Thor (THO) Stock Up 16% On Q4 Earnings Beat, Revenues Miss

Thor Industries, Inc. (NYSE:THO) reported fourth-quarter fiscal 2019 results (ended Jul 31, 2019), wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.Following the quarterly results, shares of the company jumped 15.8% on Sep 30, 2019.

In the quarter under review, adjusted earnings came in at $1.7 per share, beating the consensus estimate of $1.48 by 14.9%. Net sales totaled $2.31 billion, which fell short of the consensus mark of $2.34 billion by 1.3%.

On year-over-year basis, both adjusted earnings and revenues increased 1.8% and 23.3%, respectively. The quarterly results were mainly driven by solid European RV segment, partially offset by a decline in North American Towable RV and Motorized RV sales.

Thor Industries, Inc. Price, Consensus and EPS Surprise

Operating Results

During the quarter, gross margin of 14.4% expanded 140 basis points (bps) from the year-ago level. The uptick can be primarily attributed to favorable product mix, and improvements in material, labor and warranty cost in the North American towable segment.

Segmental Results

North American Towable RVs’ sales fell 17.7% year over year to $1.16 billion. The decline was due to lower unit volume. However, the segment’s gross margin increased 260 bps to 16% from a year ago level backed by low overhead and warranty costs.

As of Sep 30, 2019, backlog in the segment decreased 9.6% to $693.2 million from $767 million reported at the end of fourth-quarter fiscal 2018. The downturn was a result of independent dealers continuing to rationalize inventory levels in accordance with dealer order patterns.

North American Motorized RVs’ sales declined 8% year over year to $387.4 million due to lower unit sales and mix shift toward lower-priced Class C motorhomes. Gross margin also contracted 50 bps to 9.6% on a year-over-year basis owing to lower sales and reduced fixed overhead absorption during the quarter under review.

Backlog in the segment declined to $458.8 million from $634.1 million recorded a year earlier due to above-mentioned headwinds.

The European RVs segment’s sales were $719.5 million, inclusive of benefits from the EHG acquisition. The segment’s backlog was $852.7 million as of Jul 31, 2019, reflecting current demand levels within the European market.

Financial Position

As of Jul 31, 2019, Thor had cash and cash equivalents of $451.3 million, up from $275.2 million on Jul 31, 2018. The company had a long-term debt of $1.89 billion at the end of the fiscal fourth quarter.

Net cash provided by operating activities were $508 million during the fiscal 2019 compared with $467 million a year ago.

Fiscal 2019 Highlights

In fiscal 2019, the company reported earnings of $2.47 per share, comparatively lower the year-ago level of $8.14. Revenues of $7.86 billion, which includes sale costs of EHG acquisition, also declined 5.6% from $8.33 billion recorded a year ago.

Fiscal 2020 Guidance

Thor is optimistic as it looks ahead to fiscal 2020 and believes to leverage on the continued integration and growth opportunities of EHG. It also remains focused on working capital management, improving net cash by operating activities and reducing the net debt level.

For fiscal 2020, the company expects strong top-line growth, given strong EHG contribution. However, it projects flat to modest decline in the North American markets in the near term due to dealer inventory adjustment.

Zacks Rank & Stocks to Consider

Currently, Thor carries a Zacks Rank #4 (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) . While Arcosa and Construction carry a Zacks Rank #2 (Buy), TopBuild carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arcosa and TopBuild have an impressive long-term earnings growth rate of 12.2% and 28%, respectively.

Construction Partners surpassed the Zacks Consensus Estimates in three of the trailing four quarters, the average beat being 9.2%.

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