Lightning Strikes For Thor Industries, Again

Key Points

• Thor Industries had a better-than-expected quarter and raised guidance. 
• Short covering has the stock up 15% and it may continue higher. 
• The 2.25% dividend is safer than ever and the outlook for growth has grown more robust. 

Lightning struck for Thor Industries NYSE: THO when lockdowns and social distancing became the norm, and it has struck again for this RV industry leader. The Q3 results are not excellent because sales are down high-double-digits compared to last year, but, regarding normalization within the industry, they are robust indeed.

The takeaway is that Thor’s results are better-than-expected and point to normalization at levels far above the pre-pandemic business. Within that is a marked increase in profitability that suggest the capital returns will continue and continue to increase and build value for shareholders.  

Thor Industry Outpaces Consensus, Guides Higher 

Thor Industry had a tough quarter, but it was expected. The RVIA has forecast a high-30% shipment decline for months, and the top-line results are consistent. The company reported $2.93 billion in net revenue, down 37.1% compared to last year, but it is better than the consensus figure, 390 basis points better. The strength was driven entirely by European sales, which grew by 19.7%. Sales in the US were mixed, with Towables down 57% and Motorized down 24.4%.

The good news within the report begins with the top line. The revenue is down but less than expected and well above 2019 levels. This is compounded by a decline in the margin, which was less than expected and left the cash flow in good shape. The company’s gross margin contracted by 250 basis points and net income margin by more than 300 basis points, but both were less than expected.

The margin strength is also centered in the EU and is expected to continue. The margin is up compared to 2 years and four years ago, leaving GAAP EPS at $2.24 and double the consensus figure.

The guidance is mixed with revenue targets trimmed and EPS raised. The company lowered the top end of the revenue range by $0.5 billion or about 4.3%, offset by margin improvement. The company raised the low end of the margin range and the range for EPS to above the consensus. The new target assumes at least $5.80 in GAAP EPS compared to the $5.40 consensus, which is excellent news for income investors. 

Thor Industries: A Heavenly Dividend

Thor Industries isn’t a high-yielding stock per se, but it is a good yield at 2.25%, with shares trading near $90—a safety factor, including a strong balance sheet and healthy cash flows, compounds the yield. The Q3 cash flow allowed the company to pay dividends, buy back $16.6 million shares, and pay down more than $250 million in debt.

This improves an already positive outlook for distribution growth and could result in an above-average increase. Thor has increased the distribution for 14 consecutive years and is running a 5% CAGR. 

The price action is favorable. The market hit bottom in 2022 and has been consolidating since. The bias in the price action is upward, and now the post-release action has the stock up 15%. The move is partly due to short converging, so volatility should also be expected. However, a new uptrend could form if the market can sustain its bias and remain above the 150-day moving average. The analysts may help with the move but don’t expect much from them until later in the year when there is more evidence of normalization and clarity in the economic outlook.