Founded in 1980, Thor Industries (THO) is one of the world’s largest manufacturers of recreational vehicles (RVs). They operate under two major business segments: 1) Towable RVs including travel trailers, fifth wheels and specialty trailers, and 2) Motorized RVs including bus style and van motor homes. They have strong market position in (#1 in motorized, #2 in towable) both these categories and own a broad range of well-known brands in the industry.
The have 148 operating faculties in the US and sell their products through independent retail distributors primarily in the U.S. and Canada.
The company has an impressive record of profitability. They have been profitable every year since their founding in 1980, so that’s 35 consecutive years of profitability in different business cycles. They have grown their earnings consistently, with 5-year CAGR of 17.2% for net income and 17.1% for diluted EPS. They have also been returning increasing amounts of capital to shareholders via dividends with a CAGR of 4.6% for dividends.
Excellent Second Quarter Results and Rising Estimates
The company reported their fiscal second quarter ended January 31, results on March 7, beating both on top and bottom lines. Revenues increased 14% from the same quarter last year to $975.1 million while net income from continuing operations jumped 49% to $45.2 million. Operating earnings of $0.97 per share were 57% ahead of the Zacks Consensus Estimate of $0.62.
Consolidated RV backlogs increased 17% to $1.11 billion versus 2015 second quarter. According to the company, the retail RV market remained positive and dealer sentiment indicated favorable growth for the current year.
Analysts have raised their estimates after better-than-expected results. Zacks Consensus Estimates for the current and next year are now $4.76 and $5.05 up from $4.41 and $4.82 respectively, before the results.
Solid Industry Outlook
Low oil prices and improving labor markets are great for the recreation industry. We haven’t seen much improvement in wages till now except for lower paid jobs, but if the labor market continues to improve, wages should also pick up.
Recreation Vehicle Industry Association (RVIA) forecast in March 2016 that 2016 wholesale shipments for all RV categories should increase to 381,800 units, or an increase of 2.0% over 2015. Further, while the pricing and promotional environment remains competitive, it has improved from last year.
Baby boomers are their target market and as many of them are retiring now, they will have more leisure travels. Of late, the company has also focused on lower priced products with more technological innovations to attract Generation X and Millennials.
As we’re approaching seasonally strong months for the industry, I expect further improvement in results and share price going forward.
The Bottom Line
With their diversified lineup of product offering, decentralized operating structure and independent operating subsidiaries, the company has managed to remain profitable in all business cycles.
They are primarily assemblers with a variable cost structure which provides them the required flexibility to face any market condition. Further, their low cost, high volume producer operating structure helps them drive high returns on assets employed and improved margins.
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