlog, shareholders should expect to see slowing sales gains and falling profit margins through much of 2022. Revenue and earnings should still set records and reflect very strong RV demand trends.

In the meantime, investors will get another major update on the industry when rival Winnebago (WGO 1.50%) announces its fiscal third-quarter results in late June. Winnebago noted elevated backlog and strong RV demand in its last earnings update in March. Executives said at the time that they were looking to reduce backlog while boosting inventory levels at dealerships.

While both Winnebago and Thor have described strong demand and earnings trends lately, their stocks have declined. Wall Street never likes to see operating metrics moving in the wrong direction, even following several years of soaring gains.

But the main concern right now is how well Thor and Winnebago can capitalize on backlog orders while avoiding an oversupply situation in the event of an economic slowdown or recession.