THOR Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2012; comparison is the three months ended October 31, 2011. Financial amounts are in thousands of dollars except per-share data. Thor manufactures towable and motorized recreation vehicles (RVs) and buses.
Financial performance and position
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Net sales | $875,612 | $673,000 | +30.1% |
| Gross profit / margin | $100,592 / 11.5% | $74,978 / 11.1% | +34.2% |
| Income before taxes | $47,611 | $34,648 | +37.4% |
| Net income | $30,988 | $22,358 | +38.6% |
| Diluted EPS | $0.58 | $0.41 | +$0.17 |
| Operating cash flow | $14,439 | $22,341 | −35.4% |
- Cash and equivalents were $214,498 at October 31, versus $218,642 at July 31, 2012. Working capital was $395,356, up from $373,796.
- Operating cash flow was reduced by a $38,822 inventory increase, associated with higher backlog. Capital spending was $5,893; the Krystal acquisition used $3,914. Dividends paid were $9,527.
- Total assets were $1,267,553 and stockholders’ equity was $873,616. The balance sheet reports no borrowing or debt balance; interest expense was $80 for the quarter.
- The quarterly dividend increased to $0.18 per share from $0.15. The filing does not provide a specific earnings forecast.
Material changes and segments
- RV sales rose 35.6% to $761,424; towable sales increased 28.1% and motorized sales increased 95.4%. Higher unit shipments drove growth, with improved motorized product mix and pricing also contributing. RV pretax income increased to $51,148 from $33,884.
- Bus sales increased 2.6% to $114,188, but bus pretax income declined to $3,691 from $5,266. Lower-margin product mix and increased discounting reduced bus gross margin to 7.3% from 9.1%.
- Total order backlog increased 41.3% to $720,189: RV backlog rose 72.5% to $516,657, while bus backlog declined 3.2% to $203,532.
- SG&A increased 33.8% to $51,465, including higher compensation and corporate costs; corporate expenses included one-time separation costs. The effective tax rate declined to 34.9% from 35.5%, partly due to release of uncertain-tax-benefit reserves.
Outlook, risks and unusual items
- Management said cash on hand and operating cash generation should fund expected needs. Fiscal 2013 capital expenditures were estimated at approximately $20,700, primarily for RV facility expansion and equipment. The board intended to continue quarterly dividends, subject to its review of earnings, cash flow and other factors.
- Management described dealers as cautiously optimistic amid economic uncertainty and heightened discounting. Industry forecasts cited in the filing projected 2012 RV wholesale shipments up 8.4% and 2013 shipments up about 1%; these are industry forecasts, not company earnings guidance.
- Risks include consumer spending and credit conditions, commodity costs, competition and discounting, government bus spending, chassis supply, warranty and insurance claims, and potential losses on dealer financing repurchase commitments. The company reported $963,211 of standby repurchase obligations and a $3,459 reserve; management did not expect future losses to materially affect consolidated results.
- FreedomRoads accounted for 16% of RV sales and 15% of trade receivables at quarter-end; the filing warns its loss could significantly affect the business. One dealer represented 13% of bus sales.
- The company acquired Krystal’s bus operation assets for $3,914, closing October 3, 2012, to expand its bus business. The FEMA trailer litigation settlement was approved September 27, 2012; Thor had paid $4,700, and no claimants against Thor opted out. The order was appealable.
- Warranty reserves increased to $77,963 from $73,280 at fiscal year-end. Management considered them adequate but noted actual claims may differ from estimates. Fiscal 2013 goodwill impairment testing had identified no triggering event through October 31.
- Results are seasonal and the quarter is not necessarily indicative of full-year performance. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether RV backlog converts to shipments and cash without a material increase in discounting or inventory.
- Whether inventory growth, which weighed on operating cash flow, moderates as production fulfills backlog.
- Whether motorized RV growth and margins are sustainable, and whether bus mix and profitability recover.
- Actual capital spending versus the approximately $20.7 million fiscal 2013 estimate, and the integration and returns from the Krystal acquisition.
- Dealer concentration and potential exposure under the substantial repurchase commitments, as well as future warranty and uncertain-tax-position outcomes.