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Low Demand & High Expenses to Hurt Thor's (THO) Q4 Earnings

Zacks Equity Research

Thor Industries, Inc. THO is slated to report fiscal fourth-quarter 2019 results on Sep 30, before the opening bell.

In the fiscal third quarter, the company’s earnings and revenues missed the Zacks Consensus Estimate by 5.2% and 6.2%, respectively. Moreover, its bottom line declined almost 35% year over year due to soft sales, and ramped up promotions and discounts compared with the prior-year level. In fact, earnings lagged analysts’ expectations in each of the trailing five quarters. The trend is also likely to continue in the quarter to be reported.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings per share has moved 2.6% south over the past seven days to $1.48. This indicates a decrease of 11.4% from the year-ago earnings of $1.67 per share. Revenues are expected to be $2.34 billion, suggesting a 24.9% year-over-year improvement.

 

Thor Industries, Inc. Price and EPS Surprise

 

Thor Industries, Inc. Price and EPS Surprise

Thor Industries, Inc. price-eps-surprise | Thor Industries, Inc. Quote

Factors at Play

Softness in unit demand and lower margins are expected to significantly impact the company’s profitability in the fiscal fourth quarter. Thor has been experiencing softness in demand across segments. This is likely to hamper the upcoming quarterly results.

In particular, the North American business has been experiencing lower unit volume, which is expected to continue in the remainder of fiscal 2019. Consequently, this trend is likely to hurt the quarter to be reported.

The overall industry has been witnessing higher raw material, labor, freight and warranty costs. Continuous freight and labor cost pressure is a cause of concern for Thor, along with other industry participants like Skyline Champion Corp. SKY and Winnebago Industries, Inc. WGO.

The company’s margins have been under pressure due to the above-mentioned factors. Although it is gradually demonstrating an improvement, yet the negative impact of the aforementioned factors is expected to prevail in the to-be-reported quarter.

Nonetheless, the company’s acquisition of Germany-based notable RV manufacturer Erwin Hymer Group (“EHG”) within the European RV segment is expected to drive the top line in the quarter to be reported.

What the Zacks Model Says

Our proven model shows that Thor is not likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.59%. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #5 (Strong Sell).

Meanwhile, we caution against stocks with a Zacks Rank #4 (Sell) and 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock With Favorable Combination

Here is a stock in the Zacks Construction sector, which according to our model has the right combination of elements to post an earnings beat in the quarter to be reported.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +8.95% and a Zacks Rank #1.

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Skyline Corporation (SKY) : Free Stock Analysis Report
 
Winnebago Industries, Inc. (WGO) : Free Stock Analysis Report
 
Thor Industries, Inc. (THO) : Free Stock Analysis Report
 
M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
 
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