Sales down for Thor, quarterly release shows

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ELKHART — Thor Industries today announced second- quarter results with net sales of $1.29 billion, compared with the record second-quarter revenue posted in the prior year.

Net loss and diluted loss per share for the second quarter of fiscal 2019 were -$5.4 million and -$0.10, respectively.

Second-quarter results reflect acquisition-related costs totaling $42.1 million, or $0.75 per share, and compare to record second-quarter net income and diluted earnings per share in the prior year of $79.8 million and $1.51, respectively.

Second quarter fiscal 2019 financial results reflect the impact of balancing production with market demand, as wholesale shipments declined relative to retail sales as dealers continued to sell through existing inventories before placing orders for new product, and various acquisition-related costs.

Balancing production and demand

The dealer inventory rationalization process continued during the second quarter as industry wholesale shipments declined at a double-digit percentage compared with relatively stable retail registrations through the end of December.

This excess of retail sales over wholesale shipments resulted in reductions in dealer inventory ahead of the early spring retail shows and peak summer selling season, the release noted, adding the overall levels of discounts and incentives increased compared with the unusually low levels recorded in the second quarter of fiscal 2018.

Towable RVs

Towable RV sales were $881.6 million for the second quarter, compared to the record second-quarter sales of $1.37 billion in the prior-year period.

This decrease was driven primarily by lower unit volume compared with the record second-quarter unit sales last year, but was partially offset by a shift in product mix toward higher-priced units.

Towable gross profit margin fell to 10.9% in the fiscal second quarter, reflecting increased discounting levels, as well as slightly increased warranty costs.

Although warranty costs were elevated compared to year-ago levels, the rate of increase fell from the first quarter, partially due to the impact of improved quality metrics and warranty claims experience.

Towable RV income before tax was $34.1 million, compared to $116.7 million in the second quarter last year. This decrease was driven primarily by lower sales, increased relative levels of discounting and the resulting decrease in gross profit.

Towable RV backlog decreased $1.00 billion to $812.0 million, compared to $1.82 billion at the end of the second quarter of fiscal 2018, reflecting the positive impact of capacity additions, improved delivery times, and dealers’ continuing to right-size inventory levels.

The company believes the current towable RV backlog is returning to a normalized level and is reflective of dealer trends toward smaller, but more frequent order patterns, the release explained.

Motorized RVs

Motorized RV sales were $371.5 million for the second quarter compared to the record second-quarter sales level of $559.9 million in the prior-year period.

The decrease in motorized sales was driven primarily by lower unit sales compared to the record second-quarter unit sales last year, partially offset by a mix shift toward higher-priced product.

Motorized gross profit margin fell to 9.8% in the fiscal second quarter as a result of reduced sales levels and reduced fixed overhead absorption for the quarter.

Motorized RV income before tax was $17.2 million, compared to $37.5 million last year, driven primarily by the lower sales levels as well as the decrease in gross margin.

Motorized RV backlog decreased $342.0 million to $639.9 million from $981.8 million a year earlier, reflecting the positive impact of capacity additions, improved delivery times, and dealers’ continuing to right-size inventory levels.

The company believes the current motorized RV backlog is returning to a normalized level and is reflective of the shift in dealer order patterns to smaller and more frequent orders.

Erwin Hymer Group acquisition

On Feb. 1, 2019, Thor completed its acquisition of Erwin Hymer Group (EHG). The acquisition excluded EHG’s North American operations and the Canadian-specific Roadtrek brands.

The Canadian-specific trademarks excluded from the transaction were such brands as Roadtrek, Aktiv, American Fastbacks and Fastbacks, and Ecotrek.

To be clear, the acquisition does include the trademarks from all European Hymer brands including those formerly licensed to the North American operations, the release emphasized.

The acquisition is expected to be accretive to earnings in its first twelve months, before taking into account anticipated efficiencies, purchase accounting adjustments and transaction-related expenses.

Thor incurred a number of acquisition-related expenses within the second quarter. The company expects to incur additional expenses relating to the acquisition, including professional, legal and advisory fees related to the closing of the transaction as well as the integration and implementation of enhanced controls consistent with SOX requirements.

Capitalized fees related to the company’s former debt facility will be fully expensed in Thor’s fiscal third-quarter results as that debt facility was terminated at the closing of the acquisition.

The company estimates that these acquisition-related costs will range from approximately $30 million to $40 million for the remainder of fiscal 2019, not including costs expected to be capitalized in connection with the debt facilities and purchase price accounting related charges. A large portion of these costs will be recognized within the fiscal third quarter.

“Now that we have completed our acquisition of EHG, we are focused on the integration of those operations as well as strengthening our balance sheet through the repayment of the debt incurred for the purchase,” said Colleen Zuhl, Thor senior vice president and CFO.

“As we review our cash priorities, our main focus will be to utilize free cash flow to reduce overall debt levels. Subsequent to the end of the quarter, we reduced borrowings under the ABL facility by $20 million,” she added. “We will balance our goal of reducing our net debt level with our strategic needs to invest in the continuing growth of our business and returning cash to shareholders.”

Outlook

Thor’s management team and board remain focused on creating long-term shareholder value. As a result of the combination of strong underlying industry demographics and fundamentals, Thor’s leadership position in the RV industry, and the international growth opportunities presented by the EHG acquisition, the Company is optimistic about the long-term future, the release noted.

“For the rest of fiscal 2019, we expect to face challenges that may impact our financial results as dealers continue to closely manage inventory to levels that better reflect current retail demand, and their ability to replenish inventory more quickly,” said President and CEO Bob Martin.

“While we also face difficult year-over-year comparisons to the record third-quarter results for fiscal 2018, we are confident that Thor is on a path toward growth in fiscal 2020,” he added.

“We remain optimistic regarding the demographics and long-term fundamentals driving the global RV industry which gave us confidence to embark on the largest acquisition in our company’s history,” said Peter B. Orthwein, executive chairman of Thor. “With the acquisition of EHG now completed, we are focused on capturing synergies and driving positive cash flow which we will use to reduce our outstanding debt as quickly as possible.”

Acquisition-related costs

On Sept. 18, the Company entered into a foreign currency forward contract in the amount of €1.625 billion related to the anticipated cash portion of the purchase price of EHG. The contract does not qualify as a hedging instrument for accounting purposes; therefore, changes in fair value are reported in current-period earnings.

As a result of the change in the U.S. dollar-Euro exchange rate from the date of the establishment of the contract to the end of the fiscal second quarter on Jan. 31, and changes in the likelihood and timing of the acquisition closing, the company recorded non-cash, mark-to-market losses on the forward contract of approximately $31.2 million and $73.7 million during the three and six-month periods ended Jan. 31, respectively.

At the completion of the EHG acquisition Feb. 1,  the forward contract was closed, and the final settlement will be realized in the company’s third-quarter financial results.

Transaction costs

During the quarter, Thor incurred $10.9 million in expenses related to the recently completed acquisition of EHG, comprised primarily of ticking fees.

In aggregate, the acquisition-related costs for the foreign currency forward contract and transaction costs totaled approximately $42.1 million, or $0.75 per diluted share, in the fiscal second quarter.

“We made considerable progress on a number of fronts in the second quarter, supported by a positive start to the 2019 retail show season, with a number of the larger shows posting strong attendance levels, which supports our view of a stable long-term retail environment,” said Martin.

“We were also pleased to have closed our acquisition of EHG just after the end of the second quarter. This transformational acquisition represents a major step forward in our long-term strategic growth plan, and our entire team is focused on integrating EHG and providing strong returns for our shareholders,” he added.

“While we are optimistic for the long term, we also expect to face challenging conditions in the near term, as dealers continue to reduce inventory levels and we experience difficult comparisons to the record third-quarter results posted in fiscal 2018,” Martin explained.

Second-quarter net sales decreased 35.8% for the Towable segment, 33.7% for the Motorized segment and 34.5% overall.

As dealers continue to rationalize inventory levels following the unusually high seasonal order and wholesale delivery patterns in the first nine months of fiscal 2018, the company has taken steps to adjust its production levels accordingly.

A number of Thor’s production facilities have reduced their production unit rates, while others have shifted to four-day production weeks. These reductions, combined with the start of the stronger spring and summer selling season, are expected to result in reductions in Thor’s finished goods inventory.

Finished goods inventory levels were elevated at Jan. 31, in part due to the unusually bitter winter weather which forced most of the company’s operations to close for several days at the end of the fiscal second quarter.

As a result of these factors, the company expects that production and wholesale sales will be balanced with overall retail demand by the end of the normally stronger second half of the fiscal year.

SOURCE: Thor Industries press release

Greg Gerber

Greg Gerber

A journalist who has covered the recreation vehicle industry since January 2000, Greg Gerber founded RV Daily Report on April Fool's Day in 2009. He also serves as the editor of the publication and website. As an Eagle Scout, he has enjoyed camping for decades and has visited every state except Hawaii. A DODO -- Dad of Daughters Only -- to three young women, he has two grandchildren as well. He currently splits his time between Wisconsin, Texas and Arizona. Greg can be reached at editor@rvdailyreport.com.

Leave a Comment

  • William says:

    If they keep building junk, that is what happens.

  • Curtis says:

    This doesn’t come as a surprise at all, considering the cheap, poorly built crap that Thor has put out. I wouldn’t touch any of their products with a ten foot pole!

  • Captn John says:

    Not only Thor but Forest River and all the rest. My last 2 Keystone 5ers were fantastic. I’d never get in anything by FR or Heartland again.

  • LAURA says:

    I’d love to buy an RV, but all the negative reviews of junk being passed for an RV are quite disturbing. Who wants to spend 30000 + to have a nightmare on wheels with messed up slides and water leaks. Get your ##$%+! Together!

  • Danny Hite says:

    Thor is a poor excuse for a company, the exremly poor quality of their RV’s is disgusting. The service repair is even worse. Run as fast as you can. I would never buy another Thor product again. Try Newmar or Allegro…BUYER BEWARE!!

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