Thor (THO) Q3 Earnings & Revenues Lag Estimates, Margins Low

Thor Industries, Inc. (NYSE:THO) reported third-quarter fiscal 2019 (ended Apr 30, 2019) results, wherein earnings and revenues missed the respective Zacks Consensus Estimate.

The company reported adjusted earnings of $1.65 per share, missing the consensus estimate of $1.74 by 5.2%. Revenues of $2.51 billion also lagged the consensus mark of $2.67 billion by 6.2%. The quarterly results were significantly affected by costs associated with acquisitions, purchase accounting adjustments, and amortization and interest expenses.

Adjusted earnings declined significantly from $2.53 per share reported in the prior-year quarter. The reported revenues, however, increased 11.3% from the year-ago quarter. The top-line improvement was mainly backed by the acquisition of Erwin Hymer Group (“EHG”), which was completed in the beginning of the quarter, and strength of the European RV segment that contributed $767.5 million to net sales.

Thor Industries, Inc. Price, Consensus and EPS Surprise

During the quarter, gross margin of 11.7% contracted 240 basis points (bps) from the year-ago level. This was mainly due to softness in the European RV segment, lower North American sales, and relatively higher sales discounts and promotions compared with the prior year.

Segmental Results

Post the acquisition of EHG, the company expanded the reporting segments to three: North American Towable RVs, North American Motorized RVs and European RVs.

North American Towable RVs segment sales fell 23% year over year to $1.24 billion. The slump was due to lower unit volume. The segment’s gross margin also decreased 30 bps to 14.5% from a year ago due to increased overhead cost.

As of Apr 30, 2019, backlog in the segment decreased to $896.0 million from $1.30 billion reported at the end of third-quarter fiscal 2018. The company believes that the current backlog is returning to a normalized level, which reflects dealer trends toward smaller, but more frequent order patterns.

North American Motorized RVs’ sales declined 23.3% year over year to $459.2 million due to lower unit sales. Gross margin declined 50 bps on a year-over-year basis owing to lower sales and reduced fixed overhead absorption during the quarter.

Backlog in the segment declined to $513.7 million from $698.3 million recorded a year earlier. The decline was a result of improved delivery times and independent dealers, in turn aiding it to progress toward rational normalized inventory level, in accordance with dealer order patterns.

The European RVs segment’s sales were $767.5 million during the quarter, inclusive of benefits from the EHG acquisition. The segment’s backlog was $687.4 million as of Apr 30, 2019, reflecting current demand levels within the European market.

Financial Position

As of Apr 30, 2019, Thor had cash and cash equivalents of $486.9 million, up from $275.2 million on Jul 31, 2018. The company had a long-term debt of $2.2 billion at the end of the fiscal third quarter.

Zacks Rank & Stocks to Consider

Thor currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the Zacks Construction sector include Arcosa, Inc. (NYSE:ACA) , Construction Partners, Inc. (NASDAQ:ROAD) and TopBuild Corp. (NYSE:BLD) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arcosa, Construction Partners and TopBuild have a three-five year earnings growth rate of 12.6%, 10%, and 28%, respectively.

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