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Thor Industries, Winnebago Lead RV Sales Rebound

Posted
11/2/2012 4:14:00 PM
By: Investor's Business Daily
Referenced Stocks:CVCO;DW;PATK;THO;WGO

The market for recreational vehicles hit a ditch a few years ago as the financial crisis and recession reeled in credit and sent consumers on a mad dash away from big-ticket purchases.

The industry began to grind its way out of that mess in 2010. Today, manufacturers of RVs and RV components are enjoying their strongest growth in years thanks to a combination of better economic conditions, improved lending and new products.

Leading names such asThor Industries ( THO ),Winnebago Industries ( WGO ) andDrew Industries ( DW ) have all seen a recent rise in sales and earnings as the RV industry continues to recover from the beating it took in 2008 and 2009.

The Recreation Vehicle Industry Association, a Reston, Va.-based trade group, expects overall shipments of RVs -- including travel-trailers, campers and motor homes -- to reach 273,600 units this year.

That's up from 252,300 units in 2011 and well above the 165,700 units that were sold during the industry bottom in 2009.

The current rebound is partly due to the natural business cycle. Once an industry hits bottom, there's no place to go, theoretically, but up.

But the RV industry also benefits from other positive trends, says RVIA spokesman Kevin Broom.

"There's a new product mix out there that is helping drive sales," he said. "On the motor home side, there are an increasing number of fuel-efficient vehicles. You have better technology, more and different kinds of products, and different ways of building them."

The industry has gotten another leg up from an expanded customer base that goes beyond the traditional RV demographic of retirees and empty nesters.

Today, about one-third of RV owners have kids at home under the age of 18, Broom says.

Credit markets also have loosened up vs. a few years ago, when the financial crisis caused many banks to tighten up their lending standards for expensive items. This was an especially thorny problem in the RV business, where the average vehicle is priced around $37,000.

"The credit freeze in late '08 and early '09 hurt the RV industry two ways," Broom said. "There was an inability on the part of many consumers to get loans. RV dealers had a hard time getting financing to replace their inventory."

That issue has improved considerably over the last year or so, he says. More financing options are available to dealers, which means more product is available to consumers at the retail level.

And those consumers are buying. In August, the most recent month data are available, RV wholesale shipments rose 15.7% from the prior year to 24,460 units, according to the RVIA. It was the strongest August total in five years.

Business

Among publicly traded companies, the two largest manufacturers of trailers, campers and mobile homes are Thor and Winnebago.

Thor is the bigger of the two. It logged $3.1 billion in sales during fiscal 2012, which ended in July. It makes towable RVs, with trailer brands including Airstream, Dutchmen, Crossroads and Heartland. The company distinguished itself by eking out a profit even during the darkest days of the industry downturn.

"They are the only ones to my knowledge who showed profitability and a strong balance sheet during the recession, with net cash and no debt," said Elliott Schlang, founder and managing director of the Great Lakes Review, a Cleveland-based firm that researches leading stocks based in the Midwest.

Winnebago had a rougher go of it during the recession. The company lost money in 2008 and 2009, but has since recovered to post three straight years of black ink. Its annual sales grew 17% to $582 million in fiscal 2012, which ended in July.

Winnebago is the nation's leading manufacturer of motor homes, with its namesake Winnebago brand as well as the Itasca and Era brands.

Company watchers expect to see Winnebago add to its market share position in coming quarters.

"Given that Winnebago has the strongest brand recognition within the RV industry (and) a leading market share within the Class A & C models, it is well-positioned to benefit from favorable longer-term industry secular trends," Citigroup analyst Gregory Badishkanian noted in a recent report.

IBD's Building-Mobile/Manufacturing & RV group also includes Drew, which makes parts and components for the RV industry;Cavco Industries ( CVCO ), which makes manufactured and modular homes; andPatrick Industries ( PATK ), which makes wall and ceiling panels for RVs and manufactured homes.

The group is up 40% so far this year, making it a top 20 industry among the 197 groups tracked by IBD.

Market/Climate

The biggest development in the RV market over the past decade-and-a-half is the shift toward trailers, which are RVs that hitch to the back of other vehicles.

Trailers now account for about 90% of the total RV market, experts say. Fifteen years ago trailers made up only half of the market, with much of the rest coming from motor homes.

"Towable is the fastest-growing and most stable market in the RV industry," Schlang said.

Thor gets 87% of its RV sales from towable products, he says, and ranks No. 1 in the U.S. towable market with a 36% share of total retail sales.

One reason trailers have come to dominate the RV market is that they are now light enough to be towed by family vehicles such as minivans and SUVs. In years past, only heavy-duty pickup trucks could tow them.

"The cost of materials has come down, and you now have trailers made of lightweight aluminum instead of steel," Broom said. "Manufacturers are able to fit the same type of living space into a smaller overall footprint."

Technology

Much of the recent technology in RVs has centered on making the vehicles more fuel efficient. Many motor homes now get 15 to 20 miles per gallon, up from an average of 11 to 12 miles per gallon a decade ago.

"Motor homes and trailers are getting smaller, lighter, more aerodynamic, more ecologically friendly," Broom said.

Meanwhile, the living space in RVs has gotten bigger thanks to smaller and more streamlined appliances.

"The flat-screen TV has been fantastic for the RV industry," Broom said. "Before, you had to have several feet of cabinet space to hold a tube TV. The flat-screen TV can be attached to the wall, which creates more space.

"You also have combination microwave/convection ovens that take up less space."

Outlook

While the RV Industry Association expects RV shipments to rise 8.4% this year, next year's increase is expected to be less than 1%.

The economy will play a part in whether those projections are too high or too low. For now, the prognosis is largely positive.

"Winnebago expects increasing demand from a better RV market, driven by improvements in consumer confidence and new single-family housing starts, and plans to further increase their production pace," Citigroup's Badishkanian noted.