Business Wire 6-Dec-2018 6:45 AM
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.
In aggregate, the acquisition-related costs for the foreign currency forward contract and transaction costs totaled approximately $57.1 million, or $1.02 per diluted share, in the fiscal first quarter.
"Our underlying markets remain healthy as consumer confidence is high, unemployment is low, and there is ample access to credit for RV buyers," said Bob Martin, Thor President and CEO. "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. 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 21.0% for the Towable segment, 23.9% for the Motorized segment and 21.3% overall. Overall gross profit margins declined to 11.8% in the quarter, compared to 14.9% 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% compared to a tax rate of 31.4% 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% to 25% in its fiscal second half of 2019.
In an effort to continue balancing production to meet current levels of dealer demand, the Company has taken a number of steps to adjust its production levels, and benefit from its variable cost structure. Certain subsidiaries intend to take extended plant shutdowns during the upcoming holiday season which should result in reductions in finished goods inventory. As a result, the Company expects that production will be balanced with overall retail demand during the historically stronger second half of the fiscal year.
Erwin Hymer Group Acquisition
On September 18, Thor announced that it entered into a definitive agreement to acquire EHG. The transaction is expected to be accretive to earnings in fiscal 2019 before taking into account anticipated efficiencies, purchase accounting adjustments and transaction-related expenses.
As noted earlier in this release, Thor incurred a number of acquisition-related expenses within the first quarter which reduced reported income by approximately $57.1 million, or $1.02 per share. The Company expects to incur additional expenses relating to the acquisition, including professional, legal and advisory fees related to closing of the transaction as well as the integration and implementation of enhanced controls consistent with SOX requirements and finalization of regulatory review costs. Capitalized fees related to the existing debt facility will also need to be fully expensed when the acquisition closes and the existing debt facility is terminated. The Company estimates these costs will range from approximately $30 million to $45 million for the remainder of fiscal 2019, exclusive of additional changes in the value of the foreign currency forward contract, which will continue to be marked to market, costs expected to be capitalized in connection with the debt facilities and purchase price accounting related charges. A large portion of these $30 million to $45 million of costs will be recognized at or prior to the acquisition closing date.
"As we work to complete our acquisition of EHG, we are mindful of maintaining the strength of our balance sheet to support our long-term strategic goals," said Colleen Zuhl, Thor Senior Vice President and CFO. "We have shown our ability to responsibly manage leverage with our acquisition of Jayco in 2016, and we intend to maintain that same discipline as we look to reduce leverage resulting from the EHG acquisition once it is completed, while balancing our need to support strategic capital investments and return cash to our shareholders."
Looking ahead, Thor's management team and board remain focused on the long term and are optimistic about global growth opportunities. The combination of retail trends in the RV industry, an influx of new consumers entering the industry and the consistent growth in demand for outdoor experiences and products will provide the ideal environment for Thor Industries to grow and maximize value for all stakeholders.
"We remain confident in both the short and long-term fundamentals driving the RV industry. 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," said Peter B. Orthwein, Thor Executive Chairman.
"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. Our Company and management team have demonstrated that we have the ability to successfully integrate and manage large acquisitions by relying on our operational excellence and prudent financial management, and we are looking forward to working together with the EHG team to expand our leadership worldwide," added Mr. Orthwein.
Supplemental Earnings Release Materials
Thor announced that it has provided a comprehensive question and answer document, as well as a PowerPoint presentation, relating to its quarterly results and other topics. To view these materials, go to http://ir.thorindustries.com/.
About Thor Industries, Inc.
Thor is the sole owner of operating subsidiaries that, combined, represent the world's largest manufacturer of recreational vehicles. For more information on the Company and its products, please go to www.thorindustries.com.
Forward Looking Statements
This release includes certain statements that are "forward looking" statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements are made based on management's current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others, raw material and commodity price fluctuations; raw material, commodity or chassis supply restrictions; the impact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with governmental regulation; legal and compliance issues including those that may arise in conjunction with recently completed or announced transactions; lower consumer confidence and the level of discretionary consumer spending; interest rate fluctuations; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers; restrictive lending practices; management changes; the success of new and existing products and services; consumer preferences; the ability to efficiently utilize production facilities; the pace of acquisitions and the successful closing, integration and financial impact thereof; the potential loss of existing customers of acquisitions; our ability to retain key management personnel of acquired companies; a shortage of necessary personnel for production; the loss or reduction of sales to key dealers; disruption of the delivery of units to dealers; increasing costs for freight and transportation; asset impairment charges; cost structure changes; competition; the impact of potential losses under repurchase agreements; the potential impact of the strength of the U.S. dollar on international demand; general economic, market and political conditions; and changes to investment and capital allocation strategies or other facets of our strategic plan. Additional 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. These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2018 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ended October 31, 2018.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this release or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
|THOR INDUSTRIES, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE|
|THREE MONTHS ENDED OCTOBER 31, 2018 AND 2017|
|($000's except share and per share data) (Unaudited)|
|Three Months Ended October 31,|
|% Net||% Net|
|2018||Sales (1)||2017||Sales (1)|
|Selling, general and administrative expenses||102,693||5.8%||134,263||6.0%|
|Amortization of intangible assets||12,591||0.7%||13,558||0.6%|
|Interest income (expense), net||346||—%||(1,031||)||—%|
|Other income (expense), net||(3,712||)||(0.2)%||2,758||0.1%|
Income before income taxes
Net income and comprehensive income
Earnings per common share
|Weighted-avg. common shares outstanding - basic||52,726,496||52,611,926|
|Weighted-avg. common shares outstanding - diluted||52,899,603||52,818,363|
|(1) Percentages may not add due to rounding differences|
|SUMMARY CONDENSED CONSOLIDATED BALANCE SHEETS ($000) (Unaudited)|
|October 31, 2018||July 31, 2018||October 31, 2018||July 31, 2018|
|Cash and equivalents||$||224,921||$||275,249||Current liabilities||$||799,765||$||769,330|
|Accounts receivable, net||503,791||487,235||Other long-term liabilities||72,317||71,594|
|Inventories, net||565,346||537,909||Stockholders' equity||1,928,346||1,937,741|
|Prepaid expenses and other||30,898||11,281|
|Total current assets||1,324,956||1,311,674|
|Property, plant & equipment, net||543,697||522,054|
|Amortizable intangible assets, net||375,757||388,348|
|Deferred income taxes and other, net||178,325||178,896|
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