Investment firm Avondale Partners LLC, which regularly tracks the RV industry, hosted an RV management dinner Dec. 1 held in conjunction with the National RV Trade Show in Louisville, Ky.
The following are Avondale’s assessment of “significant trends” in the industry in the wake of the show.
• 2008 RV year in review: It has been a rocky year for the RV industry and numerous industry shipment forecast revisions have been a testament to the further deterioration of this industry throughout 2008. RV motorhome and towable shipments have fallen 44% and 24.1%, respectively and are projected to hit 248,000 units by the end of 2008, a number last seen in 1995-1996 time frame.
This year’s weakness has been highlighted by dealer and RV manufacturer closures, and we estimate that 9.7% of industry market share has been closed or idled. Roughly 20%-30% motorhome capacity has been taken out of the market, and the general consensus is that another 20% likely needs to be taken out.
For towables, we estimate that 10% of towable industry capacity has been taken out over the past 12 months and at least another 10%-20% should be taken out given current shipment trends.
• RVIA show feedback: Show attendance was said to be down 40% from last year. Prospects for a recovery in 2009 remain dim, and the primary focus of the show was that of the status of retail and floorplan financing as these dollars are reigned in, particularly since September.
• Estimate changes: Following Fleetwood and Thor’s earnings releases over the past couple of weeks, we are adjusting our estimates for each company. For Fleetwood, we are lowering our Q3’08 EPS estimate from ($0.23) to ($0.67) and our FY’09 EPS estimate from ($1.17) to ($2.30). We are lowering our THO Q2’09 EPS estimate from $0.18 to ($0.02) and our FY’09 EPS estimate from $0.95 to $0.45.
• Avondale opinion: The key to the RV industry is to build a large cash base and maintain little to no leverage. At this point in time, it is challenging to recommend any RV related name given what we see as another tough year in 2009. With that in mind, we continue to believe that lighter weight, less expensive towable RVs will be the first segment to make a recovery, and as such, Drew Industries and Thor Industries are the best positioned from this perspective. Winnebago continues to sport a very clean balance sheet like Thor and Drew, and in our opinion, much of the bad news has been priced into this stock.
While we recognize that there is downside risk in the near-term to these companies, these stocks are nearing historical lows and when the economy shows any hint of potential stabilization, these stocks tend to move rapidly (witness THO’s 30%-40% run in early September).