Thor Industries, Inc. (NYSE:THO) is the largest manufacturer of recreational vehicles (RVs) in the world. The company has a 36.1% share of the total RV market. This industry went off a cliff in the 2008 through 2010 period when the recession was in full force and consumers were scared — or unable — to commit to relatively large purchases such as RVs. In the depths of this gloom in 2009, Thor Industries, Inc. (NYSE:THO) was able to earn a profit, a small one but a profit nonetheless. This company has been profitable for more than 30 years in a row. Consider what a strong record that is given all the economic ups and downs in America over that time.
In fiscal year 2012 (the company’s year ends July 31), Thor Industries, Inc. (NYSE:THO) achieved all-time record revenue of $3.1 billion, up 12% from the previous year. Net income jumped 15% to $122 million. In its presentation of results, the company reported that 74%, or $2.3 billion of this revenue came from its towable-RV segment. The company’s bus-manufacturing segment — which includes both transit buses and luxury coaches — had revenue of $445 million and its motorized RV segment had sales of $354 million.
Learning about the products
A great way to gain an understanding of a company’s competitive advantages (and disadvantages) is to see or test the products and those of the competitors yourself. I got the chance to do that by attending a large RV show in Phoenix. I saw more varieties of RVs than I ever imagined existed. Each of the brands’ models had lots of exciting, innovative features. Today’s RV manufacturers have adapted their product offerings to virtually every conceivable customer need or want — including luxury features that make the vehicle look like a high-class hotel suite on wheels.
I spent about six hours at the show, and as the day went on I was drawn more and more to the Fifth Wheel vehicles manufactured by Thor Industries, Inc. (NYSE:THO). A Fifth Wheel is a trailer that attaches securely to the back of a pickup truck through a special hitching device in the truck bed. This secure anchor helps the driver maintain stability on the road instead of drifting into the adjacent lane and taking out a flock of Mini Coopers.
Thor’s Fifth Wheel vehicles were stunning and spacious on the inside, with beautiful decor and versatile floor plans to fit any lifestyle. The kitchen area, for example, was along the wall of some models and in the back of others, so you could separate the kitchen from the living area if you wanted to or make it the focal point of the living area. Except for the troublesome little detail that I don’t own a pickup truck, the Thor Industries, Inc. (NYSE:THO) Fifth Wheel was definitely the one I would buy. The company’s success is apparent in its 51.3% share of the total Fifth Wheel market in the U.S.
Why RVs are a growth industry
The website GoRVing.com provides compelling reasons why RV ownership is so appealing to more than 8 million owners across the
US. Vacation travel in an RV means you can go when and where you choose — no airline flights to rush to catch or fitting into someone else’s schedule. Some 48% of RV owners take their pets with them when they travel. Airline travel with a pet is difficult and many hotels do not accept pets. The surprising statistic was that a family of four’s RV vacation could cost up to 59% less than other means of travel — and this includes fuel and the cost of owning the vehicle. RV trips allow a couple or a family to escape from the stress of everyday life and experience the beauty of nature. The National Forest Service, for example, operates more than 4,300 campgrounds. Parents use the RV experience as a way to let their children appreciate the natural world.
One of Thor Industries, Inc. (NYSE:THO)‘s major competitors, Winnebago Industries, Inc. (NYSE:WGO) , featured older consumers in the brochures I picked up at the RV show. I thought this was odd because actually the demographics extend from young to old, and the economic rebound combined with low interest rates and rising consumer confidence bode well for the industry as a whole. Winnebago Industries, Inc. (NYSE:WGO) is a strong competitor in the motorhome segment. The retail-reporting service Statistical Surveys named Winnebago Industries, Inc. (NYSE:WGO) the top performing motorhome manufacturer for 2012.
Most recent results
In the third quarter of fiscal 2013, Thor Industries, Inc. (NYSE:THO)’s total sales rose above $1 billion, a 13% increase over the same quarter of 2013. Net income was also up, by 6%. Total RV segment sales were $930 million, up an impressive 15%, with towables up 9% and sales of motorhomes up 48%. The bus segment’s sales were flat at $119 million.
In its presentation of results, the company cites its diversified and innovative products and low overhead costs as keys to its future success. The company intends to boost margins through “improved product quality, value-added content and features…” in the RVs.
As a strategic planning consultant, I was excited to hear that Thor uses the bottom-up strategic planning system, involving the management groups in each of its subsidiaries heavily in the process. This helps the company remain entrepreneurial and customer-focused despite its size.
For the third quarter ending June 1, Winnebago’s revenue of $218 million was up a whopping 40% over the third quarter of 2012. Operating income soared 191% to $10.2 million.
Consumers responded very favorably to two of the company’s newest products, the Winnebago Forza and Itasca Solei, Winnebago’s CEO Randy Potts said in a press release. During the quarter, shipment volume increased in nearly every sector of its business, he added. Winnebago has other new product introductions planned as, just like Thor Industries, it is focused on innovation and listening to what RV customers want.
Two risk factors to monitor regarding Winnebago and other RV manufacturers are interest rates and gas prices. Consumers typically finance their RV purchases and high rates can take some prospective RV buyers out of the market. Long-term up-trends in gas prices (not just seasonal changes) can dampen demand for RVs.
For now though, in the RV industry consumer caution has clearly been replaced by consumer excitement.
Some final thoughts and an enthusiastic recommendation
Just as I would buy a Thor Fifth Wheel, I would buy this company’s stock. This is a well-managed company with a sterling balance sheet and an excellent feel for what today’s RV customer wants. It’s interesting to note that in market-share terms Thor’s biggest rival is Forest River, owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A). Forest River
products are known for quality, durability and performance.
Barron’s magazine just named Berkshire Hathaway Inc. (NYSE:BRK.A) “number one” on its list of the world’s most respected companies. With this stock, of course, you get a lot more than RV manufacturing: its holdings include the property and casualty insurance businesses, energy and utility companies and a host of familiar brand names in manufacturing, services and retail. It even owns See’s Candies. Keep in mind you can buy a very nice Forest River RV for a much lower price tag than the cost of one of Berkshire Hathaway Inc. (NYSE:BRK.A)‘s Class A shares, which are trading around $170,000. Its 2013 Forest River Blue Ridge 2950RK model Fifth Wheel, for example, has a price tag of just over $50,000.
Forest River has 30% of the market, meaning that the top three, Thor, Forest River and Winnebago, have 77% of the total market. Good to keep your friends close and your enemies closer, as they say.
One fascinating statistic I found was that in the 2004 through 2007 period, RV sales soared just like the housing market. Perhaps that reliable old “wealth effect” was the explanation. Rapidly accumulating home equity gave consumers the confidence to go out and buy an RV. Their homes financed their homes away from home. History seems to be repeating itself.
Brian Hill has no position in any stocks mentioned. The Motley Fool owns shares of Winnebago Industries. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article What Makes Thor So Fearsome? originally appeared on Fool.com is written by Brian Hill.
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