Thor (THO) To Report Q2 Earnings: What's In The Offing?

Thor Industries, Inc. (NYSE:THO) is scheduled to report fiscal second-quarter 2019 results on Mar 6, 2019. In the last reported quarter, the company’s earnings came in at $1.28 per share, missing the Zacks Consensus Estimate of $1.52 by 15.8%.

Total revenues of $1,756 million also missed the consensus estimate by 6.1%. Additionally, the stock lagged the Zacks Consensus Estimate on earnings in three of the trailing four quarters, resulting in average negative surprise of 7.1%.

The company’s fiscal first-quarter adjusted earnings decreased from $2.43 per share recorded a year ago. The top line also slumped 21.3% year over year, mainly due to lower revenues across its segments, given softness in demand.

How Are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported has declined 4.3% over the past 30 days to 88 cents per share. Also, this reflects a decrease of 54.2% from the year-ago earnings of $1.92 per share. Revenues are expected to be $1.48 billion, down 24.9% year over year.

Factors at Play

Softness in demand and lower margins are expected to significantly impact the company’s top and bottom lines in the fiscal second quarter.

Thor has been experiencing softness in demand across segments. Lower shipments and increase in overall net price per unit, due to changes in product mix and price, added to the woes.

At the end of the fiscal first quarter, Thor’s RV backlog decreased 50.9% from the prior-year period. During the fiscal first quarter, deliveries of total RV shipments declined 26.7% from the prior-year level. The downside was attributable to higher overall net price per unit due to changes in product mix and price.

Meanwhile, Thor has been witnessing higher raw material, labor, freight and warranty costs over the last few quarters. Its margins are also declining significantly due to the above-mentioned factors.

During the fiscal first quarter, gross margins of 11.8% contracted 310 basis points, primarily as a result of increased material cost due to higher discounting levels and warranty costs. The recent implementation of tariffs on various commodities and components, which are relevant to Thor's products, has negatively impacted the margins of the company. Due to these tariffs, some domestic suppliers have also raised the prices of many commodities.

Continuous freight and labor cost pressure are causes of concern for Thor, which shares space with Skyline Champion Corp. (NYSE:SKY) , Winnebago Industries, Inc. (NYSE:WGO) and Cavco Industries, Inc. (NASDAQ:CVCO) in the Zacks Building Products - Mobile Homes And RV Builders industry.

What the Zacks Model Says

Our proven model shows that Thor is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +2.27%. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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