E Portfolio Review: Thor Industries, AbbVie, Gentex


Thor Industries (THO) reported sales from the acquisition of Erwin Hymer Group (EHG) added $767.5 million to total company sales in the third quarter. This sales boost was partially offset by a 23.1% decrease in North American Towable RV sales to $1.2 billion and a 23.3% decline in North American Motorized RV sales to $459 million amid an industry-wide downturn. 
The stalling of North American sales reflects independent dealer inventory rationalization, as dealers continued to reduce inventory levels to better match ongoing retail demand for RVs in North America. Gross margin declined by 240 basis points to 11.7%, flattened by the step-up in EHG inventory sold during the quarter to fair value based on the acquisition price, which increased cost of goods sold. Rising tariffs are also impacting costs. As a result of lower wholesale shipments relative to retail demand, Thor’s North American independent dealer inventory levels decreased by 20.3% to 132,500 units, compared to 166,200 units as of April 30, 2018. North American RV backlog fell 30% to $1.4 billion.
Operating cash flow during the quarter fell 11% to $175.8 million. While Thor Industries has paid down about $255 million of acquisition-related debt, total long-term debt at quarter end is $2.2 billion, representing a still high 107% of shareholders’ equity. Based on current trends, management expects that the North American retail market will be softer for the remainder of calendar 2019.  
Given the industry downturn, lower cash flows and the increased debt taken on from the acquisition, Thor’s business fundamentals have deteriorated. This is leading us to sell our position in Thor Industries at a 49% loss, making us unhappy campers.


AbbVie (ABBV) reported second quarter revenues were relatively flat at $8.3 billion with net income declining 63% to $741 million and EPS off 61% to $.49. These results included a $2.3 billion non-cash charge. On an adjusted basis, EPS increased 13% during the quarter to $2.26. 
Second quarter U.S. Humira revenues were $3.8 billion, an increase of 7.7%. Internationally, Humira net revenues were $1.1 billion, a decline of 31% operationally due to biosimilar competition. Second quarter global net revenues from the hematologic oncology portfolio were $1.3 billion, an increase of 39% with Imbruvica net revenues increasing 29% to $1.1 billion. Second quarter HCV net revenues declined 19% to $784 million. 
During the quarter, AbbVie announced an agreement to acquire Allergan (AGN) in cash and stock valued at approximately $63 billion. Allergan’s best known product is Botox. The news of this large acquisition sent AbbVie’s stock price down 18% during the last quarter, causing us frown lines. 
Allergan’s profitability track record does not provide much to smile about with losses posted in four of the last six years and another loss expected in 2019. This large acquisition will also load up AbbVie’s already leveraged balance sheet with significantly more debt. AbbVie had expected to manage through the U.S. Humira patent cliff in 2023 through new products. However, it appears that recent shortfalls in research and development have led them to a debt-heavy acquisition instead, which is a bitter pill to swallow. With integrationand financial risks rising related to the acquisition, we decided to sell our position in AbbVie which has provided us with a healthy 201% total return over the last nine years.


Gentex (GNTX) reported second quarter net sales motored ahead by 3% to $469 million with EPS up 5% to $0.42. Despite the 8% drop in global vehicle production, Gentex’s automotive sales increased 3% to $457 million. This 11% underlying market outperformance reflected strength in Full Display Mirror sales and domestic exterior auto-dimming mirror shipments, which jumped 12% to 3.5 million units. Management continues taking steps to mitigate the impact of tariffs by sourcing from suppliers manufacturing outside of China. Gentex ended the quarter with more than $572 million in cash and investments on its sporty, debt-free balance sheet. Over the past four years, Gentex has provided a sleek 72% total return. With the stock appearing fully valued, we are trimming back our position and driving away with some shiny profits.

With the proceeds from Thor Industries and theprofits from AbbVie, and Gentex, we plan to buy UNH - UnitedHealth Group (read more here). Personal and employee purchases will be made during the week following distribution of this newsletter.

Since the last issue, the following dividends per share were received: AbbVie ($1.07),  Apple ($.77), ADP ($.79), Bank of Hawaii ($.65), Brown-Forman ($.17), Canadian National ($.41), Cisco ($.35),Cognizant ($.20), FactSet Research ($.72), Fastenal ($.22), Gentex ($.12),Genuine Parts ($.76), Hormel Foods ($.21), Johnson & Johnson ($.95), Mastercard ($.33), Maximus ($.25), Microsoft ($.46), 3M ($1.44), MSC Industrial ($.75), Nike ($.22), Oracle ($.24), Paychex ($.62), Pepsi ($.96), Raytheon ($.94), Ross Stores ($.26), Starbucks ($.36), Stryker ($.52), T. Rowe Price ($.76), Thor Industries ($.39), TJX ($.23), Tractor Supply ($.35), United Parcel Services ($.96), United Technologies ($.74), Walgreen ($.44),and Walt Disney ($.88). 
Fastenal paid a 2 for 1 stock spliton May 22, 2019 with all data adjusted accordingly.

Disclaimer: Coppying, reproduction or quotation is strictly prohibited without written permission. Information presented here was obtained from sources believed to be reliable but accuracy and ...

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