THOR Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2023. Financial statement amounts below are in U.S. dollars; amounts are converted to millions unless otherwise noted. THOR manufactures recreational vehicles and related components, selling mainly through independent dealers.
Financial performance
| Metric | Three months ended Jan. 31, 2023 | Six months ended Jan. 31, 2023 | Prior-year comparable period |
|---|---|---|---|
| Net sales | $2,346.6 million | $5,454.7 million | $3,875.0 million; $7,833.2 million |
| Gross profit / margin | $282.9 million / 12.1% | $769.4 million / 14.1% | $675.3 million / 17.4%; $1,330.7 million / 17.0% |
| Net income attributable to THOR | $27.1 million | $163.3 million | $266.6 million; $508.8 million |
| Diluted EPS | $0.50 | $3.03 | $4.79; $9.13 |
| Operating cash flow | Not presented for the quarter | $185.3 million | $298.1 million for six months |
- Quarterly sales fell 39.4%, and six-month sales fell 30.4%. Management attributed the decline mainly to lower dealer and consumer demand versus exceptionally strong prior-year periods.
- Quarterly pretax income was $32.7 million, down 90.6%; six-month pretax income was $212.0 million, down 67.8%. Quarterly net income attributable to THOR was $27.1 million, versus $266.6 million a year earlier.
- Quarterly North American Towables sales declined 58.2%, and the segment recorded a $7.1 million pretax loss. North American Motorized sales declined 24.4%. European sales declined 10.6%, but its quarterly pretax income increased to $12.0 million from $9.7 million.
- Six-month operating cash flow decreased to $185.3 million from $298.1 million. Working capital used $128.7 million of cash, primarily reflecting increased chassis inventory; capital expenditures were $101.0 million.
Financial position and liquidity
- At January 31, 2023, cash and cash equivalents were $281.6 million, current assets $2,863.0 million, current liabilities $1,466.5 million, and reported net working capital $1,396.5 million.
- Total debt, net of issuance costs and including current maturities, was approximately $1,769.6 million. This included $1,139.7 million of term loans, $85.0 million outstanding under the asset-based credit facility, and $500.0 million of senior unsecured notes.
- Unused availability under the $1.0 billion asset-based credit facility was approximately $915 million. The company reported it expects cash, operating cash generation, and facility availability to fund expected operating needs for the foreseeable future.
- Six-month dividends paid were $48.2 million, at $0.45 per share for each of the first two fiscal quarters. The company repurchased 338,733 shares for $25.4 million during the six months; it made no repurchases in the quarter.
Material changes and outlook
- North American dealer inventory of THOR RVs was approximately 121,300 units at January 31, 2023, up 8.3% year over year. Management considered towable inventory generally higher than dealers’ desired levels.
- North American backlog fell 79.6% to $3,001.1 million; total company backlog fell 65.8% to $6,056.9 million. European backlog was $3,055.7 million, approximately flat year over year.
- RVIA’s February 2023 forecast projected 334,100 North American wholesale shipments for calendar 2023, down 32.3% from 2022, with a range of approximately 324,300 to 344,000 units. This is an industry forecast, not THOR revenue guidance.
- Management expects the remaining fiscal 2023 quarters to remain pressured by inflation, higher interest rates, weaker demand, dealer inventory adjustments, and supply constraints. It remains positive on longer-term RV demand. European chassis shortages and other component delays are expected to persist through calendar 2023 and constrain production.
- THOR anticipates $100 million to $120 million of capital expenditures during the remainder of fiscal 2023, primarily for buildings, automation, and equipment. The filing does not provide a specific full-year revenue or earnings forecast.
Risks, contingencies, and unusual items
- On December 30, 2022, THOR transferred Roadpass Digital to a jointly owned entity managed by TechNexus and deconsolidated the business. THOR reported an equity-method investment of $106.6 million and maximum exposure to loss of $129.1 million, including a funding commitment. The transaction resulted in an immaterial gain.
- Dealer floor-plan standby repurchase commitments totaled $4,646.2 million; the recorded reserve was $12.8 million. These commitments are contingent obligations, not reported debt. One dealer accounted for 14% of sales and 10% of trade receivables.
- Product warranty liabilities were $326.7 million. The company continues to address a product recall and a German investigation concerning historical vehicle-weight disclosures; current-period adjustments were not material, while the company recorded $35.0 million of combined net expense for these matters in the prior-year six-month period.
- Other principal risks include discretionary consumer demand, dealer financing and stocking decisions, inflation and input costs, interest and foreign-exchange rates, supplier and chassis availability, labor constraints, warranty and recall claims, litigation, and repurchase obligations. Management stated that previously disclosed risk factors had not materially changed.
- A one-percentage-point interest-rate increase was estimated to reduce pretax earnings by approximately $11.9 million over one year. Euro-denominated debt was $551.7 million; a hypothetical 10% exchange-rate change would alter its reported U.S.-dollar balance by approximately $55.2 million.
Important facts for investors to verify
- Whether dealer inventory, retail demand, and North American backlog continue to decline or stabilize, particularly for towables.
- Whether European chassis and component constraints limit production and sales as management expects through calendar 2023.
- How gross margins and cash generation respond to lower shipment volumes, discounting, and manufacturing overhead absorption.
- The terms, funding needs, and performance of THOR’s Roadpass Digital investment, including its $129.1 million maximum exposure to loss.
- Potential changes in dealer repurchase exposure, warranty and recall costs, and the German regulatory investigation.
- Debt maturities and borrowing costs, including the term loan’s February 2026 maturity and the impact of floating rates as interest-rate swaps run off by August 1, 2023.