EHG Acquisition, Expansion Impact Thor 1Q

Thor Industries Inc., the world’s largest RV manufacturer, announced a 23.1% decline in net sales during its first quarter while net income fell to $14 million, or 26 cents per diluted share, from $128.4 million, or $2.43 per share, in the prior year quarter.

Revenue totaled $1.76 billion during the period compared with a record $2.2 billion a year ago, including a 21% decline for the Elkhart, Ind.-based company’s towable segment and 23.9% for the motorized segment.

Thor said that first-quarter fiscal 2019 financial results reflect the impact of continued progress in balancing production and market demand and transaction-related expenses related to the pending acquisition of Erwin Hymer Group (EHG). Details include:

  • Balancing Production and Demand: The dealer inventory rationalization process is proceeding as expected. During the quarter, Thor increased its promotional efforts to assist dealers in reducing inventory to better reflect current retail demand levels. Thor continues to adjust production to match current wholesale demand while positioning the company for long-term growth and shorter lead times with capacity expansions completed in fiscal 2018. Dealers have also remained disciplined with regard to inventory levels, which has resulted in the limited ability of manufacturers to pass along price increases.
  • Effects of Capacity Expansion: Following inventory constraints experienced in 2017, Thor strategically increased capacity in 2018 to alleviate the pressures of longer production lead times and meet expected long-term demand growth for the company’s products. Since the completion of a number of these expansion projects, dealers have taken steps to reduce their inventory, resulting in the company taking steps to balance production levels with current wholesale demand. Thor continues to review backlog for each product line in each production facility and adjust production levels accordingly.
  • Transaction Costs: Thor incurred $14.5 million in costs related to the pending acquisition of Erwin Hymer Group, comprised primarily of legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, rating agency fees and regulatory review costs. In aggregate, the acquisition-related costs for the foreign currency forward contract and transaction costs totaled approximately $57.1 million, or $1.02 per diluted share, in the fiscal first quarter.

“Our underlying markets remain healthy as consumer confidence is high, unemployment is low, and there is ample access to credit for RV buyers,” said Bob Martin, Thor president and CEO. “Our first quarter 2019 financial results reflect the return to normalized historical levels of first-quarter revenue following the unprecedented record first quarter of fiscal year 2018. As dealers continue to right-size inventory, we are taking advantage of our flexible production and variable cost model to align company production with demand, and I continue to be optimistic about Thor’s long-term growth potential and ability to generate value for our shareholders, especially with the pending strategic acquisition of EHG. Consumers are increasingly looking to spend time outdoors with family and friends, which we believe will translate to demand for our products.”

Towable RVs

  • Towable RV sales were $1.28 billion for the first quarter, down 21% from $1.62 billion in the prior-year period. This decrease was driven primarily by lower unit volume and increased levels of discounting further reducing net sales, which was partially offset by a mix shift toward higher-priced units.
  • Towable gross profit margin fell to 12% in the fiscal first quarter. Gross profit was adversely impacted by increased material cost as a percent of sales, primarily due to increased discounting levels, as well as increased warranty costs, resulting in lower gross margins overall.
  • Towable RV income before tax was $74.6 million, down 53.1% from $158.9 million in the first quarter last year. This decrease was driven primarily by the lower sales, increased levels of discounting and the resulting decrease in gross profit.
  • Towable RV backlog decreased $1.44 billion, or 58.5%, to $1.02 billion, compared to $2.46 billion at the end of the first quarter of fiscal 2018, reflecting the impact of capacity additions on improving delivery times, as well as dealer inventory levels that are generally sufficient for current levels of retail demand. The Company believes the current towable RV backlog represents a return to a normalized, pre-winter inventory level.

Motorized RVs

  • Motorized RV sales were $431.2 million for the first quarter, down 23.9% from $566.6 million in the prior-year period. The decrease in motorized sales was driven primarily by lower unit sales, partially offset by a mix shift toward higher priced product.
  • Motorized gross profit margin fell to 10.3% in the fiscal first quarter as a result of reduced sales levels and increased warranty costs as a percent of sales for the quarter.
  • Motorized RV income before tax was $21.7 million, down 42.2% from $37.6 million last year, driven primarily by the decrease in gross margin as well as lower sales levels.
  • Motorized RV backlog decreased $383.5 million, or 34.1%, to $740.2 million from $1.12 billion a year earlier, reflecting the impact of capacity additions on improving delivery times. The Company believes the current motorized RV backlog is continuing to return to a normalized, pre-winter level.


Looking ahead, Thor’s management team and board remain focused on the long-term and are optimistic about global growth opportunities.

“We remain confident in both the short- and long-term fundamentals driving the RV industry. The combination of strong economic indicators, especially consumer confidence, an influx of new consumers entering the RV industry, and the consistent growth in demand for outdoor experiences and products provide the ideal environment for Thor Industries to grow and maximize value for all stakeholders,” said Peter B. Orthwein, Thor executive chairman.

“We are also excited to soon be completing our purchase of EHG, which will open new markets for us, and will make Thor Industries the largest global RV manufacturer. Our Company and management team have demonstrated that we have the ability to successfully integrate and manage large acquisitions by relying on our operational excellence and prudent financial management, and we are looking forward to working together with the EHG team to expand our leadership worldwide,” added Orthwein.

To view the full report click here.


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