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Report: RV Demand Grows, Dealers Confident

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Consumers such as these at the Florida RV SuperShow in Tampa last month are buying RVs in high numbers.

Editor's Note: The investment firm of Robert W. Baird & Co. issued a client newsletter following this week's release of the quarterly financial results of Thor Industries Inc., a leading RV manufacturer. Excerpts from the Baird newsletter follow.

Solid quarter consistent with our outlook. Thor reported solid preliminary sales and a healthy order backlog. Big picture, retail demand continues to improve, driving strong orders from confident dealers. Although inventory is expanding, we consider it balanced in light of better retail. At the margin, we note relative strength in motorhomes and intense competitive pressure in towables. We remain optimistic about the recovery as negative equity evaporates, but would be selective on valuation.

Revenue upside. Preliminary sales for the January quarter improved 24% to $741 million, just shy of our $748 million forecast but above the $716 million consensus forecast. RV sales improved 27% to $636 million, slightly below our $648 million estimate.

  • Towables. Towable revenue improved 18% to $522 million versus our $518 million estimate.
  • Motorhomes. Motorhome sales improved 100% to $114 million versus our $130 million estimate.
  • Specialty vehicles. Bus sales improved 10% to $105 million versus our $99 million forecast.

Solid backlog. Total backlog improved 27%, to $822 million, slightly above our $793 million forecast. The RV backlog improved 49% to $617 million, significantly exceeding our $554 million estimate.

  • Towables. The towable backlog improved 25% to $375 million versus our $415 million estimate.
  • Motorhomes. The motorhome backlog jumped +114% to $241 million, well above our $138 million estimate.
  • Specialty vehicles. The bus backlog fell 12% to $205 million, well short of our $240 million estimate.

Strong early retail. Early RV shows have been promising, consistent with our view that consumers are spending in key discretionary categories as negative equity evaporates. Thor retail demand improved 7% in towables and 19% in motorhomes during the first month of the January quarter, according to industry data that likely will be revised higher.

Inventory remains top investor concern. Thor has been shipping more product to dealers in hopes of better retail results. Meanwhile, confident dealers are more than willing to oblige (the Baird Dealer Sentiment Index is near a record high). After a long destocking cycle that left the cupboards nearly bare, a recent restocking effect has inventory closer to balanced, in our view.

Cautious margin outlook. The towable market remains "very competitive" resulting in "elevated incentives," according to Chairman and CEO Peter Orthwein. We are lowering our F2013 EPS estimate to $2.80 from $2.83.

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