TOP CONTRIBUTORS

Jonathan Sheets

THO AT A GLANCE

P/E ► 97.6 HIGH EV/EBITDA ► 50.0 VERY HIGH ROA ► 1.8% AVG ROE ► 2.4% AVG Debt to Equity ► 0.349 LOW Current Ratio ► 3.27 HIGH Interest Coverage Ratio ► 45.6 VERY HIGH

 

 

 

 

 

 

Thor Industries (NYSE: THO) is the largest manufacturer of recreational vehicles by units sold and revenues in North America with 2007 revenues of $2.9 billion. The company manufactures travel trailers, park homes and motorhomes under the Airstream, Four Winds and other brand names. Thor also manufactures city and tourist buses under the El Dorado National, Goshen Coach and other brand names. The company manufactures and sells substantially all of its products in North America.^[1]

Despite the company's strong position in the recreational vehicles market, the 5.1% increase in the price of food during 2007 resulted in less disposable income for consumers and decreased sales for Thor.^[2] An increase in the price of gas from $2.36 per gallon to $3.07 per gallon during 2007 encouraged consumers to hold of on purchases of products that increase gas consumption like recreational vehicles.^[3] Also, a nearly $100 per ton increase in the price of steal during 2007 resulted in higher raw materials costs and decreased gross margin for Thor.^[4] Thor's reliance on a few key bus dealers puts the revenues of its Buses segment at risk. Thor's products compete against similar products manufactured by companies like Winnebago Industries (WGO), Coachmen Industries (COA) and Fleetwood Enterprises (FLE).

Business Segments

^[5]

Towable Recreational Vehicles

Towable Recreational Vehicles accounted for 66% of the company's 2007 total revenues. Towable Recreational Vehicles manufactures conventional and fifth wheel travel trailers as well as park models. Travel trailers are designed to be self contained living spaces for short periods of time, such as on road trips. Conventional travel trailers connect to a vehicles tow hitch while fifth wheel travel trailers are specialized models that attach to the bed of a pickup truck. Park models, on the other hand, are designed to be towed to a permanent location such as a park or lake and used as a vacation cabin.^[6] The segment sells it's products through authorized dealers under the Airstream, Dutchmen and other brand names.^[7] The company's Towable Recreational Vehicles compete with similar products manufactured by companies like Coachmen Industries (COA) and Fleetwood Enterprises (FLE).

Motorized Recreational Vehicles

Motorized Recreational Vehicles accounted for 20% of Thor's 2007 total revenues. Motorized Recreational Vehicles manufactures motorhomes based on truck chassis. Motorhomes are self contained living spaces with water tanks, sewage tanks, and electrical generators so that they don't need to be connected to utilities. Motorized Recreational Vehicles purchases chassis for its products from companies like Ford Motor Company (F), Workhorse Custom Chassis, and General Motors (GM).^[8] Thor sells its Motorized Recreational Vehicles through a network of authorized dealers under the Four Winds, Damon Motor Coach and other brand names.^[9] The company's Motorized Recreational Vehicles compete with similar products manufactured by companies like Winnebago Industries (WGO), Coachmen Industries (COA) and Fleetwood Enterprises (FLE).

Buses

Buses accounted for 14% of Thor's 2007 revenues. The Buses segment manufactures buses used for airport shuttles, urban transit buses and tourist buses. The company manufactures some of its own bus chassis and purchases others from Ford Motor Company (F), Freightliner, and General Motors (GM). Buses purchases all of its engines from companies like Cummins (CMI), Caterpillar (CAT) and John Deere.^[10] The company sells it's buses to customers through independent dealers under the El Dorado National, Champion Bus and Goshen Coach names.^[11]

Business Financials

Thor Total Revenues, Operating Income and Net Income^[12][13] ($ in millions)

Key Trends and Forces

^[14]

Rising raw materials costs compress Thor's gross margin

If the cost of purchasing raw materials increases, Thor's gross margin decreases. On the other hand if the cost of purchasing raw materials decreases, Thor's gross margin increases. Between January 2007 and December 2007 the price of hot rolled steel coil rose from $549 per metric ton to $630 per metric ton. During the same period the price of hot rolled steel plate rose from $747 per metric ton to $837 per metric ton.^[15] Thor attempts to pass increases in the price of raw materials on to its customers, but doing so often results in decreased sales. Partially as a result of increasing raw materials costs, Thor's gross margin decreased from 14.1% in 2006 to 12.7% in 2007.^[16]

Decreases in disposable income decrease Thor's sales

When consumers' disposable income decreases, Thor's sales decrease as consumers cut back on purchases of luxury and vacation items such as travel trailers and motor homes. On the other hand, when consumers have more disposable income their spending on vacation and luxury items increase along with Thor's sales. Between April 2007 and April 2008, the price of food rose 5.1% and some products such as milk increased by nearly 14%.^[17] As a result of the increase in food prices, consumers had less disposable income to spend on travel and luxury items. Partially as a result of the decrease in disposable income, sales of Thor's Towable Recreational Vehicles fell 13% in 2007.^[18] During the same period of time, sales of Thor's Motorized Recreational Vehicles fell 2%.^[19]

Oil Price per Barrel since 1997

High fuel prices decrease the demand for motorhomes and travel trailers

Motorhomes get only about 6 mpg to 10 mpg.^[20] Likewise, when consumers attach travel trailers to an automobile, that automobile becomes less fuel efficient because of the extra weight. When the price of fuel rises, consumers are less likely to purchase products that force them to use more gas. Between December 2006 and December 2007, the average national price of gasoline rose from $2.36 per gallon to $3.07 per gallon.^[21] Partially as a result of the increase in fuel prices sales of Thor's Towable Recreational Vehicles fell 13% in 2007.^[22] During the same period of time, sales of Thor's Motorized Recreational Vehicles fell 2%.^[23]

The loss of one of Thor's bus dealers would negatively affect Thor's Buses sales

Thor sold 34% of its buses through only 2 dealers in 2007. If either or both of those dealers were to stop carrying Thor's buses, Thor's Buses segment would find itself losing up to 34% of its revenues.^[24]

Key Competitors

• Winnebago Industries (WGO) manufactures motorhomes and similar vehicles for commercial sale and special uses (mobile law enforcement command centers, etc). The company's motorhomes compete with Thor's Motorized Recreational Vehicles.^[25]

• Coachmen Industries (COA) manufactures motorhomes as well as conventional and fifth wheel travel trailers. The company also manufactures prefabricated housing. The company's motorhomes compete with the Motorized Recreational Vehicles produced by Thor and its travel trailers compete with the Towable Recreational Vehicles produced by Thor. The company's prefabricated housing competes with the park homes manufactured by Thor.^[26]

• Fleetwood Enterprises (FLE) manufactures motorhomes, travel trailers, and prefabricated housing. The company's motorhomes compete with Thor's Motorized Recreational Vehicles and its travel trailers and prefabricated housing compete with Thor's Towable Recreational Vehicles.^[27]

Thor and Key Competitors 2007 ($ in millions)

References

1. ↑ THO 2007 10-K: General Development of Business, pg 1
2. ↑ Jump in food prices biggest in 18 years
3. ↑ U.S. All Grades All Formulations Retail Gasoline Prices (Cents per Gallon)
4. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
5. ↑ THO 2007 10-K: Product Line Sales and Segment Information, pg 3
6. ↑ THO 2007 10-K: Recreation Vehicles, pg 3
7. ↑ THO 2007 10-K: Recreation Vehicles, pg 1-2
8. ↑ THO 2007 10-K: Recreation Vehicles, pg 3
9. ↑ THO 2007 10-K: Recreation Vehicles, pg 1-2
10. ↑ THO 2007 10-K: Busses, pg 5-6
11. ↑ THO 2007 10-K: Busses, pg 2
12. ↑ THO 2007 10-K: Product Line Sales and Segment Information, pg 3
13. ↑ THO 2007 10-K: Consolidated Statements of Income, pg F-4
14. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
15. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
16. ↑ THO 2007 10-K: FISCAL 2007 VS. FISCAL 2006, pg 17
17. ↑ Jump in food prices biggest in 18 years
18. ↑ THO 2007 10-K: FISCAL 2007 VS. FISCAL 2006, pg 17
19. ↑ THO 2007 10-K: FISCAL 2007 VS. FISCAL 2006, pg 17
20. ↑ Classic Adventures RV Sales and Rentals
21. ↑ U.S. All Grades All Formulations Retail Gasoline Prices (Cents per Gallon)
22. ↑ THO 2007 10-K: FISCAL 2007 VS. FISCAL 2006, pg 17
23. ↑ THO 2007 10-K: FISCAL 2007 VS. FISCAL 2006, pg 17
24. ↑ THO 2007 10-K: Risk Factors, pg 9
25. ↑ Google Finance: WGO
26. ↑ Google Finance: COA
27. ↑ Google Finance: FLE