Thor Industries, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended January 31, 2014. Unless noted, amounts are in thousands of dollars, except per-share data. Thor manufactures towable and motorized recreational vehicles; bus operations are presented as discontinued operations following their sale in October 2013.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2014 | Six months ended Jan. 31, 2014 |
|---|---|---|
| Net sales | $635,330; down 0.2% year over year | $1,435,293; up 2.7% |
| Gross profit / margin | $70,327 / 11.1%, versus $67,518 / 10.6% | $175,510 / 12.2%, versus $159,821 / 11.4% |
| Income from continuing operations | $17,218, versus $19,019 | $53,612, versus $47,768 |
| Net income, including discontinued operations | $16,192, versus $19,896 | $57,300, versus $50,884 |
| Diluted EPS | $0.30, versus $0.37 | $1.07, versus $0.96 |
| Operating cash flow | Not separately reported for the quarter | $(17,845), versus $1,333 provided |
- Six-month income before taxes rose 14.2% to $78,343. The effective tax rate was 28.0% for the quarter and 31.6% for the six-month period; settlements of uncertain tax positions provided tax benefits.
- At January 31, cash was $204,860, working capital was $420,596, and current assets and current liabilities were $720,624 and $300,028, respectively. Total assets were $1,248,597 and stockholders’ equity was $877,416.
- The balance sheet reports no borrowings or material interest expense; interest expense was $7 for the six months. Six-month investing cash flow was $61,868, including $100,000 received from the bus sale. Financing cash flow was $(75,764), primarily reflecting $77,800 of dividends. Cash declined $31,741 from July 31, 2013.
Changes versus comparable periods
- Quarterly sales were nearly flat as motorized RV sales grew 43.1% while towable sales fell 9.6%. Quarterly income from continuing operations declined, despite higher gross profit and margin.
- For six months, motorized sales rose 44.0%, while towable sales fell 5.7%; total unit shipments declined 4.7%. Gross margin improved, and continuing-operations income increased.
- Severe winter weather disrupted production, wholesale receipts, and retail deliveries, particularly affecting towables. Thor attributed lower towable shipments partly to the weather and lower production volumes.
- Thor sold its bus business for $100,000 cash and recorded a $7,079 pretax gain for the six months, including a $746 unfavorable post-close adjustment in the second quarter. An additional $5,043 due under the sale adjustment was received after quarter-end. The quarter’s discontinued-operations loss was $1,026; six-month discontinued-operations income was $3,688.
- Thor acquired Livin’ Lite for $16,769 net of cash acquired and Bison Coach for $16,718, expanding towable offerings. The acquisitions increased goodwill and amortizable intangible assets. Dutchmen was merged into Keystone during the quarter.
- The company paid a $1.00-per-share special dividend and raised its regular quarterly dividend from $0.18 to $0.23 per share.
Outlook, risks, and unusual items
- Management reported dealer inventory of 60,149 units, down 1.7% year over year, and backlog of $845,178, up 37.1%. Dealers were described as optimistic about calendar 2014 but cautious about winter restocking.
- RVIA forecast calendar-2014 wholesale shipments of 295,700 towables and 43,900 motorized units, increases of 4.6% and 14.5%, respectively, from 2013. Management expected incremental retail improvement if consumer confidence, credit access, and other economic conditions remained supportive; it did not provide company earnings guidance.
- Management expected approximately $22,000 of additional fiscal-2014 capital expenditures and believed cash on hand and operating cash generation would meet expected needs. Future dividends, acquisitions, repurchases, or special dividends remain subject to board decisions and business conditions. Six-month results may not indicate full-year performance because of RV industry seasonality.
- Risks include discretionary consumer demand, interest rates and credit availability, material costs, chassis supply constraints, competition, acquisition integration, and weather. Current motorized chassis limitations were expected to continue through the first quarter of calendar 2014.
- FreedomRoads, Thor’s largest dealer, accounted for 16% of continuing sales in the six-month periods compared and 25% of trade receivables at January 31. Thor also had $1,165,309 of standby dealer-inventory repurchase commitments, primarily with terms up to 18 months; the recorded reserve was $4,177. Management said expected future losses were not expected to have a significant effect.
- Other exposures include retained pre-sale bus product-liability and workers’ compensation claims, ongoing ordinary-course litigation, and uncertain tax positions. Management considered warranty reserves adequate but noted actual claims could differ from estimates. A $710 noncash impairment charge was recorded in the first quarter for certain RV facilities.
Important facts for investors to verify
- Whether the higher backlog converts into shipments and sales, and whether the winter-related disruption reverses without excess dealer inventory.
- The trajectory of towable demand and margins relative to continued motorized growth, including the effects of product mix, pricing, and chassis availability.
- Operating cash generation and inventory requirements, given six-month negative operating cash flow and substantial dividend and acquisition outlays.
- Integration progress and returns from Livin’ Lite and Bison, and any remaining costs, claims, or adjustments related to the bus divestiture.
- Concentration and counterparty exposure involving FreedomRoads, the dealer repurchase commitments, and related-party notes receivable; the filing states $7,400 remained outstanding on a note due August 2015.
- Outcomes of tax audits and settlements, retained bus-related claims, and other litigation or warranty developments.