Thor Industries (THO 91.56, -14.08, -13.33%) is getting hit after the company
missed earnings estimates for the third quarter in a row and warned about tough
comparisons in the first half of fiscal 2019.
Fourth quarter revenue fell 3%, reflecting actions taken to balance dealer inventory levels. The company said reduced production levels combined with higher promotional costs and solid retail demand have improved the position of their dealers' inventories as they enter the new model year and prepare for the upcoming 2018 Dealer Open House.
Earnings missed estimates for the third quarter in a row. Gross margin fell 260 basis points to 13.0%. Reduced production levels, higher promotional and warranty costs had a negative impact. While labor costs have begun to moderate, they have remained elevated compared to the prior year. Lastly, while Thor was successful in delaying certain raw material price increases in the first half of the fiscal year, they are now experiencing inflationary price increases in certain raw material and commodity-based components due in large part to the headwinds created by the announcement and implementation of the steel and aluminum tariffs and other regulatory actions.
The company noted that it faces difficult comparisons in the first half of fiscal 2019 but overall consumer demand is strong, backed by favorable demographics.
Chief Executive Bob Martin said: "As dealer orders, and our resulting production schedules, return to a more normalized pattern beginning in calendar 2019, we will continue to match production to our dealer needs, protect and seek to grow our space on dealer lots, ensure we provide high-quality, innovative products in all key price points with the features consumers are seeking and act aggressively to offset items pressuring our margins, whether from labor, tariffs, commodity increases or other sources.”
He added, "Our outlook for fiscal year 2019 reflects a similar healthy macroeconomic environment consistent with current conditions, as well as the continuation of favorable demographic and lifestyle growth trends, including the ongoing strength of baby boomer customers, in addition to first-time and younger buyers. Dealer optimism remains high and their inventory is fresh.
"However, due to dealer order strength experienced in the first half of fiscal 2018, we are planning for tougher year-over-year comparisons in the first half of fiscal 2019 with more favorable top-line growth rates in the second half of the fiscal year. Similar to the quarterly progression of our top line, we anticipate gross margin pressure to be greater in the first half of the year."
Executive Chairman Peter Orthwein said: "Although we expect to have some near-term growth challenges, our industry's end-market demand trends continue to remain very favorable," said Peter B. Orthwein, Thor Executive Chairman. "Unlike many of the market expansions we have experienced over the past two decades, the current market strength has been driven largely by new consumers adopting the RV lifestyle with many consumers adopting the lifestyle at a much younger age than we have seen historically. We view such retail growth to be more sustainable over the long term."
On Monday, Thor announced the acquisition of the largest European RV manufacturer, German Erwin Hymer Group, for $2 bln in cash and 2.3 mln shares of Thor.
The deal will make Thor the largest global player in the RV market. Thor will buy back stock to offset dilution. Analysts were upbeat on potential earnings accretion yesterday.
Thor was expected to grow fiscal 2019 EPS 11% with sales up 2% heading in to this report, excluding the Erwin Hymer deal.
While estimates are likely heading lower following today's report, this cyclical stock is already fairly cheap, with an enterprise value ~7x EBITDA, in-line with much smaller peer Winnebago (WGO).
Thor -14% in weighing on RV peers this session: Winnebago (WGO) -6%, suppliers Patrick Industries (PATK) -4%, LCI Industries (LCII) -3%; retailer Camping World (CWH) -1.4%.
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