Thu Dec 6, 2018
Author: RV News Staff
Thor Industries Inc., today announces first-quarter 2019 results with net sales of $1.76 billion, down 21.3 percent from the record prior-year first quarter, and income before taxes of $31.5 million, a decrease of 83.2 percent. Net income and diluted earnings per share for the first quarter of fiscal 2019 were $14.0 million and $0.26, respectively. This compares to net income and diluted earnings per share in the prior-year first quarter of $128.4 million and $2.43, respectively.
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).
Thor reports its inventory rationalization process is proceeding as expected. The company 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.
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.
Thor incurred $14.5 million in costs related to the pending acquisition of EHG, comprised primarily of legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, rating agency fees and regulatory review costs.
“Our underlying markets remain healthy as consumer confidence is high, unemployment is low, and there is ample access to credit for RV buyers,” says Thor President and CEO Bob Martin. "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.”
Net sales decreased 21.0 percent for the towable segment, 23.9% percent for the motorized segment and 21.3 percent overall. Overall gross profit margins declined to 11.8 percent in the quarter, compared to 14.9 percent in the prior-year period, reflecting the impact of higher overall sales promotions and increased costs primarily associated with warranty expenses. Material costs also increased as a result of, directly or indirectly, the implementation of tariffs on many commodities and components utilized in the production of Thor's products, and increased pricing from some domestic suppliers in response to the tariffs.
Net income in the quarter was also adversely affected by an unusually high effective tax rate. The company’s first-quarter effective tax rate was 55.7 percent compared to a tax rate of 31.4 percent in the prior year because the $42.6 million non-cash, mark-to-market loss on the foreign currency forward contract is not deductible for income tax purposes. The company expects to return to a more normalized effective tax rate of 23 to 25 percent in its fiscal second half of 2019.
In an effort to continue balancing production to meet current levels of dealer demand, the company has taken a number of steps to adjust its production levels and benefit from its variable cost structure. Certain subsidiaries intend to take extended plant shutdowns during the upcoming holiday season which should result in reductions in finished goods inventory. As a result, the company expects production will be balanced with overall retail demand during the historically stronger second half of the fiscal year.
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,” Thor Executive Chairman Peter B. Orthwein says. "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.”