Turnaround Letter Buy-rated Thor Industries (THO) reported fiscal first quarter results that indicate the turnaround is making progress even as the industry-wide destocking weighs on revenues.
Adjusted net income of $1.50/share was well-ahead of the $1.25 consensus estimate. Thor shares fell in trading yesterday partly due to the weak revenues, which were about 3% below consensus expectations. While total sales grew 22.9%, this increase was entirely due to revenues from recently-acquired Germany-based RV builder EHG.
In North America, revenues declined 5.5%, as the industry-wide dealer restocking restrained sales. Independent dealer inventory of Thor products fell 22.8% in the quarter, or 30,000 units, to 101,500 units, from a year ago. This compares to the decline in Thor sales of 6,079 units compared to a year ago. Management commented that the inventory de-stocking is largely completed, and that dealers orders for Thor products will begin to match end-customer demand during calendar 2020.
Gross margins of 14.3% were much higher than year-ago margins of 11.8%, as more sales of higher-margin products combined with cost-cutting boosted North American margins. Newly-added European margins of 13.1% held back further increases in the overall average.
The EHG integration seems to be going well. Thor repaid about $139 million in deal-related debt in the quarter, leaving a balance of about $1.8 billion.
Thor management remains optimistic about North American and European demand for RVs and about their ability to reach their aggressive 2025 performance targets.
The company’s turnaround is slowly but steadily moving in the right direction.
We continue to rate shares of Thor Industries a Buy with a price target of 98.
Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks including THO shares.