Thor Industries Inc. today (June 10) announced third-quarter results with record net sales of $2.51 billion, compared with the previous sales record posted in the third quarter of the prior year. Current year third-quarter revenue includes sales of Erwin Hymer Group (EHG) since the date of acquisition on Feb. 1.
According to a release, third-quarter sales increased 11.3%, as the inclusion of $767.5 million in revenue from the European RV segment was partially offset by a 23.1% decrease in North American towable RV sales and a 23.3% decrease in North American motorized RV sales.
Net income attributable to Thor and diluted earnings per share for the third quarter were $32.7 million and 59 cents, respectively. Third-quarter results include acquisition-related costs and purchase accounting adjustments related to the EHG acquisition, which total $74.8 million, or $1.06 per diluted share. In addition, ongoing amortization expense and interest expense were incurred as a result of the acquisition which also impacted the third-quarter results.
Thor reported that to date it has paid approximately $255 million of principal on the debt incurred to finance the EHG acquisition, including paying down all $100 million outstanding on its asset-based credit facility (ABL) and approximately $155 million of its term loan.
“EHG made a significant contribution to our top-line results for the quarter, and as we move through some of the transitional costs, we look forward to EHG’s meaningful contribution to our bottom line as well,” said Bob Martin, Thor president and CEO. “This transformational acquisition is a critical first step in our long-term strategic plan to expand outside of the North American market. Beyond the acquisition, we have seen improvements in the operating results of our North American segments, reflecting a more stable environment as we finish the fiscal year.”
Third-quarter financial results also reflect the impact of the ongoing North American independent dealer inventory rationalization, as dealers continued to reduce inventory levels to better match ongoing retail demand for RVs in North America.
Thor noted that as a result of the acquisition of EHG, the company has expanded its reporting segments to include a European RV segment, which consists solely of the operations of the recently acquired EHG business. This new segment complements the company’s North American towable RV and North American motorized RV reporting segments.
The North American independent dealer inventory reduction process continued during the third quarter, as industry wholesale shipments declined at a double-digit percentage compared with a single-digit decrease in retail registrations through the end of March 2019. As a result of the lower wholesale shipments relative to retail demand, Thor’s North American independent dealer inventory levels decreased by 20.3% to approximately 132,500 units, compared to approximately 166,200 units as of April 30, 2018.
Overall gross profit margin was 11.7% in the quarter, compared to 14.1% in the prior-year period, primarily reflecting the $61.4 million impact on the European RV segment gross profit as a result of the acquired inventory, which was subsequently sold during the quarter, being stepped up under purchase accounting, as well as the impact of lower North American sales levels and higher relative sales discounts and promotions compared with unusually low levels in the prior year. North American overhead costs increased as a percentage of sales due to lower fixed cost absorption over the reduced net sales in the quarter.
The company’s third-quarter effective tax rate was 24.3% compared to a tax rate of 25.9% in the prior year due to favorable impacts of certain foreign rate differences resulting from the acquisition of EHG. Thor expects an effective rate that approximates the company’s combined federal and state statutory rates of between 21% and 23% for the remainder of fiscal 2019, before consideration of any discrete tax items.
As North American independent dealers continue to rationalize inventory levels following the unusually high seasonal order and wholesale delivery patterns in the first nine months of fiscal 2018, the company has taken steps to adjust its North American production levels accordingly. A number of Thor’s North American production facilities have reduced their production unit rates, while others have shifted to four-day production weeks, with the option of taking extended holiday shutdowns in the fiscal fourth quarter. Finished goods inventory levels were higher at April 30, 2019 than at July 31, 2018, due to the inclusion of finished goods inventory at EHG, which was acquired at the beginning of the third quarter.
North American Towable RVs
North American towable RV sales were $1.24 billion for the third quarter, compared to the record third-quarter sales of $1.61 billion in the prior-year period. This decrease was driven primarily by lower unit volume compared with the record third-quarter unit sales last year, but was partially offset by a shift in product mix toward higher-priced units.
Gross profit margin fell 30 basis points in the segment to 14.5% in the fiscal third quarter, with the increase in the overhead cost percentage from the sales decrease being partially offset by improved material, labor and warranty costs as a percent of sales.
Income before tax for the segment was $103.7 million, compared to $147.9 million in the third quarter last year. This decrease was driven primarily by lower unit sales, increased relative levels of discounting compared to the unusually low levels the prior year which resulted in a decrease in gross profit, as well as lower absorption of fixed SG&A costs.
Towable RV backlog decreased $408.8 million to $896 million, compared to $1.3 billion at the end of the third quarter of fiscal 2018, reflecting the positive impact of capacity additions, improved delivery times and independent dealers continuing to rationalize inventory levels. Thor believes the current towable RV backlog is returning to a normalized level and is reflective of dealer trends toward smaller, but more frequent, order patterns.
North American Motorized RVs
North American motorized RV sales were $459.2 million for the third quarter compared to the record third-quarter sales level of $598.5 million in the prior-year period. The decrease in motorized sales was driven primarily by lower unit sales compared to the record third-quarter unit sales last year, partially offset by a mix shift toward higher-priced product.
North American motorized RV gross profit margin fell 50 basis points to 10.3% in the fiscal third quarter primarily due to reduced unit sales levels and reduced fixed overhead absorption for the quarter.
RV income before tax was $25.2 million, compared to $38.9 million last year, driven primarily by the lower unit sales levels, the decrease in gross profit and lower absorption of fixed SG&A costs.
Thor’s motorized RV backlog decreased $184.6 million to $513.7 million from $698.3 million a year earlier, reflecting the positive impact of capacity additions, improved delivery times and independent dealers continuing to rationalize inventory levels. The Ccmpany believes the current motorized RV backlog is returning to a normalized level and is reflective of the shift in dealer order patterns to smaller and more frequent orders.
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