THOR Industries, Inc. — Q3 FY2016 Form 10-Q
Reporting period: Quarter and nine months ended April 30, 2016. Financial statements are unaudited; dollar amounts are in thousands except per-share data. Thor manufactures towable and motorized recreational vehicles, primarily in the United States.
Financial performance and liquidity
| Metric | Three months ended April 30 | Nine months ended April 30 |
|---|---|---|
| Net sales | $1,284,054; up 9.4% | $3,289,476; up 11.6% |
| Gross profit / margin | $201,937 / 15.7%, versus $166,601 / 14.2% | $502,975 / 15.3%, versus $386,266 / 13.1% |
| Income before tax | $116,283; up 23.0% | $259,862; up 33.0% |
| Net income, including discontinued operations | $78,582, versus $62,845 | $173,747, versus $130,418 |
| Diluted EPS | $1.49, versus $1.17 | $3.31, versus $2.44 |
| Operating cash flow | Not provided for the quarter | $144,908, versus $91,394 |
For the nine months, capital expenditures were $39,411, dividends paid were $47,227, and cash increased by $63,819 to $247,297. Working capital was $532,797, compared with $397,506 at July 31, 2015. Current assets were $974,392 and current liabilities $441,595. No conventional borrowings are presented on the balance sheet; interest expense was $508 for the nine months. Capital lease obligations are referenced in the acquisition disclosures.
Changes and segment results
- Q3 RV sales increased 5.8%: towables rose 1.7% and motorized RVs 20.7%. Towable unit shipments rose 4.6%; motorized shipments rose 18.5%.
- For the nine months, towable sales increased 3.6% and motorized sales 22.5%. Growth includes acquisition contributions: CRV/DRV was included for nine months versus four months in the prior-year comparison, and Postle was acquired May 1, 2015.
- RV gross margins improved, with management citing product mix, selective price increases, improved material management and, for motorized vehicles, better warranty costs and fixed-cost absorption. SG&A also increased, including higher compensation, commissions and corporate professional fees.
- Q3 continuing-operations income before tax was $116,283; nine-month income before tax was $259,862. Nine-month results included a $9,113 non-cash goodwill impairment charge recorded in the second quarter.
Outlook, commentary and risks
- Thor reported backlog of $1,056,811 at April 30, up 45.4% year over year; dealer inventory of Thor products rose 1.0% to approximately 82,100 units. Management considered dealer inventories appropriate for seasonal demand.
- RVIA’s May 2016 industry forecast projected calendar-year 2016 shipments of approximately 345,500 towable units and 50,900 motorized units, increases of 5.7% and 7.6%, respectively. This is an industry forecast, not company revenue or earnings guidance.
- Management expected approximately $20,000 of additional capital expenditures in the remainder of FY2016, primarily for facility expansion and equipment. It stated cash and operating cash generation should meet expected operational needs; the Board intended to continue quarterly dividends, subject to future determination.
- Key risks include discretionary consumer demand, interest rates and credit availability, commodity costs, chassis or other supply constraints, competition, acquisition integration, loss of key dealers, warranty claims and possible losses under dealer inventory repurchase agreements. One dealer accounted for 20% of nine-month sales and 21% of trade receivables at April 30.
- Dealer-financing standby repurchase commitments totaled $1,629,562, with a recorded reserve of $5,177. Management said future losses were not expected to materially affect consolidated results, but actual outcomes remain uncertain. Warranty reserves were $112,621.
- Management cited ordinary-course litigation and retained claims relating to the former bus business; it did not expect current legal matters or the bus-sale tax indemnity to have a material overall effect. A material adverse litigation outcome could affect an individual period.
Important facts for investors to verify
- Whether the substantial backlog converts to shipments and cash without excessive dealer inventory buildup.
- How much reported growth reflects underlying demand versus acquisitions, and the sustainability of margin improvements.
- The concentration and credit exposure associated with the largest dealer, including the scale of repurchase commitments relative to the recorded reserve.
- The assumptions underlying the $9,113 goodwill impairment and the adequacy of warranty and other claims reserves.
- The effect of seasonality, working-capital investment, consumer financing conditions and the stated capital-spending plans on future cash flow.