Following downbeat FY25 guidance, RV manufacturer Thor Industries (THO, Financial) faces a challenging road ahead. The company, which owns Airstream and Jayco, projected another year of earnings and sales compression, worse than the consensus that predicted modest improvements. Despite frequently surpassing estimates, including in Q4 (Jul), THO's guidance reflects an industry hampered by persistent macroeconomic headwinds.
- Interest rates, although beginning to ease after the Fed's recent cut, remain problematic for the RV industry. Dealers saw increased retail activity during the spring selling season, according to the RV Industry Association's (RVIA) monthly trends data. However, elevated interest rates are increasing floor plan costs, making it challenging for dealers to carry excessive inventory, especially with expensive financing costs for consumers.
- Prominent RV dealer Camping World Holdings (CWH, Financial) had to liquidate older models during Q2, noting worsening industry data. The company estimated an excess of 14,000 units from the 2022 and 2023 model years on dealer lots, causing severe distress and leading CWH to take over certain dealerships to turn around their cash flow issues.
- The RVIA's latest CY24 unit shipments forecast reflects these economic challenges, lowering projections to 311,600-336,600 units, down from 328,900-359,100. Given the RVIA's history of trimming projections, further reductions would not be surprising.
- Despite this, the RVIA's updated projection still indicates year-over-year growth of just under 4%. Its early 2025 outlook suggests a roughly 7% improvement year-over-year. Investors might have expected THO to align its FY25 financial targets with the RVIA's predictions. However, a slowdown in retail activity with an uncertain recovery timeline led to THO's bearish FY25 guidance, predicting EPS of $4.00-5.00 versus $4.94 in FY24 and revenues of $9.0-9.8 billion compared to FY24's $10.04 billion.
It is not all doom and gloom for THO. The company exceeded Q4 earnings and sales estimates, achieving flat year-over-year earnings growth and a 7.4% drop in revenues to $2.53 billion. Market conditions in Europe are more favorable than in North America, as evidenced by relative strength in retail registrations. Additionally, THO noted that the recent interest rate cut could spur demand during the 2025 spring selling season.
Cautious ordering patterns may persist for THO and the broader RV industry in the near term, a bearish sign ahead of rival Winnebago's (WGO, Financial) August quarter report. The industry is entering its lull period ahead of the colder months, so the next few quarters may look bleak. However, there could be a resurgence in demand next spring, especially if interest rates continue to decline significantly. Today's market is looking ahead to the potential positives lower interest rates can bring, pushing shares mildly higher despite a soft Q4 report.
