The following is an analysis of Thor Industries Inc. appearing on Seeking Alpha, a website offering stock market opinions and financial advice. To read the entire blog click here.
Thor Industries Inc. is the leading producer of recreation vehicles in America. It operates in three main segments: towables (fifth-wheels and trailers) motorized vehicles (traditional RVs) and buses (airports, hotels). For those markets they have market shares of 39%, 22%, 38% as of September 2011. Their revenue for 2011 was $2.75B and their market cap is currently $1.4B.
Before beginning on the company itself it’s worth understanding the RV/towable industry quickly as this accounts for approximately 85% of the company’s sales. The industry peaked in around 2006 shipping almost 400,000 units in America and Canada. The industry was in a bubble for the same reasons the housing market was in a bubble and crashed in a similar manner with industry sales falling to 165,000 within three years. Earnings collapsed for most companies: EPS for Thor went from $1.67 in 2008 to $0.31 in 2009. However, Thor was lucky as many companies went under leaving the industry with fewer competitors. This has led to gain of market share by the other companies including Thor.
Additionally there are a few other industry wide catalysts. First, RVs remain a very economic alternative for many vacations. As long as this continues, the industry will as well. Second, and more importantly, the demographics are favorable for the industry. Currently, the 35-54 year-olds own the most RVs; however, the group that owns most RVs as a percentage of the group is the 55-65 year-old group. With the baby boomers aging, the 55-65 year old age bracket is expected to increase 45% over the next ten years, as opposed to overall population growth of 8%. The industry has been doing well: volume rebounded almost 50% in 2010, and shipments are currently up 8.6% for 2012 yoy.
Overall, the industry is seeing a major shift in products. People are generally looking for smaller RVs: huge rolling palaces are seeing a major decline while fifth wheels have become much more fashionable. Additionally, buyers are looking for more fuel efficient models whether as an upgrade or as a new vehicle.
These industry shifts overall are a positive for Thor. Towables make over 80% of RV revenue and almost 70% of company revenue. The move to more fuel efficient and smaller units fits with Thor’s strategy. Additionally, Thor has been able to capture a larger percentage of the market due to the exit of competitors. Market share in the RV market jumped from 29.4% in 2009 to 38.6% in 2010. It fell to 37.9% in 2011. The company has slightly been losing market share over the past year, as industry shipments have increased slightly more than the company’s towable shipments. Their net sales improved at a faster pace as they were also able to increase the price of their offerings. These numbers are deceiving though: they have achieved these higher sales through discounting and more advertising; in particular they do not include the effect of discounting in their net sales. This has resulted in gross profit only growing 4.8% 9 months YOY. They have, however, been able to reduce corporate costs in SG&A, allowing them to grow their net income at around 10% YOY.
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