Friday, August 29, 2008

Thor Industries: Strength From Weakness

Seeking Alpha - New York,NY,USA
Having praised Thor's management, I must note that the bottom is falling out of the recreational trailer and motor home business. Predictably, high fuel prices, the credit contraction, and decreased consumer spending entering a recession-like period are hitting sales. Prices of raw materials have also increased, putting pressure on margins. Sales in the latest quarter ending April 30 declined 10.3 percent from the same period last year, with net income decreasing to $0.50 per share from $0.64 in the same quarter, 2007. The largest decline for Thor was the motor home sector, with revenue decreasing 24.2 percent and operating income falling 53 percent. In Thor's primary business of travel trailers, sales fell 8.4 percent and net income dropped 12.6 percent. Backlog fell 26.8 percent for both businesses to $276M. A strong point is the bus business in which revenue increased 1 percent and backlog grew 16.2 percent versus the same quarter last year.

Fuel prices are likely the greatest challenge to Thor. Motor homes often get around 4 mpg and have 100 gallon tanks. Do the math and the future looks grim for the motor home. Fortunately, Thor specializes in the more efficient trailers that are pulled by trucks and SUVs that get 8 mpg or better. A growing retiree demographic that is more fuel conscience but still wants to travel equals an opportunity for Thor to gain market share from debt-ridden motor home manufacturers like Fleetwood. In the short term, the lack of available credit should hinder sales. GE Finance recently terminated a partnership with Thor to provide loans for customers; combined with the general credit contraction, this results in a greater difficulty in obtaining financing.
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