THOR Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2013. The unaudited statements cover Thor’s towable and motorized recreation vehicle and bus operations. Dollar amounts below are in millions unless stated otherwise; interim results are seasonal and may not indicate full-year performance.
Financial results
| Metric | Quarter ended Jan. 31, 2013 | Prior-year quarter | Six months ended Jan. 31, 2013 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $741.6 | $597.0 | $1,617.2 | $1,270.0 |
| Gross profit | $73.4 | $59.4 | $174.0 | $134.4 |
| Gross margin | 9.9% | 9.9% | 10.8% | 10.6% |
| Income before taxes | $25.5 | $21.5 | $73.1 | $56.1 |
| Net income | $19.9 | $13.7 | $50.9 | $36.0 |
| Diluted EPS | $0.37 | $0.25 | $0.96 | $0.66 |
- Quarterly sales increased 24.2% and six-month sales increased 27.3%. Quarterly net income rose 45.4%; six-month net income rose 41.2%.
- Quarterly gross margin was flat year over year; six-month margin improved 0.2 percentage points. SG&A rose 27.4% for the quarter and 30.7% for six months.
- Six-month operating cash flow was $1.3, down from $36.0 a year earlier. Higher receivables and inventories, which management attributed to increased sales and backlog, absorbed cash.
- Cash and equivalents were $108.1 at January 31, versus $218.6 at July 31, 2012. Working capital was $333.2, versus $373.8. Management said cash on hand and operating cash generation should fund expected operating needs.
- The balance sheet presents no borrowings as a separate liability; the filing does not provide a clear debt balance. Six-month interest expense was $0.2.
Segments and changes versus prior year
- Towable RVs: Quarterly sales rose 17.7% to $522.8; six-month sales rose 23.2% to $1,162.0. Higher unit shipments drove growth, partly offset by discounting. Six-month segment pretax income was $66.8, with a 5.7% margin, unchanged as a share of sales.
- Motorized RVs: Quarterly sales doubled to $113.8; six-month sales rose 97.8% to $236.0. Higher shipments and richer product mix contributed. Six-month pretax income increased to $15.3, and the segment margin improved to 6.5% from 2.6%.
- Buses: Quarterly sales grew 9.4% to $105.0 and six-month sales grew 5.7% to $219.2. Lower-margin mix and discounting reduced six-month gross profit to $14.2 from $16.9 and pretax income to $5.0 from $7.9.
- Total backlog at January 31 was $822.0, up 27.1% year over year. RV backlog increased 49.4% to $616.6; bus backlog fell 12.3% to $205.4.
Outlook, commentary, risks and notable items
- RVIA forecast 2013 industry wholesale shipments of 261,200 towable and 31,900 motorized units; these are industry forecasts, not Thor-specific guidance. Management described dealers as optimistic but cautious, and expected near-term discounting to continue.
- Management cited consumer confidence, discretionary spending, credit availability, taxes, fuel prices and housing-market conditions as factors that could constrain RV demand. Limited availability of certain motorized-RV chassis was expected to restrict production through spring 2013.
- Management anticipated approximately $9.7 million of additional fiscal 2013 capital expenditures, mainly for RV facility expansion and equipment upgrades. The board intended to continue quarterly dividends, subject to future conditions.
- Thor paid a $1.50-per-share special dividend in December 2012, in addition to $0.18-per-share regular quarterly dividends; total dividends paid in the six months were $98.6 million. These payments were a principal reason cash declined.
- Thor acquired Krystal bus assets for $3.9 million and Federal Coach assets for $6.8 million, to expand its bus business and pursue cost efficiencies.
- The lower effective tax rate—22.1% for the quarter and 30.4% for six months, compared with 36.4% and 35.8%—included favorable settlements of uncertain tax positions and retroactive tax credits. The six-month settlements produced a $1.8 million net tax benefit.
- Warranty reserves increased to $79.2 million from $62.0 million a year earlier. Dealer financing arrangements included $1,109.3 million of standby repurchase obligations, although the recorded repurchase and guarantee reserve was $4.2 million. Management did not expect future repurchase losses to materially affect consolidated results.
- FreedomRoads accounted for 14% of consolidated sales and 19% of trade receivables for the six months; the filing says its loss could significantly affect the business. A single dealer represented 11% of bus sales.
- The FEMA trailer formaldehyde settlement received court approval in September 2012; no plaintiffs with claims against Thor opted out. Other ordinary-course litigation remains, and management did not expect current matters to materially affect the company overall, while noting a significant adverse outcome could affect a period.
- Management identified one goodwill reporting unit with a relatively narrow fair-value cushion (15% above carrying value at the April 2012 assessment) and noted performance below prior margin estimates could increase impairment risk. No impairment trigger was identified through January 31.
Most important facts for investors to verify
- Whether strong RV backlog converts to shipments and cash without further margin erosion from discounting, materials costs or chassis constraints.
- Whether working-capital investment reverses and operating cash flow recovers from the six-month $1.3 million level.
- Bus segment profitability and backlog following lower margins and the Krystal and Federal Coach acquisitions.
- The sustainability of earnings after the favorable tax settlements and credits, and the status of remaining uncertain tax positions.
- Dealer concentration and the company’s exposure under repurchase guarantees, including whether losses or warranty claims exceed recorded reserves.
- Future cash allocation, including dividends, planned capital spending and any share repurchases; the filing gives no formal company earnings guidance.