By Elaine Low with Inventor’s Business Daily
“This has a little bit more bling,” says the Lazydays RV dealer off screen.
The camera cuts to a compact, yet very upscale bathroom, equipped with a standing shower and above-counter vessel vanity sink. It then pans to the motorhome’s expansive interior — including a diner booth, broad kitchen countertop, full-size fridge and set of bunk beds outside the master bedroom.
The pair of shoppers behind him marvel at the amenities. The words “palace” and “beautiful” are used at least once. All told, the Class A Forest River Georgetown goes for $156,000.
Recreational vehicles these days can cost upwards from a half million dollars, and those featured on the Travel Channel’s “Big Time RV” tend to be the highest of the high-end. But the RV lifestyle is not just some quirky niche for retirees – it’s a market that continues to rebound from 2009 lows, which is a good thing for RV and RV components makers like Thor Industries (THO), Winnebago Industries (WGO) and Drew Industries (DW).
The Wealth Effect
In 2015, RV shipments from manufacturers to dealers hit their “best annual total since 2006,” according to the Recreation Vehicle Industry Association (RVIA). That’s a 4.9% year-over-year increase to 374,246 units, it said, including a 7.6% jump in motorhomes and a 4.5% rise in towables (think travel trailers and toy haulers that have to be hitched to the back of another vehicle).
Lower gas prices were the biggest factor contributing to last year’s pop in shipments, RVIA Western Show Director Tom Gaither told IBD. Lower interest rates and tame inflation also help.
“When gas goes up, people get scared of driving RVs, in terms of cost,” he said. But when prices are below $4 or so a gallon, “they like to go out and buy more trucks and buy more RVs.”
On the retail end – sales from distributors to RV owners — North American demand for towables and motorhomes rose 13% last year, wrote Baird analyst Craig Kennison in a March 8 note, citing Statistical Surveys data.
“We believe a wealth effect among more affluent consumers has released pent-up demand among current RV owners, while demographic trends bring new buyers to the market – especially young people and former tent campers,” Kennison wrote.
Thor Industries has about a dozen RV brand names in its portfolio and has built itself into a heavyweight by consolidating many of the industry’s top brands. It saw per-share profit from continuing operations in Q2 rise 51% to 86 cents a share on 14% revenue growth to $975.1 million, easily topping estimates for the January-ended quarter and reporting the “strongest first half of any fiscal year in the history of our company,” Executive Chairman Peter Orthwein said in a March press release.
Towable sales – which account for about three-quarters of Thor’s total revenue – edged up 3%, while motorhome sales popped 37% during the quarter. It also notched revenue gains from its 2015 acquisition of aluminum extrusion producer Postle.
The Airstream parent’s shares jumped 8% in the week following its Q2 earnings report in March, but have since traded sideways and remain up about 10% so far this year. The stock has held support at its 10-week moving average but has been unable to find lift to decisively clear a 63.09 buy point from a cup base.
When the Elkhart, Ind., outfit reports fiscal Q3 results, analysts expect it to log 20% earnings growth and 10% in revenue gains. Thor said in March that it expects “more modest” RV revenue growth in the latter half of fiscal 2016. The company plans to deliver preliminary Q3 results on June 6.
Baby Boomers’ Babies Buy Trailers
The core RV customer remains the graying baby boomer set, but Gaither says there’s a growing number of mid-30- to mid-40-somethings that are buying towables like toy haulers with which to tote their motorcycles and ATVs. Some of these vehicles look like a “moving man cave or moving bar,” he said, furnished with several refrigerators, flat screen TVs and leather sofas.
“I’m guessing that these people are probably kids of baby boomers that grew up camping and had a great family experience,” said Gaither. “They’re not joiners, they don’t want to be part of a club, they want to do their own thing — but they know a camping experience is a family experience.”
Lazydays RV CFO Randy Lay also noted a similar shift in demographics. A decade ago, when the RV industry was experiencing a peak right before the Great Recession, he saw more customers that were “retired or near retirement.”
Now, the company’s “towable business has been on a tear,” with millennial interest in trailers increasing over the last three to five years as more fully-featured towables have hit the market.
“The age of purchase skews a little bit younger now,” he said, though their customers are mostly in their 50s or nearing 60, with an income of about $75,000-$80,000. About 50%-60% of Lazydays RV customers finance some or all of their RV purchase, said Lay. The five-location chain has a 126-acre lot in Tampa, Fla., that it bills as the “world’s largest RV dealership.”
Thor is the dealer’s most popular motorhome brand, followed by Winnebago and privately-held Jayco. Business has recovered “very, very nicely” since the recession, he said.
Winnebago turned in mixed results when it reported its fiscal Q2 in late March. Earnings grew to a better-than-expected 35 cents a share. But revenue disappointed analysts with a 4% decline to $225.7 million, with management citing weak motorhome revenue. New Chief Executive Mike Happe has “set a fresh tone,” said Baird’s Kennison, “with an emphasis on building the right structure, teams and processes to foster a more accountable and better-performing organization.”
“We are curious what the new CEO’s strategic vision will be, but we suspect it will involve acquisitions and more branding initiatives around both the motorized and towable segments, especially given Happe’s sales and marketing experience,” Morningstar analyst David Whiston wrote in December.
Analysts expect Winnebago earnings to recover to single-digit growth with a 2% slip in revenue this year, followed by a 17% EPS gain and a 7% rise in sales for 2017. The stock managed an uptrend from February to April, but it remains mired in a gradual decline begun in December 2013.
Manufacturing in The Fast Lane
One of the hottest stocks in the industry is the most thinly traded: Drew Industries.
Drew makes RV parts and components for manufacturers including Thor and Berkshire Hathaway (BRKA)-owned Forest River. The company comfortably beat consensus views when it reported earlier in the month, driving shares to a new record high.
Analysts’ consensus calls for a 39% EPS gain this year, with sales growth slowing to 13%, down from 18% in 2015. For 2017, forecasts see a 12% EPS gain and 7% revenue growth.
Another rising segment of the RV component business involves solar panels. RVIA’s Gaither said around 60% of RVs are equipped with solar panels now, where there were hardly any 10 years ago. The devices allow RV enthusiasts to be off the grid longer and save on generator activity.
Overall, RV activity appears to be growing at a steady pace. The RVIA sees industry shipments rising 2% to 381,100 units in 2016. That gain is less than half of 2015’s increase, but in terms of the number of units, the total was “more than double the industry’s 2009 recession low,” it said.
“It’s amazing how (the RV market has) bounced back from the 2009 numbers,” said Gaither, who highlighted the breakneck manufacturing pace of the four RV plants in the California area that belong to Forest River, Pacific Coachworks, Eclipse and Genesis Supreme.
“These guys are just going as fast as they can go,” he said.
To read the original article, go to Thor, Jayco Trailers, Winnebago Turnaround Key to RV Story in 2016
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