Recreational Vehicle Company Is a Growth Stock

Thor Industries posted strong 4th quarter and is poised to grow through acquisitions

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Thor Industries (THO, Financial) is one of the world’s largest manufacturers of recreational vehicles and sells its products through independent retail distributors primarily in the U.S. and Canada. The company began in 1980 and operates 148 facilities with approximately 10,450 employees located in Indiana, Michigan, Ohio and Oregon. Thor operates in two segments:

  1. Towable RVs (includes travel trailers, fifth wheels and specialty trailers).
  2. Motorized RVs (includes class A, B and C motorhomes).

The company recently reported impressive fourth-quarter results; it boasted of record revenues and increased gross margins. It had good earnings growth and witnessed year-over-year industry growth in most product categories. It had record sales and net income in fiscal 2016 and generated record cash from operating activities.

Strong fourth quarter

Net income from continuing operations during the quarter was $82.8 million, or $1.57 per diluted share, on record revenues of $1.29 billion for the fourth quarter ended July 31.

Gross profit margins increased to 17.3% in the fourth quarter (16.2% in the prior-year quarter).

Net income from continuing operations increased by 20.1% on sales growth of 22.2% when compared to the prior-year quarter.

Diluted earnings per share from continuing operations for the fiscal 2016 fourth quarter increased 19.8% from the previous year.

Towable RVs

  • Towable RV sales were $961.1 million during the fourth quarter (an increase of 19.8% from $802.2 million in the prior-year quarter).
  • Towable RV income before tax was $108.7 million, which was an increase of 26.8% from $85.7 million in the prior-year quarter.
  • Towable RV backlog increased by $431.1 million, or 141.8%, and was $735.1 million, which was $304.0 million at the end of fiscal 2015.

Motorized RVs

  • Motorized RV sales were $292.7 million during the fourth quarter, which marked an increase of 35.3% from $216.4 million in the prior-year quarter.
  • Motorized RV income before tax was $22.2 million, which marked an increase of 11.6% from $19.9 million during the prior-year quarter.
  • Motorized RV backlog increased by $191.8 million, or 71.0%, and was $461.8 million, up from $270.0 million in the prior-year quarter.

Full-year performance

  • Sales for fiscal 2016 were a record $4.58 billion, which marked an increase of 14.4% from $4.01 billion in the prior-year period.
  • Gross profit margins increased to 15.9% in fiscal 2016 (13.9% in the prior-year period).
  • Net income from continuing operations for fiscal 2016 was a record $258.0 million, which marked an increase of 27.7% from $202.0 million in the prior-year period.
  • Diluted earnings per share (EPS) from continuing operations for fiscal 2016 were a record $4.91, which marked an increase of 29.6% from $3.79 in the prior-year period.
  • Consolidated RV backlog on July 31 was $1.20 billion, which was an increase of 108.5% from $574.0 million in the prior-year period.
  • Total dealer inventory increased by 39.6% and was approximately 94,500 units on July 31 from approximately 67,700 units on July 31, 2015.
  • Thor's total cash balances as of July 31 were $209.9 million while the outstanding balance on the revolving credit line stood at $360.0 million.

A peek into the RV industry

In this busy world, leisure travel activities, such as camping, are becoming more and more popular. According to research, approximately 46.2 million households in North America are active campers, but only 9.7 million, or 21% of them, are RV campers. As per the Recreation Vehicle Industry Association (RVIA), wholesale shipments for all RV categories for calendar 2016 will increase to 381,800 units, or an increase of 2.0% over calendar year 2015. The impact of lower fuel prices, increasing job creation and lowering unemployment has helped to increase the demand for RVs.

Acquisition of Jayco

The company announced the acquisition of Jayco Corp. for approximately $576 million in cash. This acquisition will bring opportunity to enhance the growth of Thor and advance the company’s strategic focus on growing its recreational vehicle (RV) business.

Focus

  • Capitalizing on opportunities to expand production capacity and output to meet the growing demand for affordably priced travel trailers and motorhomes.
  • Growing business in the North American market.
  • Offering new and exciting products that meet the continually evolving demands of consumers.
  • Innovation.
  • Product quality.
  • Partnering with the right dealers form the foundation for the future growth of the company.

Conclusion

Over the years Thor has received many honors for its growth and management success. This is a company that has high returns on assets. Thor is known to buy successful companies with strong management teams that contribute to Thor’s financial strength and resources for future growth. The acquisition of Jayco fuels this strategy. This acquisition will offer a strong portfolio of products and services to the market, resulting in enhanced competitiveness within the industry.

The company is already growing its business with a number of acquisitions made throughout the fiscal year. These acquisitions are a part of its intent to maintain a strategy that includes acquisitions that drive long-term shareholder value. Beyond acquisitions, it continues to invest in the organic growth of RV business with a number of meaningful capital investments in the towable business. The company posted solid fourth-quarter results, and adding it will reap shareholder returns.

Disclosure: I do not hold any position in the company.

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