Thor investor presentation 6.6.16

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1. www.thorindustries.com INVESTOR PRESENTATION JUNE 6, 2016 2. 2 FORWARD LOOKING STATEMENTS This presentation includes certain statements that are “forward looking”…
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  • 1. www.thorindustries.com INVESTOR PRESENTATION JUNE 6, 2016
  • 2. 2 FORWARD LOOKING STATEMENTS This presentation 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 Industries, Inc., and inherently involve uncertainties and risks. These forward looking statements are not a guarantee of future performance. There can be no assurance that actual results will not differ from our expectations. Factors which could cause materially different results include, among others, raw material and commodity price fluctuations, material or chassis supply restrictions, legislative and regulatory developments, the costs of compliance with increased governmental regulation, legal issues, the potential impact of increased tax burdens on our dealers and retail consumers, lower consumer confidence and the level of discretionary consumer spending, interest rate fluctuations and the potential economic impact of rising interest rates, restrictive lending practices, management changes, the success of new product introductions, the pace of obtaining and producing at new production facilities, the pace of acquisitions, the potential loss of existing customers of acquisitions, the integration of new acquisitions, the loss or reduction of sales to key dealers, the availability of delivery personnel, asset impairment charges, cost structure changes, competition, the impact of potential losses under repurchase agreements, the potential impact of the strengthening U.S. dollar on international demand, general economic, market and political conditions and the other risks and uncertainties discussed more fully in ITEM 1A of our Annual Report on Form 10-K for the year ended July 31, 2015 and Part II, Item 1A of our quarterly report on Form 10-Q for the period ending April 30, 2016. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this presentation or to reflect any change in our expectations after the date of this presentation or any change in events, conditions or circumstances on which any statement is based, except as required by law.
  • 3. 3 THOR AT A GLANCE Founded in 1980 by Wade Thompson & Peter Orthwein with the acquisition of Airstream, Inc. One of the world’s largest manufacturers of recreational vehicles representing a broad range of major brands Two major business segments include: • Towable RVs such as travel trailers, fifth wheels and specialty trailers • Motorized RVs which include Class A, B and C motorhomes Operations in 148 facilities* located in Indiana, Michigan, Ohio and Oregon Products sold through independent retail distributors primarily in the U.S. and Canada Historically strong cash flow and solid balance sheet Approximately 10,450 employees* Listed on the NYSE under ticker THO $1,849 $2,340 $2,640 $3,242 $3,525 $4,007 FY10 FY11 FY12 FY13 FY14 FY15 Net Sales (continuing operations, $ millions) $1.72 $1.66 $2.07 $2.86 $3.29 $3.79 FY10 FY11 FY12 FY13 FY14 FY15 Diluted EPS (continuing operations) *as of July 31, 2015
  • 4. 4 THOR’S RV PRODUCT RANGE Travel Trailers (hitch to the bumper of the tow vehicle) Fifth Wheels (hitch to a specially mounted hitch in the bed of a pickup truck) Specialty Trailers (includes camping trailers, truck campers and horse trailers with living quarters) Towable RV's $3,096.4 77% Motorized RV's $870.8 22% Other $39.6 1% FY2015 Sales* Towable RV Segment Products Class A Motorhomes (fully enclosed, bus style motorhome) Class B and C Motorhomes (B – van motorhomes, C – living area built on van or pickup chassis) Motorized RV Segment Products *Fiscal Year ended July 31, 2015, in millions
  • 5. 5 CONSISTENT GROWTH IN EARNINGS $1.72 $1.66 $2.07 $2.86 $3.29 $3.79 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 FY10 FY11 FY12 FY13 FY14 FY15 Diluted EPS, Continuing Ops. $91.2 $91.6 $111.4 $151.7 $175.5 $202.0 $0 $50 $100 $150 $200 $250 FY10 FY11 FY12 FY13 FY14 FY15 Net Income, Continuing Ops., $ Millions
  • 6. 6 REGULAR QUARTERLY DIVIDENDS Fiscal years ended July 31, $0.10 $0.15 $0.18 $0.23 $0.27 $0.30 FY11 FY12 FY13 FY14 FY15 FY16 *In addition to regular quarterly dividends, Thor paid special dividends of $1.50 in FY13 and $1.00 in FY14. The declaration of future dividends and the establishment of the per share amounts, record dates and payment dates for any such future dividends are subject to the determination of the Board, and will be dependent upon future earnings, cash flows and other factors.
  • 7. 7 THOR OPERATING ENTITIES – STRONG BRANDS
  • 8. 8 STRATEGIC VISION FOR GROWTH At Thor we strive to provide RV consumers with superior products and services through innovative solutions which enhance the enjoyment of the RV lifestyle Our decentralized operating structure and independent operating subsidiaries foster an entrepreneurial spirit and an unending focus on the needs of the users of our products – resulting in our drive to lead the industry with innovation, product quality and customer service Our focus requires that we make decisions based on the long-term success of our Company: • While we strive to lead the industry in market share, we will not strive for market share at the expense of quality or without regard to bottom-line impact • Growth is important, but this is a business of relationships, and we realize that the key to long-term sustainable sales growth rests in the strength of our relationships with consumers, dealers and suppliers • Our relationship with shareholders is important ― profits are a key driver to our long-term success • The path to long-term success is seldom straight, so our leaders manage in a way that moves us closer to our goals, even though it might impact our results in the short term
  • 9. 9 THOR COMPETITIVE ADVANTAGES Primary focus on assembly: • Vertical integration – only where it makes sense • Flexibility – performance in any market condition • Low overhead costs • High return on assets employed Strong market share in the primary RV categories – Travel Trailers, Fifth Wheels and Motorized (#1 in motorized, #2 in towables)* • Provides scale and purchasing power • Low cost, high volume producer – generates improved margin Solid balance sheet Meaningful increases in production capacity during FY14 and FY15 Diversified lineup of innovative product offerings Strong relationships with wholesale financing providers Excellent relationships with dealers, lenders and consumers based on financial strength to provide warranty and honor repurchase agreements *Source: Statistical Surveys, Inc., U.S. and Canada, year-to-date through March, 2016.
  • 10. 10 INVESTING IN THE FUTURE - CAPACITY $12,767 $33,698 $10,442 $24,190 $30,438 $43,055 $0 $10,000 $20,000 $30,000 $40,000 $50,000 FY10 FY11 FY12 FY13 FY14 FY15 Thousands Capital Acquisitions $19,756 $99,562 $170 $10,718 $86,092 $194,486 $0 $50,000 $100,000 $150,000 $200,000 $250,000 FY10 FY11 FY12 FY13 FY14 FY15 Thousands Business Acquisitions
  • 11. 11 CORPORATE INTEGRITY No golden parachutes No ‘pro forma’ earnings. We report net income, not adjusted earnings to cover up performance Consistent focus on shareholder value Simple compensation philosophy: • Mainly cash compensation based on pre-tax income – a true pay- for-performance philosophy • Restricted stock units also awarded based on performance to provide broader, long-term focus on overall Company results
  • 12. 12 RV INDUSTRY CONDITIONS REMAIN POSITIVE Although consumer confidence has remained range bound since the beginning of 2016, it remains at the highest levels since the recession. Final results rose to 94.7 in May from 89.0 in April. This compares with 90.7 a year ago.* Consumers are more optimistic about their financial prospects and anticipate somewhat lower inflation rates in the future. The main areas of uncertainty for consumers surround whether the Federal Reserve will increase interest rates over the next few months and the potential impact of the Presidential election on the overall economy.* Recreation Vehicle Industry Association (RVIA) forecast in May 2016 that calendar 2016 wholesale shipments for all RV categories should increase to 396,400 units, or an increase of 5.9% over calendar year 2015.** Pricing and promotional environment remains competitive, but generally improved over prior year. Domestic travel offers fewer risks than international travel at a more compelling value. Low fuel prices make RV travel increasingly attractive for consumers. *Source: University of Michigan final Consumer Sentiment Index for May 2016 **Source: RVIA Roadsigns Summer 2016
  • 13. 13 CONSUMER TRENDS: GROWING RV POPULARITY Leisure travel such as camping continues to be popular* Approximately 29.7 million households in North America camp at least once a year, but only 22% of them are RV campers. The remaining campers primarily use tents or cabins, which makes them a solid target market for the RV industry. Favorable demographics* Baby boomers (a prime RV target market for many years) represent 24% of the population and are a target market as they reach retirement age and have more time for travel. Generation X and Millennials offer future opportunities as they seek more active outdoor experiences with their families. Increasingly diverse potential customer base – Hispanic, African American, Asian and other ethnicities grew from 13% in 2012 to 23% in 2015. Younger campers (25-34 age) are also a growing market – from 18% in 2012 to 23% in 2015. New applications – broader usage Growth in use at extreme sporting events, youth sports leagues and tournaments, dog and craft shows, and collegiate sports activities for alumni and fans. *Source: Kampgrounds of America (KOA) 2015 North American Camping Report
  • 14. 14 CONSUMER TRENDS: GROWING RV POPULARITY Opportunities with Millennials* Millennials (defined as age 19-35) are camping more, with 58% surveyed indicating they plan to camp more nights in 2016. This dempgraphic is camping in groups, as they view camping as an opportunity to spend time with family and friends. Younger campers also view camping as a way to reduce stress, escape the pressures of everyday life, be more active and lead a healthier lifestyle. Increasing Diversity Among Campers* Although Hispanic, African American, Asian and other ethnicities accounted for 23% of campers in 2015, they represented 40% of new campers in 2015 – showing their strong, long-term growth potential. These increasingly diverse campers view camping as an affordable vacation option that allows them to be more active, reduce stress and spend more time with family and friends. Hispanic campers have grown from 6% to 8% of campers over the past year. Based on survey responses, they also seem much more likely to continue camping, as they were the group most likely to say they plan to spend more nights camping in 2016. *Source: Kampgrounds of America (KOA) 2015 North American Camping Report
  • 15. 15 POSTLE ALUMINUM ACQUISITION ENSURES SUPPLY OF KEY MATERIAL COMPONENT On May 1, 2015 Thor acquired Postle Aluminum, based in Elkhart, Indiana, for approximately $144 million in cash, net of cash acquired. Postle generated sales of approximately $220 million in calendar 2014 and we expect the acquisition to be accretive to earnings. Approximately 30% of total sales are to Thor subsidiaries and approximately 75% of total sales were to the RV industry. The remaining sales are to the specialty truck and trailer, cargo, marine and fencing industries. Postle produces a variety of aluminum extrusions, specialized components and powder coating and painting services. The current management team will continue to lead the company as a separate Thor subsidiary.
  • 16. 16 THIRD QUARTER REFLECTS RECORD PERFORMANCE Three Months Ended April 30, 2016 2015 % Chg. Net Sales $1,284.1 $1,174.3 9.4% Gross Profit 201.9 166.6 21.2% % of Sales 15.7% 14.2% SG&A 80.8 68.9 17.3% % of Sales 6.3% 5.9% Income Before Tax (cont. ops.) $116.3 $94.6 23.0% % of Sales 9.1% 8.1% Income Taxes 37.1 31.0 Net Income (cont. ops.) $79.2 $63.6 24.6% Diluted EPS (cont. ops.) $1.51 $1.19 26.9% Amounts in millions, except per share data
  • 17. 17 THIRD QUARTER 2016 RESULTS FROM CONTINUING OPERATIONS UP DOUBLE DIGITS Bob Martin – Thor President & CEO: “We continued to see the benefits of executing our strategic operating plan in the third quarter, resulting in record sales and bottom-line results. As our core markets continued to grow, we were able to generate improved margins and profitability based on growth in revenues, improved product mix and lower material costs. This spring we have visited dealers and attended dealer meetings where we have heard consistent feedback that our dealer partners are seeing an influx of younger consumers entering our markets, which gives us optimism for the long-term growth of our business and industry. As we see growth of younger and more ethnically diverse consumers, we continue to invest in new product features and floorplans to meet their needs. Thor leads in innovation with new technology features that make RVs easier to use and better connected, positioning us to expand our markets over the long term.” Peter Orthwein – Thor Executive Chairman: “Since our founding, Thor has pursued strategic growth through acquisitions in markets with the greatest opportunities, followed by investments to support their growth and long-term success. The record results we posted this quarter illustrate the power of our business model, particularly when the market is performing as well as it is currently. As we continue to build on our history, we have every reason to be optimistic about the future of Thor and our industry, particularly as we attract younger families into the RV lifestyle to drive future growth in sales, net income and total returns to our shareholders.” $1,174.3 $1,284.1 FY15 FY16 Net Sales ($ millions) +9% $63.6 $79.2 FY15 FY16 Net Income (Continuing Ops.) +25% $1.19 $1.51 FY15 FY16 Diluted EPS (Continuing Ops.) +27% $726.8 $1,056.8 FY15 FY16 RV Backlog ($ millions) +45% Note: Third quarter 2016 Results include Postle acquired May 1, 2015.
  • 18. 18 KEY TAKEAWAYS Profitable every year since our founding in 1980 – 35 years of profitability We are primarily assemblers, not manufacturers Variable cost structure provides flexibility in cyclical industry Known as innovators in the industry Strong market share in all main RV product categories Solid balance sheet – history of returning cash to shareholders Strong consumer, dealer and lender relationships Experienced team
  • 19. www.thorindustries.com Appendix: Financial and Market Data
  • 20. 20 INVESTOR Q&A: THIRD QUARTER AND YEAR- TO-DATE OPERATING RESULTS Sales growth for the third quarter of 9.4% decelerated from the first half of the year of 13.0%, what was different in the first half? • The growth rate in third quarter revenues was driven by the continued growth in the overall RV market as well as the solid market acceptance of our numerous new products and features introduced at Open House last fall. The growth in the Open House over the past several years has resulted in a shift in revenues earlier in the fiscal year as dealers tend to place more of their orders in September rather than at Louisville in early December, resulting in deliveries and related revenues occurring earlier in the fiscal year. In addition, some of the growth in the first half of fiscal 2016 was due to acquisitions that were not included in prior year figures. • Compared with the growth in industry wholesale shipments, we have been significantly outperforming in the motorized segment (36% growth vs. 17% industry growth), and slightly underperforming in the towable segment (7% growth vs. 10% industry growth). Our performance in the towable market is driven, in part, by our outsized presence in the fifth wheel segment of the towables market, which has been much softer than the travel trailer segment of the towables market so far this calendar year. In travel trailers, we have been nimble in shifting production and growing our production capacity toward the market trends of lower-cost travel trailers that have been popular with new, younger consumers entering the market.
  • 21. 21 INVESTOR Q&A: THIRD QUARTER AND YEAR- TO-DATE OPERATING RESULTS (CONTINUED) What were the drivers of third-quarter and year-to-date gross margin improvements? Is the current gross margin percentage sustainable? • Improvements in gross margin were due primarily to favorable changes in product mix and improvements in material costs compared to the prior year. Growth in gross profit margin will become more challenging in the fourth quarter as certain benefits to gross margin, specifically the $10 million impact of the retroactive reinstatement of tariff rebates on certain imported raw material in the fourth quarter of fiscal 2015, will not repeat in the fourth quarter of fiscal 2016. We believe it is important to view the sustainability of gross margin rates on an annual basis and we believe our current annual gross margin rates are sustainable so long as current market and economic conditions remain positive. Can you explain the factors that drove the 150 basis-point increase in gross margin in the quarter? • The increase in overall gross margin was primarily the result of improved gross margin in the Towable Segment driven primarily by improvements in product mix and material costs as a percent of sales. For Towable RVs material, labor, freight-out and warranty costs as a combined percentage of Towable net sales decreased to 78.3% for the three months ended April 30, 2016 compared to 80.0% for the three months ended April 30, 2015. This decrease in percentage was primarily the result of a decrease in the material cost percentage of sales due to favorable product mix, selective net selling price increases and improved material management since the prior year period. Freight-out improved as a percentage of sales as well.
  • 22. 22 INVESTOR Q&A: QUARTER AND YEAR-TO- DATE OPERATING RESULTS (CONTINUED) What factors are causing Corporate selling, general and administrative expenses to increase for both the quarter and year-to-date periods? • For the quarter, Corporate selling, general and administrative expenses increased $2.4 million to $12.1 million for the three months ended April 30, 2016 compared to $9.7 million for the three months ended April 30, 2015. The increase is primarily due to an increase in compensation costs, as bonuses increased $0.3 million in correlation with the increase in income from continuing operations before income taxes compared to the prior year, and stock-based compensation increased $0.6 million. The stock-based compensation increase is due to increasing income from continuing operations before income taxes over the past three years, as most stock awards vest ratably over a three-year period. In addition, deferred compensation expense increased $0.3 million, which relates to the equal and offsetting increase in net other Corporate income, due to the market value change in the deferred compensation plan assets. Legal and professional fees also increased $0.7 million, largely attributable to fees incurred related to strategic growth initiatives and increased sales and marketing initiatives.
  • 23. 23 INVESTOR Q&A: THIRD QUARTER AND YEAR- TO-DATE OPERATING RESULTS (CONTINUED) What factors are causing Corporate
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