Editor’s Note: Robert W. Baird & Co. issued a client newsletter to investors following Thor’s second-quarter financial report. The following offers a summary of the results.

Sentiment improving as early spring emerges. Thor results were slightly ahead of expectations as lower costs offset weaker gross margins (discounting). Retail sales are off to a good start this year as a mild winter and an improving economic outlook help demand – but it is still early. Thor is positioned to take market share and dealer inventory is healthy as sentiment improves.

EPS ahead of expectations. Thor’s 2Q EPS topped our estimate ($0.25 vs. $0.24) and the $0.24 consensus forecast. Relative to our model, Thor delivered lower operating expenses, weaker gross margins and a higher tax rate.

Sentiment and sales improving. Management noted “strong” retail activity in the first two months of the year. This is consistent with our recent dealer survey as well as checks in other discretionary categories (cars, motorcycles), which have revealed an early jump in sales. It is clear that the mild winter is stimulating some early consumer interest, but improving economic trends are likely contributing as well. Notably, the RVIA’s 2012 industry shipment forecast was recently raised to +5% from -2% — a further sign of improving sentiment.

Outlook. Thor’s leaner cost structure is paying dividends and consumer confidence has improved from recent lows, stimulating renewed interest in RVs. Higher gas prices remain a risk – but we are growing more optimistic heading into the critical selling season.

This summary of a Baird research report is not intended as investment advice. To participate in Baird surveys and receive research reports, contact Craig R. Kennison, CFA, at [email protected]