Business context and reporting period
THOR Industries, Inc. filed this unaudited Form 10-Q for its fiscal first quarter ended October 31, 2020. The company manufactures and sells recreational vehicles (RVs) in North America and Europe. Unless noted otherwise, financial amounts below are in U.S. dollars and millions.
Financial and operating performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $2,537.4 | $2,158.8 | +17.5% |
| Gross profit / margin | $378.9 / 14.9% | $308.8 / 14.3% | +22.7% |
| Income before taxes | $146.3 | $68.6 | +113.2% |
| Net income attributable to THOR | $113.8 | $51.1 | +122.8% |
| Diluted EPS | $2.05 | $0.92 | +$1.13 |
| Operating cash flow | $(81.3) | $(52.0) | Cash use increased |
Revenue growth reflected higher shipment volumes across the RV businesses and a favorable currency translation contribution. Total RV units shipped increased 15.5%. Foreign exchange added $37.9 million to consolidated sales growth. North American sales rose 16.6%; European sales rose 22.2%. North American gross margin improved, while European RV gross margin declined to 12.0% from 13.1%. Europe recorded a pretax loss of $5.5 million, improved from a $23.0 million loss.
Cash and cash equivalents were $337.4 million at October 31, down from $538.5 million at July 31, 2020. Working capital was $643.6 million. Operating cash use was primarily driven by a $322.0 million inventory increase as production ramped to meet demand and backlog. Investing cash use was $46.4 million, including $24.7 million of capital expenditures and $22.7 million for an acquisition. Financing cash use was $68.5 million, including $62.8 million of debt payments.
Total debt, net of issuance costs, was $1,597.5 million, including $12.5 million current and $1,585.0 million long-term. No borrowings were outstanding under the $750 million ABL facility; reported unused availability was approximately $720 million. The company reported $631.8 million of interest-rate swaps hedging a portion of floating-rate debt.
Material changes versus the prior comparable period
- North American and European backlog reached $8,921.3 million, up 194.5% year over year. North American backlog increased 280.7%; European backlog increased 78.7%.
- North American dealer inventory fell 40.7% year over year to approximately 60,200 units, contributing to elevated orders and backlog.
- North American segment pretax income increased to $182.7 million from $126.1 million. European pretax losses narrowed to $5.5 million from $23.0 million.
- SG&A declined 3.6%, partly because COVID-19-related cancellations and travel restrictions reduced show, travel, advertising and promotional costs. The effective tax rate decreased to 21.0% from 24.5%.
- Inventory rose to $1,038.3 million from $716.3 million at fiscal year-end. Total debt declined from $1,666.6 million to $1,597.5 million, net of issuance costs.
Outlook, risks and unusual items
Management described North American and European long-term retail prospects as positive, citing consumer interest in RV travel and strong orders, but said the effects of COVID-19 remained uncertain. The filing includes industry shipment forecasts, not company earnings guidance: RVIA’s December 2020 most-likely estimates projected 423,600 North American wholesale units for calendar 2020 and 502,900 for calendar 2021. THOR anticipated $115–$125 million of capital expenditures for the remainder of fiscal 2021.
Principal risks identified include renewed pandemic disruption to demand, production and supply chains; component and chassis constraints; labor, material, freight and tariff costs; warranty claims; currency and interest-rate movements; dealer and consumer financing conditions; and execution and integration risks from acquisitions. One dealer accounted for 14% of quarterly sales and 16% of trade receivables. Dealer-financing repurchase commitments totaled $1,615.0 million; the company said recent settlement losses were not material and expected future losses would not materially affect consolidated results, while noting litigation outcomes remain inherently uncertain.
The company declared a regular dividend of $0.41 per share, payable in the second quarter. Management stated that available cash, operating cash generation and ABL availability should be sufficient for expected needs for the foreseeable future. The filing cautions that interim results are seasonal and should not be annualized.
Investor verification points
- Assess whether elevated backlog converts to shipments and revenue, and whether dealer inventories recover without weakening retail demand.
- Track inventory, receivables and operating cash flow as production expands; quarterly operating cash flow was negative despite higher earnings.
- Monitor gross-margin trends, especially European product mix and North American labor costs, warranty experience and supply availability.
- Verify debt reduction, liquidity and interest-rate exposure; the filing estimates a 1-percentage-point rate increase would reduce pretax earnings by approximately $7.1 million over a year.
- Evaluate concentration exposure to the largest dealer and potential losses under the $1.615 billion of repurchase commitments.
- Confirm subsequent dividend payment and progress against the stated remaining-fiscal-year capital expenditure range.