Lightning Strikes For Thor Industries

Thor Industries Delivers Heavenly Results

Thor Industries (NYSE: THO) has been a leader in the RV industry since well before the pandemic began and it has only cemented its position in the time since. The Q3 results prove that pandemic tailwinds continue to blow for this company and have it set up for at least another year of record-setting results. The caveat is the outlook, while the outlook is still bright signs are emerging that indicate the industry is peaking. Not only did the RVIA lower its delivery forecast for the year but the company says it has begun to pull back on production of towable campers. The pullback is due to diminishing demand and dealer inventory levels which are back to historic norms. 

Thor Industries Smashes Through The Consensus Estimates

Thor Industries had a fantastic quarter and it could have been better if not for chassis constraints cutting into sales of motorized campers. The company reported $4.66 billion in net sales for a gain of 34.7% over last year. This is an impressive figure because sales surged 105% YOY last year (against an easy comp) and are up 85% versus 2019. The gains are driven by both organic sales and acquisitions made over the past two years but the company also says higher prices have a lot to do with the strength. In regards to the analyst consensus, the revenue beat by 1150 basis points. On a segment basis, North American Towables increased by 53%, North American Motorized increased by 35.8%, and both were offset by a 19% decline in the EU associated with chassis shortages and the war in Ukraine. 

Moving down to the income, the news gets even better. The company not only leaned into pricing efforts but was able to cut internal costs and offer fewer discounts. These activities widened the gross margin by 270 basis points and lowered SG&A by 70 to deliver very strong results on the bottom line. The GAAP EPS of $6.32 is not only up 92% from last year but beat by $1.52. Looking forward, the company did not give any guidance but the backlogs and demand for motorized vehicles suggest at least another 3 to 4 quarters of production at or near the current levels. The backlog is down versus last quarter and for the year but remains elevated at $13.88 billion. 

Thor Industries Hammers Down On Capital Returns 

Thor Industries has not only been working on the operations but its capital returns and balance sheet as well. The company paid down more than $265 million of its revolving loan since the end of the last quarter and reduced the balance to $1.22 billion. The company is still in net debt but cash is on the rise as well and leverage is very low leaving ample room in the cash flow for dividend payments and share repurchases. The company has a $250 million share repurchase plan in place and bought back about $40 million during the 3rd quarter leaving just over $190 million to be spent. As for dividends, the yield is a nice 2.26% with shares trading near $76 and they are cheap at this level. The company was trading at only 4.2X its earnings before the whopping outperformance and is still a very deep value now that prices are moving higher. 

The Technical Outlook: Thor Industries Correction May Finally Be Over 

The price action in Thor Industries has been in a correction since hitting a peak early in 2021. The peak was caused by an expectation COVID-19 tailwinds would dissipate quickly and they haven’t. While there is evidence the industry is peaking, the peak is at a record high and demand trends suggest a plateau in business and not a pullback. In that light, this stock is grossly undervalued at these levels and ready to rebound. The 17% short interest is aiding today’s pop. Assuming the market follows through on this move, we see the stock regaining the upper side of the $80 level fairly soon and then moving sideways until more news is available.