Thor Industries (THO), one of the world's largest manufacturers of recreational vehicles (RVs), is trading higher today after reporting strong 4Q17 (Jul) earnings last night.
Thor makes a wide variety of RVs sold primarily throughout the US and Canada. There are two major types of RVs: towables (non-motorized) and motorized. For Thor, it has much higher exposure to the towables segment of the market as about 71% of its FY17 revenue came from towables and 27% comes from motorized.
The principal types of towable RVs that Thor produces include conventional travel trailers and fifth wheels. Not to get too granular, but there are differences. A fifth wheel has a raised forward section that is attached to a receiver in the bed area of the pickup truck. Fifth wheels are usually a bit heavier, longer and taller. It must be towed by a pickup truck as the hitch is directly over the rear axle of the pickup truck. This allows for better stability and handling when driving. It's also much easier to back up. A conventional travel trailer is typically smaller and it hitches to the back of the pickup truck or SUV, well behind the rear axle, which results in more sway during driving but it's manageable.
A motorhome is a self-powered vehicle built on a motor vehicle chassis. Motorhomes are self-contained with their own lighting, heating, cooking, refrigeration, sewage holding and water storage facilities etc. Class A motorhomes, generally constructed on medium-duty truck chassis, are supplied complete with engine and drivetrain components by motor vehicle manufacturers such as Ford and Freightliner. Thor designs and installs the living area and driver's compartment of Class A motorhomes. It also makes Class C and Class B motorhomes, which are smaller.
The company owns a number of brands. Some of its larger brands include: Airstream, which makes premium quality travel trailers and motorhomes. Airstream may be the most recognized RV brand in the industry. Another major brand is Jayco (acquired in July 2016). Thor also owns CrossRoads, which makes conventional travel trailers and fifth wheels under trade names such as Sequoia, Cameo, Elevation, Cruiser. Another major brand is Thor Motor, which makes gasoline and diesel Class A and Class C motorhomes. Its products are sold under trade names such as Four Winds, Hurricane, Windsport, Chateau etc. Keystone is another large brand. It focuses on conventional travel trailers and fifth wheels under trade names such as Montana, Springdale, Hideout etc.
Of note, Thor made a large acquisition in July 2016 when it bought Jayco Corp. for approximately $576 mln in cash. Jayco brings complementary products in travel trailers, folding camping trailers, higher-end diesel Class A motorhomes and larger Class C motorhomes. Jayco posted revenue of $1.5 bln in calendar 2015, so it was a large deal for Thor.
Turning to the JulQ earnings report, EPS rose 44% YoY to $2.26, which was much better than market expectations. Revenue rose 49.7% year/year (a good chunk of this is the Jayco acquisition) to $1.93 bln, which also was better than expected. The company did not provide specific guidance, which is usually the case. This is a thin margin business and Thor did see some margin compression in the quarter as gross margin declined to 15.6% from 17.3% in the prior year period. A decline was expected due primarily to acquisition-related dilution and market-driven changes in product mix.
Breaking it down by segment, Towable RV sales were $1.43 bln, up 46.5% YoY, driven primarily by revenue from the Jayco acquisition. Excluding Jayco, growth would have been a still healthy +17.7% YoY, driven by strength in smaller, more affordably priced travel trailers. Motorized RV sales were $485.2 mln, up 66% YoY. The increase was driven by growth in more moderately-priced gas Class A and Class C motorhomes, which continue to be in high demand by dealers and end consumers.
Thor says it ended FY17 with strong demand from dealers and consumers, especially for its expanded lines of more affordably-priced towable and motorized RVs. These products are attracting more types of customers, including Baby Boomers and Millennials, to take part in the RV lifestyle. RVs continue to increasingly become part of the fabric of people's recreational activities. RVs provide convenience and comfort not just at camp grounds but also at a variety of venues including festivals, concerts and sporting events.
Furthermore, THO says the production capacity added during FY17 across nearly every subsidiary to support surging demand is beginning to be utilized. Industry fundamentals remain strong, and THO is looking forward to another year of growth in FY18. This optimism was recently on display at THO's annual open house which was held last week. Dealers responded enthusiastically to its new and redesigned product offerings, which included additional lightweight and entry-level products as well as innovative features and floorplans. Note: WGO will be reporting earnings in the next couple of weeks.