Thor Industries, a consolidation story
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is worth noting stocks that have shrugged off the selling spree of late, forging ahead behind solid sales and earnings growth. Thor Industries (NYSE: THO) the maker of recreational vehicles and mid-sized buses has done as such. Signs point to strength ahead, as well, given the recent preliminary announcement of a 30% sales gain in the October quarter, an acceleration from the 15% July-period increase. Thus, the likelihood of a favorable profit showing is very good when the company reports in early December.
Just to illustrate how THO shares have performed relative to the broader market, an investment on September 5, 2012 would have already provided a 36% capital advance. The Dow Jones Industrial Average, meantime, was down 2% over the timeframe. Plus, THO shares yield about 1.7% on an annual basis, as the board has lifted the quarterly payout to $0.18 a share. THO, along with other so-called recreational vehicle manufacturer counterparts, namely Winnebago Industries (NYSE: WGO) and Polaris Industries (NYSE: PII) would be nice additions to a watchlist. They are benefiting from economic conditions that are conducive to growth and possibly from an aging population. Thor, in particular, is chosen in light of management's focus on growth through asset purchases, highlighted by the September, 2010 purchase of Towable Holdings, owner of HeartLand RV, allowing it to become the world's largest maker of towable RV's.
Brought to life as Airstream (an existing brand) in 1980, Thor was built by way of buyouts. Shortly thereafter, it acquired Canadian firm, General Coach. It then entered the bus sector with the purchases of ElDorado Bus in 1988 and National Coach in 1991. Champion bus came on board in 1998, followed by Goshen Coach in 2005. Given its history, it appears management will look to capitalize on buyout opportunities as it moves forward. For one, a small luxury bus-related acquisition was completed in October: Krystal Infinity. Keep in mind that sizable consolidation activities can squeeze margins and potentially lead to cost overruns.
The consolidation strategy may well remain intact, and pave the way for Thor to boost unit sales as it also benefits from a burgeoning demand climate. In fiscal 2012 (ended in July), 7.4% more motorized homes were sold by Thor than in the prior year, allowing motorized home sales to climb 12.8% to around $2.64 billion (Thor's overall 2012 revenues equaled $3.1 billion and share net tallied $2.26. Assuming steady economic conditions, the recent acceleration of the sales uptick is apt to support profit growth going forward.
A discussion of Thor's offerings should entail the definition of a "travel trailer": A unit designed to be towed by a car, van or pickup by means of a bumper or frame hitch, providing all the comforts of home and is perfectly adaptable for weekend getaways, family vacations, and full-timing. A "fifth wheel" is designed to be towed by a pickup truck and is constructed with a raised forward section. Next, "park models" are recreational dwellings towed to a permanent site such as a lake wood or park, and are thus targeted at campers. These are all in addition to Class A, C, and B motor-homes. Motorized recreational vehicle sales retreated modestly last fiscal year. On the bus front, the Krystal integration, expected to be accretive to the top line by about $30 million, will complement is core products and a competitively low-priced business.
The Bottom Line
The Street seems to have partially priced in the preliminary 30% sales upturn, and prospective investors ought to review the upcoming earnings presentation when management will provide more clarity, and thus ease investor decisions. Without any negative surprises, some further upside may well remain, given Thor's healthy backlog and potential benefits of acquisitions.
dctotal has no positions in the stocks mentioned above. The Motley Fool owns shares of Polaris Industries and Winnebago Industries. Motley Fool newsletter services recommend Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.