Thor Industries, Inc. announced results today for the third quarter of fiscal 2020, which ended April 30, showing the effects of the coronavirus pandemic on net sales and income.
“Despite this being one of the most unusual quarters I have ever experienced, I am pleased to report that we were profitable and generated positive net cash from operations,” said President and CEO Bob Martin. “Our financial position has remained strong as a result of numerous management-led actions that were executed quickly in conjunction with our temporary plant shut-downs in mid-March. Our results are the product of both the highly variable cost structure we have created and our ability to quickly align our production and cost structure to meet fast-changing market conditions.”
The company attributed the decrease in year over year financial results for its three segments this quarter to the economic impact of COVID-19. The pandemic had a negative effect on Thor’s operations, as workplaces across the country shut down for weeks, but Martin said he is proud of how Thor leaders responded to the situation.
“I would like to thank the team members at Thor Industries and all of our subsidiaries for their incredible dedication and commitment to Thor and for their contributions to our results during this highly uncertain period,” Martin said.
Included below is Thor Industries’ full fiscal report for Q3 2020.
COVID-19 Impact
COVID-19 and the related governmental mandates implemented to slow its spread in North America and Europe had a significant negative impact on the Company’s results of operations for the third quarter of fiscal 2020. Consolidated net sales, gross profit, North American and European wholesale shipments and retail sales were all negatively affected during the quarter.
For nearly half of the quarter, retail consumers were under strict shelter-in-place requirements in most North American and European locations, limiting their ability to buy the Company’s products from our independent dealers. The operations of the Company’s independent dealers were likewise disrupted as many of them were required to close their showrooms. Due to these dealer closures, sales and shipments of our products were disrupted in the second half of March and April, two of our normally strongest sales and shipment months. Sales and backlog for May, the first month of our fourth fiscal quarter, improved on a weekly basis as dealers began to reopen their dealerships and consumer demand increase.
During the quarter, the Company initiated numerous actions to actively manage both our costs and liquidity in response to the initial extreme uncertainty created by the pandemic. In mid-March, the Company temporarily suspended production at all of its North American RV production facilities and temporarily suspended a substantial portion of its European RV production. Beginning in March and throughout the remainder of the third quarter, the Company furloughed or laid off a number of valuable team members, primarily in our U.S.-based operations, and many employees across the Company saw a reduction in their cash compensation. In addition, the Company also significantly reduced its discretionary spend and curtailed spending on most capital projects. Due to the high degree of uncertainty that existed initially related to the impact or duration of the various governmental shut-downs, and out of an abundance of caution, the Company drew $250 million against its asset-based line of credit in late March to enhance its liquidity position. In late May, the Company repaid this borrowing.
Third-Quarter Financial Results
Third-quarter net sales were $1.68 billion, compared to $2.51 billion the third quarter of fiscal 2019. The third-quarter 2020 net sales figure includes $615.3 million in net sales from the European RV segment, $773.4 million in net sales in the North American Towable RV segment and $264.0 million in net sales in the North American Motorized RV segment.
Consolidated gross profit margin was 12.2% for the third quarter of fiscal 2020, compared to 11.7% in the corresponding period a year ago. The increase in percentage is primarily due to the impact in the prior-year period of the one-time purchase accounting adjustments related to the step-up in the value of acquired inventory of $61.4 million in the European recreational vehicle segment, which decreased the 2019 third quarter gross profit margin, partially offset by the current period decrease in net sales, which increased the manufacturing overhead cost percentage to sales in the current-year period compared to the prior-year period.
Net income attributable to Thor and diluted earnings per share for the third quarter of fiscal 2020 were $24.1 million and $0.43, respectively, compared to net income attributable to Thor and diluted earnings per share of $32.7 million and $0.59, respectively, in the prior-year period.
The Company’s effective income tax rate for the third quarter of fiscal 2020 was (7.3)%. The Company expects a worldwide effective tax rate for the entire 2020 fiscal year ranging between 14% and 17%, before consideration of any unknown discrete tax items. The global impact of COVID-19 negatively impacted the Company’s income before income taxes, which resulted in certain interest income not subject to income tax comprising a higher percentage of pre-tax income and, consequently, a lower effective income tax rate.
Segment Results
Decreases in year over year financial results for the Company’s three reportable segments for the third quarter of fiscal 2020 are primarily attributable to the economic impact of the COVID-19 pandemic, which started in the middle of the current-year period.
North American Towable RVs
North American Towable RV sales were $773.4 million for the third quarter of fiscal 2020, compared to third-quarter sales of $1.24 billion in the prior-year period.
North American Towable RV gross profit margin was 14.1% for the third quarter of fiscal 2020, compared to 14.5% in the prior-year period.
North American Towable RV income before tax was $49.3 million, compared to $103.7 million in the third quarter last year.
North American Towable RV backlog at April 30, 2020 was $857.9 million, a decrease of approximately $38.2 million, or 4.3%, from the April 30, 2019 level of $896.0 million.
North American Motorized RVs
North American Motorized RV sales were $264.0 million for the third quarter, compared to $459.2 million in the prior-year period.
North American Motorized RV gross profit margin was 10.1% for the third quarter of fiscal 2020, compared to 10.3% in the prior-year period.
North American Motorized RV income before tax for the third quarter was $10.9 million compared to $25.2 million a year ago.
North American Motorized RV backlog at April 30, 2020 increased approximately $34.2 million, or 6.7%, to $548.0 million compared to $513.7 million a year earlier.
The geographic centrality of the North American RV industry in northern Indiana, where the majority of our facilities and many of our suppliers are located, could exacerbate, directly or indirectly, supply chain, workforce and other COVID-19 related risks, including meeting increased production demands.
European RVs
European RV sales were $615.3 million for the third quarter of fiscal 2020, compared to $767.5 million in the prior-year period.
European RV gross profit margin was 10.2% of net sales for the third quarter, compared to 7.0% in the prior-year period. Prior year gross margin included the impact of the inventory step-up which negatively impacted the European RV gross margin by 8.0%.
European RV loss before tax for the third quarter of fiscal 2020 was $0.2 million, compared to a loss of $30.9 million during the third quarter of fiscal 2019. The primary reason for the reduction in loss before income taxes was the negative impact of $61.4 million in purchase accounting charges included in the prior-year results, partially offset by a reduction in income before income taxes resulting from the decrease in European recreational vehicle sales in the current-year period.
European RV backlog was $803.5 million as of April 30, 2020, an increase of $116.1 million, or 16.9%, compared to $687.4 million as of April 30, 2019.
In Europe, the Company has recently experienced some supply constraints from its chassis manufacturers as well as certain component parts from its non-chassis raw material vendors. The Company anticipates these constraints could last until the end of the Company’s fiscal year 2020. Where possible, to minimize the impact of these supply chain constraints, the Company has identified a second-source supplier base for most component parts.
“Our business was built with the ability to manage through cyclicality, and our management actions, combined with our highly variable cost model, allowed us to remain profitable and generate positive net cash from operations for the third quarter,” said Colleen Zuhl, Thor’s Senior Vice President and Chief Financial Officer.
“In the third quarter, as we focused on maximizing liquidity, we borrowed $250 million from our ABL. Given the current strength of the RV market, particularly in North America, and the reopening of many of our independent dealers as well as many campground facilities, the current outlook is much clearer than it was at the end of March and early April. As a result, we have repaid the $250 million draw, and the available balance on our ABL was $396 million as of June 5, 2020.
“Additionally, during the quarter prior to the pandemic affecting our operations, we continued to pay down our acquisition-related Term Loan B (“TLB”) debt. In March, we made payments of $45 million on our TLB. Life-to-date, payments on our acquisition-related debt of $2.2 billion totals approximately $543 million.
“We are confident our current liquidity and financial position will allow us to manage through near-term uncertainties that may arise within the RV market or the broader economy,” added Zuhl.
Promoting the RV Lifestyle
The Company continues to invest in generating awareness for the RV lifestyle through engaging content and directing consumers to its operating companies for further research and to pursue purchasing options through our extensive dealer body. Thor also conducted and published the RV industry’s first comprehensive report detailing North American RV consumer travel and purchase intent since the onset of the pandemic.
Outlook
Bob Martin said, “To be certain, the events of this quarter were unexpected and difficult, but our experienced team members and our highly variable cost model once again proved our ability to quickly navigate through uncertainty and generate positive financial results.
“Today, market indicators in North America are increasingly positive. Every North American dealer I have spoken to in the last few weeks has been very excited about the pace at which sales are picking up. Many of our dealers are reporting a significant improvement in sales from April to May and are excited about the sales potential for June and beyond. Because of this improved outlook and the relaxation of many stay-at-home restrictions, we began to restart production in the first week of May in North America. We have been successful in safely bringing our people back to work, and we are ramping-up production in a measured way in order to keep our team members safe and product quality high, while also fulfilling dealer orders as quickly as possible.
“In Europe, with over 1,200 dealer-partners in Germany and across the continent, our brands have one of the strongest dealer and service networks, and our long-term outlook for future growth in retail sales remains positive. More and more people are discovering RVs as a way to support their lifestyle of independence and individuality, as well as using the RV as a multi-purpose vehicle to escape urban life and explore outdoor activities and nature. While we are optimistic about the long-term growth of the RV market in Europe, the outlook for European RV retail sales for the remainder of the calendar year depends upon the economic conditions in the countries in which we do business.
“Since the end of our third fiscal quarter, our outlook for the balance of our fiscal year and the calendar year has markedly improved. We’re seeing an influx of first-time buyers, which bodes well for the long-term health of the RV industry. When the COVID-19 pandemic started, we saw many people start to work at home. One new trend we are seeing is an evolution from ‘work at home’ to ‘work from anywhere’ as RV buyers use their new RVs as their office wherever they are, or wherever they want to be. Our channel checks tell us that many of our independent RV dealers are seeing a significant resurgence in their sales, and their inventory levels, which were already down 20% year-over-year, are further declining. Demand for our products is very strong. Our flexible business model gives us the ability to quickly ramp production in a focused way, and we will ramp production with three primary objectives: the safety of our team members, the quality of our products, and the speed of our production, in that order. We remain steadfast in our confidence in the long-term outlook for not only our business, but the entire RV industry, and we continue to look forward to a bright future.” said Martin.
