THOR Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2020. Financial statement amounts below are in U.S. dollars, shown in millions unless stated otherwise. Thor manufactures and sells recreational vehicles (RVs) in North America and Europe.
Key financial results
| Metric | Three months ended Apr. 30, 2020 | Three months ended Apr. 30, 2019 | Nine months ended Apr. 30, 2020 | Nine months ended Apr. 30, 2019 |
|---|---|---|---|---|
| Net sales | $1,681.7 | $2,506.6 | $5,843.7 | $5,553.1 |
| Gross profit | $205.6 | $292.4 | $770.9 | $641.3 |
| Gross margin | 12.2% | 11.7% | 13.2% | 11.5% |
| Income before income taxes | $21.2 | $41.5 | $124.7 | $74.9 |
| Net income attributable to Thor | $24.1 | $32.7 | $103.8 | $41.2 |
| Diluted earnings per share | $0.43 | $0.59 | $1.88 | $0.77 |
- Third-quarter sales fell 32.9%, primarily due to COVID-19 disruption and a 34.7% decline in RV shipments. Gross margin improved year over year, in part because the prior-year quarter included $61.4 million of EHG purchase-accounting charges.
- Nine-month sales rose 5.2%, largely because 2020 included nine months of Erwin Hymer Group (EHG) results versus three months in the prior-year period. Nine-month comparisons are therefore not like-for-like. Prior-year results also included $112.5 million of acquisition-related costs, including a $70.8 million non-deductible foreign-currency forward-contract loss.
- Operating cash flow was $237.3 million for the nine months, versus $175.8 million a year earlier. Capital expenditures were $77.3 million. Cash and cash equivalents were $651.5 million at April 30, compared with $425.6 million at July 31, 2019.
- Net working capital was $822.5 million. Current assets were $2,088.8 million and current liabilities $1,266.3 million.
- Gross debt was $2,028.4 million, including $304.4 million drawn on the asset-based credit facility (ABL); long-term debt, net of issuance costs and current portion, was $1,966.0 million. ABL availability was approximately $114 million at quarter-end. After quarter-end payments, the ABL balance was $22.6 million and availability approximately $396 million as of June 5, 2020.
- Other notable balance-sheet items included $867.6 million of inventory and $257.9 million of product warranty liabilities. The company paid $0.40 per share in each of the first three fiscal quarters.
Business changes and operating trends
- COVID-19 materially affected the quarter: Thor temporarily halted production at all North American RV facilities and a substantial portion of European production in March. Operations resumed through late April and May, except the U.K. facility, which was expected to reopen in mid-June.
- Quarterly segment sales declined 38.8% in North America and 19.8% in Europe. North American towable and motorized shipments fell 38.4% and 45.3%, respectively; European shipments fell 21.7%.
- At April 30, North American backlog was $1.406 billion, down 0.3% year over year; European backlog was $803.5 million, up 16.9%. Total backlog increased 5.3% to $2.209 billion. Thor-product dealer inventory in North America was down 20.1% year over year.
- Nine-month North American sales declined 14.6%, while European sales increased 127.4%, mainly reflecting the additional EHG months consolidated in the current year. North American towable gross margin improved for the nine-month period; lower sales volumes pressured fixed-cost absorption.
- Thor acquired a 73.5% controlling interest in Togo Group effective March 23, 2020, and began consolidating it. Togo focuses on digital solutions for RV travel and use. The transaction added provisional goodwill of $62.4 million and non-controlling interest of $16.8 million.
Outlook, risks, and unusual items
- Management gave no quantified earnings or sales guidance. It described the long-term North American and European retail outlook as positive, citing interest in RV travel, while emphasizing that pandemic duration and economic effects remain uncertain.
- Management expected remaining fiscal 2020 capital expenditures of approximately $20–25 million. It said cash, operating cash generation, and ABL availability should fund foreseeable operating needs; stated priorities include reducing debt and paying regular dividends, subject to financing conditions and Board approval.
- Risks include renewed shutdowns, weaker consumer demand or dealer operations, supply and labor disruption, European chassis/component constraints, commodity and freight costs, dealer financing defaults and repurchase obligations, and potential impairment of goodwill or other assets. The company noted northern Indiana’s concentration of RV facilities and suppliers as a possible regional exposure.
- At April 30, the company’s largest dealer represented 15% of nine-month sales and 12% of trade receivables. Dealer inventory financing repurchase commitments totaled $3.069 billion; the recorded reserve was $10.1 million. Management said expected losses were not material based on current conditions, but defaults could increase exposure.
- The company recognized a $10.1 million non-cash impairment charge in the first half related to assets subsequently sold. It found no European goodwill impairment at April 30, but warned that changed forecasts or valuation assumptions could result in a material charge in the fiscal fourth-quarter review.
- Ordinary-course litigation and warranty claims remain subject to uncertainty. Management did not expect current matters to materially affect the company overall, while noting an adverse litigation outcome could affect a particular period.
Most important facts for investors to verify
- Whether post-quarter retail demand and production recovery continued, and whether improved consumer interest translated into dealer orders and shipments.
- Whether total backlog converted to revenue without further cancellations, and how dealer inventory and the largest dealer’s financial condition evolved.
- Whether ABL repayments and cash generation were sustained, and how debt reduction, interest costs, dividends, and liquidity covenants developed.
- Whether European supply constraints, pandemic effects, or updated forecasts changed goodwill impairment assessments.
- How the EHG acquisition affects comparable-period growth, margins, integration costs, and debt, and how Togo Group performs after consolidation.