Thor Industries (THO) reported quarterly earnings last Wednesday. The company’s $975 million in revenue handily beat the $909 million expected; Thor delivered an earnings beat as well. THO has rallied over 8% since the report was released. I thought the quarter was not as positive as it appeared. Below is my take:
Revenue Has Peaked
While revenue trumped expectations, those expectations may have been a low bar. They had nearly a 12% sequential decline baked into. Actual were results were off 5% sequentially — nothing to write home about:
Both total revenue and product sales were off 5% sequentially. Top line growth had been aided by acquisitions. However, the company did not complete any deals since the last quarter and revenue suffered. Towable RV sales fell 6%, while motorized RV sales were off 3%.
Towables make up nearly three-quarters of total product sales. More alarming is that unit volume for towables fell 8% sequentially, while motorized RV unit volume was off by 2%. Furthermore, I do not see the trend reversing. Thor’s organic growth might be nil and the one catalyst could be continued acquisitions to drive the top line. Are you willing to bet on that?
The Economy Won’t Help Matters
Now that the Fed has ended its quantitative easing program, I believe the U.S. economy is headed for a fall. Even with QE most of the gains have gone to big business and the investor class, bypassing the majority of the country. While the President has trumpeted the recent jobs reports which exceeded expectations. The growth in low-paying service jobs at the expense of higher-paying manufacturing jobs is also a concern. Service jobs can be easily cut if things turn down — this is what I anticipate. Secondly, average hourly wages fell 1%, which is the red herring in the jobs euphoria.
Most of the happy talk about how great the economy has come from the mainstream media. Consumer sentiment, down nearly 4% Y/Y, tells a different story. If consumers batten down the hatches it would not bode well for Thor or other cyclical names.
