Kathryn Thompson, analyst for investment firm Avondale Partners LLC, recently met with management for builder Thor Industries Inc. and Drew Industries Inc., parent to key industry suppliers Lippert Components Inc. and Kinro Inc.
In summary, Thompson stated in a note to investors: “After spending time earlier in the week with Drew and Thor, we remain confident that both companies will survive the current market downturn. As both company’s noted in meetings, the tough thing right now is timing a reasonable entry point with any RV stock. We continue to believe that the companies will emerge stronger from the downturn. Given the continued deterioration in both the RV retail and wholesale market, however, we are hard-pressed to recommend any RV stock at this time.”
Thompson also offered several observations following the meetings. For Drew, Thompson noted:
• Repurchases from dealers are certainly having an effect on the retail market. As banks liquidate seized product, this creates competition for retail-level demand for new product.
• Acquisition activity is slow as management at this point is in a capital-preservation mode.
• The company remains focused on cost cutting. Drew had 36 plants at the end of the 2008 third quarter, but management noted that this number will continue to be lowered further.
Regarding Thor:
• The RV market is extremely tough. Most of the company’s plants were shut down for five weeks in December, with several only now re-opening. The discounting environment remains extremely aggressive.
• As the retail market has dried up, floorplan lenders have continued to force dealers to lower inventory levels to improve their turns. Regarding its announced launch of Thor Credit, the company anticipates making its first loans in March and is still getting the platform ready to roll out. Thor is budgeting $150 million in loans generated in its first year.
• The company’s bus business continues to be strong and will likely see growth this year. Thor’s bus business could benefit from increased transit spending with the second stimulus bill.