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Bear of the Day: Thor Industries (THO)

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Thor Industries, Inc. (THO - Free Report) is coming down off its COVID pandemic record highs as the market for RVs and towables softens. This Zacks Rank #5 (Strong Sell) is expected to see sales fall 31% in Fiscal 2023.

Thor Industries manufactures RVs and towables in North America and Europe under many different brands including, but not limited to, Jayco, Starcraft and Airstream.

A Big Miss in the Fiscal Second Quarter

On Mar 7, Thor reported its fiscal second quarter 2023 results and missed on the Zacks Consensus Estimate by $0.60. Earnings was $0.50 versus the Zacks Consensus of $1.10.

Thor had put together quite an earnings surprise streak during the pandemic. It had beat 11 quarters in a row. This was its first earnings miss since Mar 2020, when the pandemic hit.

Net sales fell 39.4% to $2.35 billion from $3.88 billion in fiscal 2022, but the prior year's quarter was a record. However, it was still a decrease of 14% over the second quarter of the prior year, which was 2021.

Consolidated gross profit also plunged by 530 basis points to 12.1% from 17.4% in the second quarter of 2022.

“During the quarter, we continued to proactively and decisively balance wholesale production with the pace of softening retail sales through the traditionally slower winter retail season," said Bob Martin, CEO.

"This commitment to a disciplined production approach, combined with a softer-than-expected order intake, resulted in second quarter North American wholesale shipments of 25,372 units," he added.

But Thor expects this softeness in demand to be temporary. Attendance at the spring retail show season across the country had been encouraging with high attendance and solid retail activity.

Thor Cuts Full Year Guidance

However, the slowdown won't rebound in fiscal 2023. Thor expects that the macroeconomic pressures will persist through the balance of the fiscal year. The newly revised guidance assumes the higher interest rates, elevated prices and a full North American dealer inventory will result in slower product pull through for the balance of the fiscal year.

Remember, many RV buyers purchase using financing. Loan rates have risen as the Fed has raised rates.

Full year net sales are now expected in the range of $10.5 billion to $11.5 billion, down from the previous guidance of $11.5 billion to $12.5 billion.

Earnings per shares are expected in the range of $5.50 to $6.50, down from the prior guidance of $7.40 to $8.70.

It shouldn't be surprising that the analysts responded by cutting their own full year estimates. The F2023 Zacks Consensus Estimate fell to $5.94 from $7.89 in the last month as 4 estimates were cut. That's an earnings decline of 71.2%, as Thor made $20.59 during last year's record year.

Here's what such a big drop looks like on the price and consensus chart.

Zacks Investment Research
Image Source: Zacks Investment Research

Remember when we were all desperate to travel but didn't want to stay in a hotel? The pandemic RV buying surge has come to a halt.

Shares Down Big Over the Last Two Years

Shares of Thor Industries actually peaked in 2021 even though the company went on to have record earnings last fiscal year. Apparently, Wall Street thought the earnings were peaking in Fiscal 2022 and sold the stock ahead of the news.

Shares are down 45.2% in the last two years. But they fell again in the last month, by 17.8%, after the guidance was cut.

Thor remains a cheap stock, with a forward P/E of 13.2. But the falling earnings make it a value trap.

It still has solid free cash flow and is still paying a dividend, currently yielding 2.3%.

For investors interested in picking up shares of Thor on the cheap, they may want to wait a bit longer until the macroeconomic conditions bottom, including the Fed pausing on its rate hikes.

The Baby Boomers, and the Millennials, are likely to continue to drive demand for RVs and towables well into the future, but for now, many are on the sidelines. As an investor, you might want to be too.

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