THOR Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2021; comparisons are with the three months ended October 31, 2020 unless otherwise noted. Amounts below are in U.S. dollars.
Business context
THOR manufactures recreational vehicles and related components, selling primarily through independent dealers in North America and Europe. Its reportable segments are North American Towables, North American Motorized and European; component businesses, including newly acquired Airxcel, are reported in Other.
Financial performance and liquidity
- Revenue: $3.96 billion, up 56.0%. Growth reflected stronger demand, higher unit shipments and acquisitions. Tiffin contributed $228.3 million and Airxcel $88.8 million of quarterly sales.
- Profit and margins: Gross profit was $655.4 million, up 73.0%; gross margin expanded to 16.6% from 14.9%. Income before tax was $312.8 million, up 113.8%. Net income attributable to THOR was $242.2 million versus $113.8 million; diluted EPS was $4.34 versus $2.05.
- Segment results: North American Towables sales rose 61.0% and pretax income rose to $266.3 million. North American Motorized sales rose 87.3% and pretax income reached $88.9 million. Europe sales increased 5.1%, but the segment reported a $18.0 million pretax loss, compared with a $5.5 million loss.
- Cash flow: Operating cash flow was $41.8 million, versus cash used of $81.3 million. Working-capital changes used $271.8 million, principally from inventory and seasonal receivables growth. Investing activities used $791.0 million, largely for Airxcel; capital expenditures were $43.2 million. Financing activities provided $643.6 million.
- Liquidity: Cash and cash equivalents were $336.2 million at October 31, down from $445.9 million at July 31. Net working capital was $1.18 billion. The ABL facility was expanded to $1.0 billion, with approximately $810 million of unused availability at quarter-end.
- Debt: Gross debt was $2.28 billion at October 31, compared with $1.64 billion at July 31. THOR issued $500 million of 4.000% senior unsecured notes due 2029 and used the proceeds, together with cash, to repay ABL borrowings. The filing reports $159.9 million outstanding under the ABL at quarter-end.
- Other metrics: The quarterly dividend increased to $0.43 per share. Inventory was $1.67 billion, up from $1.37 billion at July 31; management linked the increase to higher production and supply constraints.
Material changes and notable items
- Consolidated backlog reached $18.07 billion, up 102.6% year over year: North American backlog rose 122.6% to $14.72 billion and European backlog rose 45.0% to $3.35 billion.
- North American dealer inventory of THOR products increased 36.9% year over year to approximately 82,400 units, but management said levels remained below optimal stocking levels.
- THOR acquired Airxcel on September 1, 2021 for $750 million cash, subject to customary adjustments. Purchase accounting remains preliminary. Airxcel contributed $88.8 million in sales; its results included a $6.8 million inventory step-up charge in cost of products sold.
- A $22.0 million expense was recorded in SG&A for a prior-year product recall, reflecting uncertainty in recovering the costs from suppliers.
- Foreign-currency translation reduced other comprehensive income by $35.2 million. One dealer accounted for 14% of quarterly sales and 16% of trade receivables at October 31.
Outlook, risks and contingencies
- Management described its North American and longer-term European demand outlook as positive, supported by consumer interest in RV travel and low dealer inventory. It cautioned that supply constraints limit near-term production. The filing provides no company earnings or revenue guidance.
- RVIA’s December 2021 industry forecast projected approximately 602,200 North American wholesale units for calendar 2021 and 613,700 for calendar 2022 in its most-likely scenarios. These are industry forecasts, not THOR guidance.
- Management expects continued chassis and component shortages, semiconductor constraints, cost increases, delivery delays and labor challenges. These issues have constrained output and increased work-in-process inventory; prolonged disruption could reduce sales and margins. COVID-19 impacts remain uncertain.
- Management anticipated approximately $230 million of capital expenditures for the remainder of fiscal 2022 and said it expects cash, operating cash generation and available ABL capacity to fund foreseeable operating needs. The Board intends to continue regular quarterly dividends, subject to conditions and Board approval.
- Dealer financing repurchase commitments totaled $2.32 billion at October 31. Management said settled losses were not material and expected future losses would not materially affect the company based on current conditions. Ordinary-course litigation was not expected to have a material effect, although adverse outcomes could affect an individual period.
- Market risks include foreign exchange and interest rates. The filing estimates a one-percentage-point interest-rate increase would reduce pretax earnings by approximately $10.4 million over one year, based on stated assumptions.
Important facts for investors to verify
- Whether backlog converts to shipments and sales, given dealer inventory levels and persistent supply constraints.
- Whether higher material, labor and freight costs are offset by pricing, product mix and operating efficiencies.
- Airxcel integration, final purchase-price allocations and the acquisition’s contribution to results and cash generation.
- Working-capital needs, cash-flow conversion, debt levels and continued availability under the borrowing-base-dependent ABL facility.
- Exposure to the major dealer, repurchase guarantees, warranty and recall costs, and recovery of the $22.0 million recall-related expense.