THOR INDUSTRIES INC (THO) SEC Filing 10-Q Quarterly report for the period ending Wednesday, October 31, 2018
Thor Announces Results for First Quarter of Fiscal 2019
- Optimistic about long-term growth as consumer sentiment and spending remain strong
- Acquisition of Erwin Hymer Group (EHG) is proceeding as planned, with expected closing near the end of the calendar year
- Quarterly results significantly impacted by acquisition-related costs totaling $57.1 million, or $1.02 per share
ELKHART, Ind.--(BUSINESS WIRE)--December 6, 2018--Thor Industries, Inc. (NYSE:THO) today announced first- quarter results with net sales of $1.76 billion, down 21.3% from the record prior-year first quarter, and income before taxes of $31.5 million, a decrease of 83.2%. Net income and diluted earnings per share for the first quarter of fiscal 2019 were $14.0 million and $0.26, respectively. This compares to net income and diluted earnings per share in the prior-year first quarter of $128.4 million and $2.43, respectively.
First quarter fiscal 2019 financial results reflect the impact of continued progress in balancing production and market demand and transaction-related expenses related to the pending acquisition of EHG.
- Balancing Production and Demand: The dealer inventory rationalization process is proceeding as expected. During the quarter, Thor increased its promotional efforts to assist dealers in reducing inventory to better reflect current retail demand levels. Thor continues to adjust production to match current wholesale demand while positioning the Company for long-term growth and shorter lead times with capacity expansions completed in fiscal 2018. Dealers have also remained disciplined with regard to inventory levels, which has resulted in the limited ability of manufacturers to pass along price increases.
- Effects of Capacity Expansion: Following inventory constraints experienced in 2017, Thor strategically increased capacity in 2018 to alleviate the pressures of longer production lead times and meet expected long-term demand growth for the Company's products. Since the completion of a number of these expansion projects, dealers have taken steps to reduce their inventory, resulting in the Company taking steps to balance production levels with current wholesale demand. Thor continues to review backlog for each product line in each production facility and adjust production levels accordingly.
- Foreign Currency Forward Contract: On September 18, 2018, the Company entered into a foreign currency forward contract in the amount of €1.625 billion related to the cash portion of the purchase price of EHG. The contract does not qualify as a hedging instrument for accounting purposes, and therefore changes in fair value are reported in current period earnings. As a result of the change in the U.S. dollar-Euro exchange rate from the date of the establishment of the contract and the end of the fiscal first quarter on October 31, 2018, the Company recorded a non-cash, mark-to-market loss on the forward contract of approximately $42.6 million. The forward contract is a prudent way to stabilize the EHG acquisition price by locking in the exchange rate and mitigating the impact of exchange rate volatility on the ultimate U.S. dollar amount Thor will pay for the acquisition.
- Transaction Costs: Thor incurred $14.5 million in costs related to the pending acquisition of EHG, comprised primarily of legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, rating agency fees and regulatory review costs.
The following information was filed by THOR INDUSTRIES INC on Thursday, December 6, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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- 18466301_70Financial - ExpenseAmortization of intangible assets expense for the three months ended October 31, 2018 decreased $967, or 7.1%, compared to the three months ended October 31, 2017, primarily due to lower dealer network amortization as compared to the prior-year period.
- 18466301_73Financial - ExpenseCorporate costs included in selling, general and administrative expenses decreased $7,956 to $10,270 for the three months ended October 31, 2018 compared to $18,226 for the three months ended October 31, 2017, a decrease of 43.7%.
- 18466301_11MA - OtherOur growth has been achieved both organically and through acquisition, and our strategy is designed to increase our profitability by driving innovation, servicing our customers, manufacturing quality products, improving the efficiencies of our facilities and making strategic growth acquisitions.
- 18466301_35Other - OtherThor?s RV backlog as of October 31, 2018 decreased $1,820,189, or 50.9%, to $1,758,612 compared to $3,578,801 as of October 31, 2017, with the decrease mainly attributable to our capacity expansions since the prior year, which allows for quicker production and delivery of units to dealers, and the existing dealer inventory levels noted above .
- 18466301_97Financial - EarningsThe decrease in gross profit is primarily due to the 25.8% decrease in unit sales volume noted above, while the decrease in gross profit percentage is due to the increase in the cost of products sold percentage noted above.
- 18466301_114Financial - EarningsThe decrease in gross profit was due primarily to the 36.2% decrease in unit sales volume noted above, and the decrease as a percentage of motorized net sales is due to the increase in the cost of products sold percentage noted above.
- 18466301_75Financial - IncomeIncentive compensation also decreased $2,289 in correlation with the decrease in income before income taxes compared to the prior year.
- 18466301_21Financial - Shares / EquityOn June 19, 2018, the Company?s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company?s common stock through June 19, 2020.
- 18466301_92Financial - ExpenseThis increase in percentage was primarily the result of an increase in the material cost percentage to net sales, primarily due to an increase in discounts and sales incentives, which effectively decreases the net sales price per unit and therefore increases the unit material cost percentage.
- 18466301_145Financial - DividendThe Company increased its previous regular quarterly dividend of $0.37 per share to $0.39 per share in October 2018.
- 18466301_146Financial - DividendIn October 2017, the Company increased its previous regular quarterly dividend of $0.33 per share to $0.37 per share.
- 18466301_129MA - OtherOur main priorities for the use of current and future available cash generated from operations include funding our growth, both organically and through acquisitions, maintaining and growing our regular dividends over time, reducing indebtedness incurred in connection with the acquisition of the Erwin Hymer Group as discussed in Note 16 to the Condensed Consolidated Financial Statements and repurchasing shares under the share repurchase program as discussed in Note 14 to the Condensed Consolidated Financial Statements.
- 18466301_56Revenue - ProductIn addition to younger age demographics, there are opportunities to expand sales to a more ethnically diverse and global customer base through lifestyle, lifestage and data-driven marketing.
- 18466301_64Revenue - ProductThese shortages have had a negative impact on our sales and earnings in the past.
- 18466301_72Revenue - ProductAdditional information concerning the changes in net sales, gross profit, selling, general and administrative expenses, amortization of intangible assets expense, acquisition and related costs and income before income taxes are addressed below and in the segment reporting that follows.
- 18466301_39Revenue - ProductThe outlook for calendar year 2018 growth in RV sales is based on the expectation of continued gains in jobs and disposable income.
- 18466301_60Financial - ExpenseMaterial and labor costs are the primary factors determining our cost of products sold, and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts.
- 18466301_61Financial - ExpenseHistorically, we have generally been able to offset net cost increases over time.
- 18466301_69Financial - ExpenseSelling, general and administrative expenses for the three months ended October 31, 2018 decreased $31,570, or 23.5%, compared to the three months ended October 31, 2017.
- 18466301_84Financial - IncomeThe overall effective income tax rate for the three months ended October 31, 2018 was 55.7% compared with 31.4% for the three months ended October 31, 2017.
- 18466301_96Financial - Earnings22 Towables gross profit decreased $103,021 to $153,692, or 12.0% of towables net sales, for the three months ended October 31, 2018 compared to $256,713, or 15.9% of towables net sales, for the three months ended October 31, 2017.
- 18466301_113Financial - EarningsMotorized gross profit decreased $19,673 to $44,230, or 10.3% of motorized net sales, for the three months ended October 31, 2018 compared to $63,903, or 11.3% of motorized net sales, for the three months ended October 31, 2017.
- 18466301_81MA - OtherAcquisition-related costs were $57,089 for the three months ended October 31, 2018 and include all costs related to the acquisition of Erwin Hymer Group as described in Note 16 to the Condensed Consolidated Financial Statements.
- 18466301_112Revenue - ProductTotal manufacturing overhead decreased $2,488 with the volume decrease, but increased as a percentage of motorized net sales from 3.9% to 4.5%, as the decrease in production resulted in higher overhead costs per unit sold.
- 18466301_5MA - OtherAdditional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE (the "Erwin Hymer Group") include risks regarding the anticipated timing of the closing of the acquisition, the potential benefits of the proposed acquisition and the anticipated operating synergies, the satisfaction of the conditions to closing the acquisition in the anticipated timeframe or at all, the integration of the business, changes in Euro-U.S. dollar exchange rates that could impact the mark-to-market value of outstanding derivative instruments, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and Erwin Hymer Group?s business.
- 18466301_78Financial - ExpenseThis increase in net expense of $3,693 is primarily due to the change in the fair value of the Company?s deferred compensation plan assets due to market fluctuations and investment income resulting in net expense of $2,295 in the current-year period as compared to net income of $1,274 in the prior-year period, an increase in expense of $3,569.
- 18466301_33Other - OtherRV dealer inventory of Thor products as of October 31, 2018 increased 4.9% to approximately 131,500 units, compared to approximately 125,400 units as of October 31, 2017.
- 18466301_124Other - OtherCapital expenditures of $34,453 for the three months ended October 31, 2018 were made primarily for land and production building additions and improvements, as well as replacing machinery and equipment used in the ordinary course of business.
- 18466301_51Revenue - ProductWhile consumers between the ages of 55 and 74 still account for the majority of RV retail sales, there is strong interest and growing retail momentum with the younger "generation X" and "millennials" segments.
- 18466301_99Revenue - ProductThe primary reason for the $17,678 decrease was decreased towables net sales and towables income before income taxes, which caused related commissions, bonuses and other compensation to decrease by $17,293.
- 18466301_116Revenue - ProductThe $5,456 decrease was primarily due to decreased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to decrease by $4,669.
- 18466301_82Financial - ExpenseThese Corporate costs included a non-cash foreign currency forward contract loss of $42,555, as the U.S. Dollar strengthened against the Euro.
- 18466301_95Revenue - ProductTotal manufacturing overhead decreased $7,165 with the decrease in sales, but increased as a percentage of towables net sales from 5.3% to 6.1%, as the decreased production resulted in higher overhead costs per unit sold.
- 18466301_121Other - OtherThe components of this $50,328 decrease in cash and cash equivalents are described in more detail below, but the decrease was primarily attributable to capital expenditures of $34,453, and cash used in operations of $15,834.
- 18466301_111Financial - ExpenseThis increase in percentage was primarily the result of an increase in the warranty cost percentage.
- 18466301_117Legal - OtherIn addition, legal, professional and related settlement costs decreased $984.
- 18466301_43Revenue - ProductWe believe that retail demand is the key to continued growth in the RV industry, and that annual RV industry wholesale shipments will generally approximate a one-to-one replenishment ratio with retail sales once dealer inventory levels are adjusted to generally normalized levels, which we expect to happen during the second half of fiscal 2019.
- 18466301_80Financial - ExpenseThese increases in expense were partially offset by interest expense and fees on the revolving credit facility of $729 in the current-year period as compared to $1,257 in the prior-year period, a decrease in expense of $528 as a result of the lower outstanding debt balances.
- 18466301_93Financial - ExpenseIn addition, material cost increases exceeded the favorable impact of selective net price increases since the prior-year period.
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- Form Type: Quarterly
- Number of times amended: 0
- Accession Number: 0001193125-18-342935
- Submitted to the SEC: Thursday, December 6, 2018 6:46:33 AM EST
- Accepted by the SEC: Thursday, December 6, 2018
- Period ending: October 2018
- Industry: Motor Homes
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THOR INDUSTRIES INC
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