Business context and reporting period
Thor Industries, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended April 30, 2013. The company manufactures towable and motorized recreation vehicles (RVs) and small- and mid-size buses. Amounts below are in millions of dollars unless otherwise noted; the filing presents financial statements in thousands. RV results are seasonal, and year-to-date results are not necessarily indicative of the full fiscal year.
Financial performance and liquidity
| Metric | Three months ended April 30, 2013 | Prior-year quarter | Nine months ended April 30, 2013 | Prior-year period |
|---|---|---|---|---|
| Net sales | $1,049.2 | $926.5 | $2,666.4 | $2,196.4 |
| Gross profit | $133.8 | $109.5 | $307.8 | $243.8 |
| Gross margin | 12.8% | 11.8% | 11.5% | 11.1% |
| Income before income taxes | $62.6 | $61.2 | $135.8 | $117.4 |
| Net income | $43.8 | $41.3 | $94.6 | $77.4 |
| Diluted EPS | $0.82 | $0.78 | $1.78 | $1.43 |
- Quarterly sales increased 13.2%; gross profit grew 22.2%. Net income rose 5.8%, with results including $11.5 million of non-cash goodwill and intangible-asset impairment charges.
- For the nine months, sales increased 21.4%, gross profit 26.2%, and net income 22.3%. The effective tax rate fell to 30.3% from 34.1%, helped by settlements of uncertain tax positions and reinstated tax credits.
- Operating cash flow was $44.7 million for the nine months, compared with $37.3 million a year earlier. Capital expenditures were $14.7 million; investing cash outflow was $17.4 million. Receivables and inventory absorbed cash, with the inventory increase associated with higher backlog.
- Cash and cash equivalents were $137.5 million at April 30, down from $218.6 million at July 31, 2012. Working capital was $376.1 million, versus $373.8 million. Current assets were $751.5 million and current liabilities $375.4 million.
- The balance sheet does not list interest-bearing debt; reported interest expense was $0.1 million for the quarter and $0.3 million year to date. Total liabilities were $450.7 million at April 30.
Material changes versus comparable periods
- RVs drove growth: quarterly RV sales rose 15.2%, while bus sales were essentially flat. For the nine months, RV sales rose 24.5% and bus sales 3.7%.
- Quarterly motorized RV sales increased 47.8%, supported by 34.2% more units and higher average net selling prices. Towable RV sales grew 9.1%; bus sales increased 0.1% despite 1.6% fewer units.
- Year-to-date motorized RV sales increased 72.0%, and towable sales 17.3%. Bus gross margin weakened to 6.9% from 8.2%; the segment reported a $2.7 million pretax loss, including the impairment charge.
- Quarterly SG&A rose 23.2% to $57.8 million; year-to-date SG&A rose 27.8% to $155.5 million. Higher corporate costs included increased product-liability insurance, compensation and management-related costs.
- Thor paid a $1.50-per-share special dividend in December 2012 and regular dividends of $0.18 per share in each of the first three fiscal quarters. Total dividends paid in the nine-month period were $108.1 million.
Outlook, commentary, risks and unusual items
- Management reported RV backlog of $649.6 million at April 30, up 44.9% year over year; bus backlog was $199.6 million, down 7.2%. RV dealer inventory of Thor products rose 14.4% to 64,899 units.
- Management cited improving RV demand and expected the ability to increase production as demand rises, but noted continued near-term discounting and dependence on consumer confidence, disposable income, interest rates and credit availability. This is commentary, not formal company earnings guidance.
- Limited availability of certain motorized RV chassis had constrained production increases and was expected to continue through fall 2013. Raw-material cost increases could pressure margins if not offset by pricing.
- Thor sold the ambulance product-line assets on April 30 for $12.3 million, subject to adjustments; proceeds were recorded as a receivable and expected to be realized in fiscal Q4. The sale had no gain or loss. The related bus reporting unit recorded $4.7 million of intangible-asset impairment and $6.8 million of goodwill impairment, primarily reflecting lower forecast margins and higher working-capital needs.
- Thor acquired Krystal and Federal Coach bus assets for $3.9 million and $6.8 million, respectively, to expand its bus business and pursue cost efficiencies.
- Dealer concentration is material: FreedomRoads represented 16% of consolidated RV sales and 15% of trade receivables for the nine months; two dealers accounted for 22% of bus sales. Standby repurchase obligations on dealer inventory financing totaled $1,153.9 million, generally for terms up to 18 months; the recorded repurchase and guarantee reserve was $4.3 million.
- Other sensitivities include warranty and self-insurance estimates, goodwill valuation assumptions, uncertain tax positions and ordinary-course litigation. Management said the settled FEMA trailer litigation was funded and no company-related appeals were taken. The filing identifies no material change to previously disclosed risk factors, while noting upcoming conflict-minerals disclosure and compliance costs.
Important facts for investors to verify
- Whether RV backlog converts to shipments and cash without excessive dealer inventory buildup, discounting or working-capital strain.
- Whether motorized RV chassis availability improves as anticipated and supports planned production growth.
- Bus-segment performance after the ambulance divestiture, impairment charges and integration of the Krystal and Federal Coach businesses.
- The adequacy of warranty, insurance and dealer-repurchase reserves, and the credit condition of concentrated dealers, particularly FreedomRoads.
- Cash generation and liquidity after substantial dividends, planned fiscal-2013 capital expenditures of approximately $9 million more, and any future capital returns or acquisitions.
- Whether assumptions used in impairment testing, tax settlements and other significant estimates change materially.