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Thor (THO) Stock Down More Than 5% Despite Q1 Earnings Beat

Zacks Equity Research

Thor Industries, Inc.’s THO shares fell more than 5% on Dec 9, after the company reported first-quarter fiscal 2020 (ended Oct 31, 2019) results, wherein earnings topped analysts’ expectation but net sales missed the same.

It reported adjusted earnings of $1.50 per share, surpassing the Zacks Consensus Estimate of $1.23 by 22%. Net sales of $2.159 billion, however, lagged the consensus mark of $2.195 billion by 1.6%.

On a year-over-year basis, the top and bottom lines increased 22.9% and 17.2%, respectively. The improvement was mainly backed by solid European RV segment, partially offset by softness in the North American market.

Thor Industries, Inc. Price, Consensus and EPS Surprise

Thor Industries, Inc. Price, Consensus and EPS Surprise

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

Gross margin came in at 14.3%, which improved 250 basis points (bps) from the year-ago level. This was mainly driven by favorable overall product mix, and reductions in material, labor and warranty cost percentages in the North American RV segment.

Segmental Results

Post the acquisition of EHG, the company expanded the number of reporting segments to three: North American Towable RVs, North American Motorized RVs and European RVs.

North American Towable RVs’ sales fell 6.3% year over year to $1.20 billion. The fall was due to lower unit shipment volume, as independent dealers continued to reduce inventory levels, partially offset by a shift in product mix toward higher-priced units.

The segment’s gross margin rose an impressive 330 bps to 15.3% from a year ago, driven by various cost-saving initiatives and a shift in mix toward higher-margin units.

At the end of the fiscal first quarter, backlog in the segment totaled $1.07 billion compared with $1.02 billion reported a year ago. The company believes that the current backlog is returning to a normalized level, which reflects dealer trends toward smaller but more frequent order patterns.

Sales in the North American Motorized RVs fell 3.5% year over year to $415.9 million due to a shift in product mix toward lower-priced products. Nonetheless, gross margin improved 50 bps to 10.8% on a year-over-year basis owing to the above-mentioned tailwinds.

Backlog in the segment declined to $670 million from $740.2 million recorded a year earlier.

The European RVs segment’s sales were $493 million during the quarter. The first quarter represented the slowest quarter in EHG history due to the annual European holiday shutdown period in August that led consumers to purchase units in advance. Gross margin in the segment totaled 13.1%, which was negatively impacted by reduced fixed cost absorption from seasonally lower first-quarter sales level.

The segment’s backlog was $1.29 billion as of Oct 31, 2019, reflecting its current demand level within the European market.

Financial Position

As of Oct 31, 2019, Thor had cash and cash equivalents of $270.5 million, down from $451.3 million on Jul 31, 2019. The company had a long-term debt of $1.78 billion at the end of the fiscal first quarter.

Guidance

Thor is optimistic about fiscal 2020 and believes that it can leverage on continued integration and growth opportunities of EHG. It remains focused on working capital management, improving net cash by operating activities and reducing the net debt level.

For fiscal 2020, the company projects flat to modest decline in North American markets but modest growth in the European retail market, similar to fiscal 2019.

During the Investor Day in Germany, Thor laid down certain long-term financial goals. The company expects to achieve $14 billion in annual net sales, 16% gross margins and more than $3 billion of cumulative net cash from operations by the end of fiscal 2025.

Zacks Rank & Stocks to Consider

Thor currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector include M/I Homes, Inc. MHO, Meritage Homes Corporation MTH and PulteGroup, Inc. PHM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

M/I Homes, Meritage Homes and PulteGroup have a solid earnings surprise history, having surpassed the consensus mark in all the trailing four quarters, with the average being 16.2%, 19.2%, and 10.2%, respectively.

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