THOR Industries, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended April 30, 2022. The quarter ended April 30 is THOR’s fiscal third quarter. Amounts below are in U.S. dollars; financial statement figures are converted to millions unless noted.
Business context
THOR manufactures recreational vehicles in North America and Europe and sells primarily through independent dealers. Its reportable segments are North American Towables, North American Motorized and European. Airxcel, acquired September 1, 2021, supplies RV components and aftermarket products; its results are included from the acquisition date.
Financial results and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $4,657.5m | $3,459.3m | $12,490.8m | $8,724.4m |
| Gross profit | $807.4m | $505.3m | $2,138.1m | $1,299.0m |
| Gross margin | 17.3% | 14.6% | 17.1% | 14.9% |
| Income before taxes | $462.4m | $232.7m | $1,121.5m | $543.0m |
| Net income attributable to THOR | $348.1m | $183.3m | $856.9m | $429.6m |
| Diluted EPS | $6.32 | $3.29 | $15.44 | $7.72 |
- Quarterly sales rose 34.6%; gross profit rose 59.8%. Nine-month sales rose 43.2%; gross profit rose 64.6%. Higher sales, pricing and product mix, and improved North American margins contributed to earnings growth.
- Quarterly segment sales: North American Towables $2,640.1m, up 53.0%; North American Motorized $1,053.0m, up 35.8%; Europe $724.0m, down 19.0%. Quarterly gross margins were 17.2%, 16.5% and 13.8%, respectively.
- Operating cash flow was $637.5m for the nine months, versus $175.1m in the prior-year period. Working capital used $444.6m, chiefly reflecting higher inventory and seasonal receivables. Capital expenditures were $170.7m; acquisition outflows were $782.0m.
- Cash and cash equivalents were $329.3m at April 30, down from $445.9m at July 31, 2021. Net working capital was $1,386.9m. Management said cash, operating cash generation and available ABL funding should cover expected operating needs for the foreseeable future.
- Long-term debt, net of issuance costs, was $1,994.6m, including $500m of 4.0% senior unsecured notes due 2029; the balance sheet also showed $11.0m current long-term debt and $18.2m short-term financial obligations. ABL availability was approximately $870m. The company reported $115m of U.S. term-loan principal payments and approximately $25.5m of Euro term-loan payments after quarter-end.
Material changes and outlook
- North American growth reflected both higher unit shipments and substantial price/mix gains. Management cited selective price increases and reduced discounts as offsets to rising input costs. Europe was constrained by chassis and component shortages, production disruptions and adverse currency translation.
- North American dealer inventory was approximately 135,500 units, up 80.7% year over year; towable inventory had reached normalized levels, while motorized inventory remained generally below historical stocking levels. North American backlog was $11.0bn, up 0.2%; European backlog was $2.9bn, down 13.9%; total backlog declined 3.1% to $13.9bn.
- North American retail registrations fell 21.1% in the calendar quarter ended March 31, 2022, while industry wholesale shipments rose 15.5%. THOR’s North American shipments rose 17.0%. European company registrations in OEM-reporting countries fell 13.1% over the same quarter.
- Management remained positive about long-term RV demand but cautioned that inflation, rising interest rates, consumer confidence, supply constraints, labor shortages and geopolitical and pandemic developments could affect demand, production, costs and results. Chassis shortages—especially in Europe—were expected to continue; European supply constraints were anticipated to limit production into at least the first half of FY2023.
- RVIA’s June 2022 most-likely forecast projected calendar-year 2022 North American wholesale shipments of 549,900 units, down 8.4% from 2021, with a range of approximately 537,800 to 561,900. This is an industry forecast, not THOR earnings guidance; the filing provides no specific company earnings guidance.
Risks, contingencies and unusual items
- The company recognized $32.1m of net expense in the first nine months related to a North American towable-product recall and a German authorities’ investigation into historical vehicle-weight disclosures in advertising and other literature. Q3 charges for these matters were not material. THOR said it was cooperating with the investigation.
- Warranty liability was $309.4m at April 30, 2022, compared with $267.6m at July 31, 2021. Dealer inventory financing standby repurchase commitments totaled $4.2bn; the recorded reserve was $11.3m. Management considered expected losses under these agreements not material based on current conditions.
- One dealer accounted for 14% of quarterly and nine-month sales and 15% of trade receivables; the filing warns that losing this dealer could materially affect the business.
- Foreign-currency translation reduced nine-month other comprehensive income by $196.1m and contributed to a negative accumulated other comprehensive income balance. A 10% euro/U.S. dollar change would alter the reported euro-denominated debt balance by approximately $59.2m. A 1-percentage-point interest-rate increase was estimated to reduce pre-tax earnings by $9.9m over one year.
- The effective tax rate increased to 25.2% for Q3 and 23.6% for the nine-month period, partly due to unfavorable adjustments from completing the prior-year tax return. The filing also describes ordinary-course litigation and ongoing tax examinations; management did not expect current legal matters to materially affect consolidated results, while noting litigation uncertainty.
Important facts for investors to verify
- Whether dealer retail demand and inventory levels support continued production and backlog conversion, particularly as North American retail registrations declined.
- Whether component, chassis and labor constraints ease, and how they affect shipment volumes, work-in-process inventory, costs and margins.
- Whether pricing continues to offset inflation in materials, freight and labor without weakening consumer demand.
- How European sales, profitability and backlog develop amid supply disruption, foreign-exchange movements and the German investigation.
- Post-quarter debt repayments, remaining ABL availability, cash generation and capital allocation, including dividends and the remaining $151.7m share-repurchase authorization.
- Final Airxcel purchase-accounting values, recall/vendor reimbursement outcomes, and any developments in the German investigation or warranty and repurchase exposures.