Thor Industries (THO) Tops Q2 EPS by 83c, Revenues Beat

Thor Industries (NYSE: THO) reported Q2 EPS of $2.38, $0.83 better than the analyst estimate of $1.55. Revenue for the quarter came in at $2.73 billion versus the consensus estimate of $2.53 billion.

• Second-quarter net sales were $2.73 billion, compared to $2.00 billion in the second quarter of fiscal 2020. This year's second quarter net sales include $1.37 billion for the North American Towable RV segment, $577.0 million for the North American Motorized RV segment and $733.5 million for the European RV segment.
• Consolidated gross profit margin increased 240 basis points to 15.2% for the second quarter of fiscal 2021, compared to 12.8% in the corresponding period a year ago. The increase in the consolidated gross profit percentage was primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period and gross margin cost percentage improvements noted below, partially offset by the negative impact of $4.3 million related to the step-up in assigned value of recently acquired Tiffin Group inventory included in cost of products sold during the current-year period.
• Net income attributable to THOR and diluted earnings per share for the second quarter of fiscal 2021 were $132.5 million and $2.38, respectively, compared to net income attributable to THOR and diluted earnings per share of $28.7 million and $0.52, respectively, in the prior-year period.

"In our quarter ended January 31, 2021, we delivered record results for a fiscal second quarter, which is typically our lowest sales quarter. We generated sizeable growth in the key metrics of net sales, gross margin and earnings per share. Demand for our products continued to be extremely strong, as evidenced by the increase in our backlog, which set a record of $10.81 billion as of January 31, 2021," said Bob Martin, President and CEO of THOR Industries.

"We are aggressively working to meet this demand by selectively and strategically expanding production capacity at numerous plants by reconfiguring them or adding additional production lines and the requisite inventory while managing through temporary supply chain limitations. In addition, we have increased production levels across the vast majority of our plants. We are focused on balancing volume with quality output and being mindful not to over expand our production capabilities," added Martin.

"Our continued improvement in financial performance demonstrates our ability to effectively and efficiently ramp up production volumes in response to surging demand while managing our expenses to achieve improved margins and net income in an unusually complex operating environment," said Colleen Zuhl, THOR's Senior Vice President and Chief Financial Officer.

"Historically, our cash flow is seasonal, as we use cash to build inventory during our first and second fiscal quarters in preparation for the typical increase in demand for our products during the second half of the fiscal year. Net cash used by operating activities for the first half of fiscal 2021 was $88.6 million compared to cash provided by operating activities of $5.3 million in the first half of fiscal 2020. This year, at January 31, 2021, we have the added complexity of carrying additional chassis and other inventory due to new product introductions, increased production, and higher work-in-process levels due to ongoing supply chain constraints. We expect overall working capital levels to remain elevated given the strong market demand, but expect our work-in-process inventory to approach more normalized levels during the second half of the fiscal year.

"We continue to have strong liquidity with $183.6 million of cash and cash equivalents as of January 31, 2021, and approximately $507.0 million available for borrowing under our ABL. At January 31, 2021, we had borrowings outstanding on our ABL of $213.6 million, which consisted of $165.0 million borrowed in connection with the Tiffin Group acquisition and the remainder utilized for European working capital. Subsequent to the end of our second fiscal quarter, we paid $47.1 million on the outstanding ABL balance. We expect to repay all of the borrowings under the ABL by the end of our fiscal year.

"Our cash utilization priorities remain consistent with our historical priorities, namely, investing in our businesses, paying our dividends, further reducing our acquisition-related debt obligations and funding strategic acquisition opportunities to enhance long-term shareholder value. Regarding investing in our business, we expect our total capital expenditures for the full year of fiscal 2021 to be approximately $150 million, reflecting the increased demand for our products in the marketplace which is driving near-term investments in production capacity expansion and reflecting investments in long-term initiatives that we expect will result in growth and market share gains for THOR over time," concluded Zuhl.

Q2 Summary

"Throughout the quarter we continued to focus first on the health of our employees. We continue to maintain robust COVID-19 protocols and will continue to do so for as long as necessary for the benefit of our employees, their families and the communities in which we work and live. Our management teams throughout the THOR organization continue to do an amazing job of managing safety protocols while increasing production volumes needed to meet dealer demand for our family of products and working through ongoing supply chain constraints. Our record financial results are a direct outcome of the efforts of our global team members, and I am proud of what the team accomplished during the first half of the fiscal year for THOR," said Bob Martin.

"During the quarter, we also acquired the Tiffin Group, comprised of Tiffin Motorhomes, Vanleigh RV and a number of related supply entities. This acquisition is in direct alignment with THOR's long-term strategic growth plan. The Tiffin Group brings great people, great products, and great potential for further growth and geographical expansion to THOR and we are thrilled to have them on our team," added Martin.

Outlook

"Our outlook for the remainder of our fiscal year is for continued strength in the RV industry, but we still must manage through temporary supply chain issues which may limit the level to which we can increase output in the near term. We experienced delays in chassis deliveries and other supply chain constraints from our European suppliers during the first half of our fiscal year primarily due to pandemic related challenges, and we anticipate these challenges will continue for the next few quarters. Within North America, we also continue to experience supply constraints and shortages of various RV component parts due to pandemic-related challenges, and the recent harsh weather conditions in the southern United States which has impacted the availability of certain petroleum-based components. We anticipate these supply chain challenges will continue to impact us in the near term and are cautiously optimistic that these constraints will lessen in the back half of calendar 2021," continued Martin.

"In the near-term, which we define as the remainder of calendar 2021, we see demand for our products outpacing supply. Our backlog is at record levels and is continuing to grow. To manage this growth, we are strategically investing in our business to increase production capacity while enhancing our quality processes.

"In calendar 2022, we expect to transition from shipping product to meet immediate end customer demand to a dealer restocking cycle. During this stage, we expect to be shipping product that will rebuild dealer inventories to more historically normal levels. Many dealers in both North America and Europe are currently significantly below historical inventory levels in relation to historical demand, so we expect this restocking cycle will take a number of quarters to complete, given that we still anticipate strong end customer demand in calendar 2022. In the longer-term, which we define as late calendar 2022 and beyond, we expect to get back to a more normal ordering cycle where dealers order to replenish sold stock.

"The tangible evidence supporting our outlook and the continued expansion of the industry beyond the pandemic include a number of items. First, Millennials, a market bigger than the baby boomers, are buying RVs earlier than previous generations. Historically, consumers that enjoy the RV lifestyle trade in, and often up, every 3 to 5 years. Next, work from home means work from anywhere, including in your RV. We are seeing the pandemic work-at-home trend turning into a lifestyle choice as more and more people choose RVs as their mobile office.

"Ongoing dealer consolidation also demonstrates a positive long-term outlook from the large dealers. Dealers are investing heavily in additional service centers and destination show rooms, all to support the current and anticipated larger end-consumer base.

"Significant investments are also being made in outdoor camping facilities, RV rental and RV sharing companies, and RV booking sites, again to support the increasing number of RVers now and in the years to come. Notably, the Great America Outdoors Act was recently approved by Congress. This Act enables federal land managers to take aggressive steps to address deferred maintenance and other infrastructure projects on national forests and grasslands. With enhanced opportunities to visit and camp on National parks and forests, we anticipate further demand from consumers for RVs.

"These are just a few of the factors that we believe will drive THOR's RV sales, and growth in the RV industry, in the long term. We also believe that investments we are making in innovation will motivate the users of our products to trade-in or trade-up on a regular cadence.

"Just last week, the RVIA issued their updated 2021 forecast which projects total North American wholesale RV shipments will grow by approximately 24% in calendar 2021, to approximately 533,400 units compared to 430,412 units in calendar 2020. We concur with this forecast and believe there is potential upside to RVIA's numbers based on current conditions. Consumers continue to show that they appreciate the value proposition RVs offer – affordability, a vacation in a controlled environment, freedom, and outdoor fun. The desire by consumers to control their own destiny and have safer, socially distanced vacation activities has only added to the demand for RVs," concluded Martin.

For earnings history and earnings-related data on Thor Industries (THO) click here.

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