Shares of THOR Industries, Inc. THO, the largest manufacturer of recreational vehicles (RVs) in the world, have plunged 11.5% year to date (YTD), underperforming the Zacks Building Products - Mobile Homes and RV Builders industry’s growth of 13.5%. The major causes for the decline were rising challenges in the RV market and increasing investment in automation and innovation strategies, which impacted the company’s margins.

Image Source: Zacks Investment Research

What’s Plaguing Thor?

In fiscal 2024, THOR’s consolidated revenues and net income declined 9.7% and 29%, respectively, on a year-over-year basis due to challenges in the RV market. The RV market is highly cyclic, with high interest rates and affordability issues hurting Thor. In the trailing four quarters, THOR missed EPS estimates on two occasions and surpassed twice, with the average negative earnings surprise being 16.52%.

Substantial investments in automation and innovation strategies are causing an uptick in SG&A expenses as a percentage of sales, exerting pressure on profit margins. In the last reported quarter, SG&A as a percent of sales increased to 11.2% from 8.7% reported in the year-ago quarter. 

The Recreational Vehicle Industry Association moderately reduced the 2024 forecast of wholesale shipments in North America in September, given the economic pressures on consumers and adorability issues. Soft consumer confidence has resulted in a decline in THOR’s backlog, which doesn’t bode well for its sales. As of Oct. 31, 2024, the order backlog in the North American Towable segment rose 17.2% while the backlog in North American Motorized and European units fell 22.2% and 38.7%, respectively, on a year-over-year basis.

RV Market to Remain Weak in the Near Term

THOR expects the RV market to remain challenging throughout fiscal 2025 (ending on July 31, 2025) amid macroeconomic headwinds. Despite the interest rate cuts, which augur well for the company, THOR expects North American retail demand to improve not before the second half of fiscal 2025. In fiscal 2025, the company expects a decline in the European segment's net sales compared to the record levels achieved in fiscal 2024, which were driven by the restocking of European independent dealer inventories to normal levels. 

THO forecasts overall revenues for fiscal 2025 in the band of $9-$9.8 billion, suggesting a decline from $10 billion generated in fiscal 2024. 

The Zacks Consensus Estimate for THOR’s fiscal 2025 sales and earnings are expected to decline 6.37% and 9.11%, respectively. The earnings estimates for fiscal 2025 have been revised down by a penny over the past 30 days.

Why THO is a Hold Now 

Amid a challenging economic environment, strategic acquisitions have fueled THOR’s market position. The acquisitions of EHG and TiffinHomes have brought commercial synergies, making THOR the world's largest RV manufacturer and expanding its product portfolio. The EHG buyout has bolstered its foothold in the European market. The acquisition of Airxcel strengthens the supply chain and diversifies revenues, especially in the aftermarket business. The Elkhart buyout has helped THOR secure an unconstrained supply of Elkboard.

THOR Industries is expanding its revenue streams beyond its core RV segments through strategic initiatives like RV Partfinder and its North American parts strategy. RV Partfinder improves the customer and dealer experience by reducing repair cycle times and enhancing service efficiency, encouraging loyalty and repeat business. The North American parts strategy aims to establish nationwide parts supply by 2025 to increase parts sales and strengthen dealer relationships. 

THOR's EV push is poised to bolster its prospects in the ever-evolving world of transportation. Recognizing e-mobility as the future, the company has been diligently working on its electrification strategies. As a leader in the industry, THOR has harnessed emerging technology and extensive research to create adaptable platforms for future products. THOR's strategic partnership with Harbinger is set to expedite its plans to electrify its entire RV lineup, including larger Class A motorhomes.

While the consensus estimate for fiscal 2025 indicates pessimism, things are likely looking up for fiscal 2026. The Zacks Consensus Estimate for THOR’s fiscal 2026 sales and earnings are expected to rise 8.01% and 40.48%, respectively. 

THO currently carries a Zacks Rank #3 (Hold)

Stocks to Consider

Some better-ranked stocks in the auto space are Dorman Products, Inc. DORM, Tesla, Inc. TSLA and Blue Bird Corporation BLBD, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.66% and 51.98%, respectively. EPS estimates for 2024 and 2025 have improved 75 cents and 88 cents, respectively, in the past 60 days.

The Zacks Consensus Estimate for TSLA’s 2024 sales suggests year-over-year growth of 3.36%. EPS estimates for 2024 have improved 22 cents in the past 60 days. EPS estimates for 2025 have improved 7 cents in the past 30 days.

The Zacks Consensus Estimate for BLBD’s fiscal 2025 sales and earnings suggests year-over-year growth of 10.97% and 12.14%, respectively. EPS estimates for fiscal 2025 have improved 18 cents in the past 30 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Thor Industries, Inc. (THO) : Free Stock Analysis Report

Tesla, Inc. (TSLA) : Free Stock Analysis Report

Dorman Products, Inc. (DORM) : Free Stock Analysis Report

Blue Bird Corporation (BLBD) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research