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Thor Industries
Thor Industries

Metal Tariffs and Erwin Hymer Acquisition Lead to Low Q1 for Thor


Thor Industries has announced its first-quarter results with net sales of $1.7 billion, down 21.3 percent from the record prior-year first quarter, and income before taxes of $31.5 million, a decrease of 83.2 percent. Net income and diluted earnings per share for the first quarter of fiscal 2019 were $14 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 Erwin Hymer Group (EHG).

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, according to Thor. Thor continues to review backlog for each product line in each production facility and adjust production levels accordingly.

On Sept. 18, the company entered into a foreign currency forward contract in the amount of 1.625 billion euros 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 Oct. 31, 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.

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.

“Our first quarter 2019 financial results reflect the return to normalized historical levels of first-quarter revenue following the unprecedented record first quarter of fiscal year 2018,” said Bob Martin, Thor president and CEO. “As dealers continue to right-size inventory, we are taking advantage of our flexible production and variable cost model to align company production with demand, and I continue to be optimistic about Thor’s long-term growth potential and ability to generate value for our shareholders, especially with the pending strategic acquisition of EHG. Consumers are increasingly looking to spend time outdoors with family and friends, which we believe will translate to demand for our products.”

Net sales decreased 21 percent for the towable segment, 23.9 percent for the motorized segment and 21.3 percent overall. Overall gross profit margins declined to 11.8 percent in the quarter, compared to 14.9 percent in the prior-year period, reflecting the impact of higher overall sales promotions and increased costs primarily associated with warranty expenses. Material costs also increased as a result of, directly or indirectly, the implementation of tariffs on many commodities and components utilized in the production of Thor’s products, as well as increased pricing from some domestic suppliers in response to the tariffs. Net income in the quarter was also adversely affected by an unusually high effective tax rate. The company’s first-quarter effective tax rate was 55.7 percent compared to a tax rate of 31.4 percent in the prior year because the $42.6 million non-cash, mark-to-market loss on the foreign currency forward contract is not deductible for income tax purposes. The company expects to return to a more normalized effective tax rate of 23 percent to 25 percent in its fiscal second half of 2019.

“We remain confident in both the short and long-term fundamentals driving the RV industry,” said Peter B. Orthwein, Thor executive chairman. “The combination of strong economic indicators, especially consumer confidence, an influx of new consumers entering the RV industry, and the consistent growth in demand for outdoor experiences and products provide the ideal environment for Thor Industries to grow and maximize value for all stakeholders. … We are also excited to soon be completing our purchase of EHG, which will open new markets for us, and will make Thor Industries the largest global RV manufacturer.”

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