Auto maker Thor Industries (NYSE: THO) that has reported earnings for its fiscal 2020 second quarter before the opening bell on Monday. Over the last four quarters, the company has surpassed consensus EPS estimates two times but this wasn't the case with its latest earnings. Earnings have lagged Wall Street estimates and only exacerbated the effects of a broad-based market sell-off, causing shares to hammer.
Just one quarter ago, the RV maker surprised analysts by surpassing earnings of $1.23 per share by delivering $1.50. But this time round, Zacks Consensus estimate was $0.76 per share, Thomson Reuters analysts were even more sceptic as they had expected adjusted earrings of $0.70 per share and yet Thor managed to generate adjusted earnings per share of $0.67 in the quarter that ended on Jan. 31, up a bit from a year ago but short of Wall Street's expectations.
The news wasn't all bad, though. Revenues of $2 billion for the quarter ended January 2020, surpassed the Zacks Consensus Estimate by 11.83% and other Wall Street expectations of $1.82 billion. This compares to year-ago revenues of $1.29 billion. The company has topped consensus revenue estimates just once over the last four quarters.Moreover, sales in North America improved 5.9% year over year, driving gains to gross margins, while dealer inventories were successfully reduced 16.5% and reached healthy levels.
CEO Bob Martin is optimistic about this year's peak selling season, but only when putting aside the uncertainties created by the Coronavirus so not all is bright. Although the company was not forced to reduce or shut down production due to shortages of parts from the lockdown areas, investors should be aware that a virus-induced recession could still create a severe blow. But until now, the company hasn't yet seen any reductions in orders from dealers. Its shares have lost about 5.7% since the beginning of the year which is better than S&P 500's loss of 8%.
Things get worse if we look at the last 30 days during which they dived 37%. And even longer term holders were hit already last year as the stock lost 21% . So we admit, these do seem more like Marvel's Thor events – but "The Dark World" one…. Let's hope that this Thor can also have its superhero ending!
Industry And Competitors
Thor Industries's P/E is 16.40 and that is fairly close for the average for the auto industry, which is 16.4. So other than expecting it to move in line with industry trends, we must not forget that the recreational vehicle (RV) industry is extremely sensitive to overall strength of the economy, simply because buying an RV is a large discretionary purchase for the majority of customers.
The RV industry already took a massive hit during the 2008 recession but has recovered and even enjoyed exponential growth since then. It was helped by a strengthening economy and the fact this sort of lifestyle appealed to the millennials who are more into experiences than diamonds. Total RV shipments surged around 192% from 2009 to 2018 timeframe but this positive trend ended last year.
Things did appear to be a little encouraging as we headed into 2020 as we expected to witness a much lower year-over-year decline due to an improving U.S. economic growth and the easing of US-China trade wars. And both of the world's two largest economies were doing better in terms of business growth. And technologies such as solar technology used by Franchise Holdings International's Worksport (OTC: FNHI) that it incorporated in its tonneau covers for pickup trucks and similar patents can surely enhance this growth further as well as we move to a carbon free, automated and electric future.The question is- how much of a blow can the COVID-19 make, especially considering that the peak of pandemics is yet to come.
Meanwhile, Winnebago Industries Inc (NYSE: WGO) seems more than well-positioned to maintain its earnings-beat streak in its upcoming report as it recorded a strong streak of surpassing earnings estimates in its last two reports.
Thor Industries will surely continue to give us a lot of insight into the state of the consumer as their inventories tend to balloon when people are scared to death- and this is surely one of the effects of COVID-19. Thor's P/E ratio suggests that its shareholders believe that the company will perform about the same as other companies in its industry. But people often underestimate remarkable growth — so investors can make money when fast growth is not fully appreciated. RV sales have slowed, no arguing there but they are still quite strong.
The industry has a shot as millennials are willing to spend on experiences that RVs are able to deliver. So if the economy recovers quickly from this black swan event, RV sales can surely get a boost, thereby enhancing the performance of stocks within the industry. Moreover, people will surely be more inclined to travel at the comfort of their RV than pass through airports and train stations wearing masks and hoping for the best – as long as there's no need for cities being on lockdown. So here's to hoping that COVID19 won't continue being that brutal.
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