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2009 Wrap-Up and 2010 Outlook

April 15, 2010
   
Summary

  • Wholesale Shipments Long Term Growth Resumes

  • Consumer Confidence Remains Weak

  • Jobless Recovery - Unemployment Tops 14% in Michigan

  • Gross Domestic Product and PCE Growth in 2010

  • Consumer Debt Shrinks and Interest Rates Rise

  • Real Estate Market Rebounds in 2010 after Bumpy Start

  • Recreational Vehicle Stock Index up 101%

  • RV Industry Bottomed Financially in Q1'2009

  • 2010 Forecast: Wholesale Units 238,200 - Retail Sales $5 Billion

  • RV Industry Indicator Changed to Green
 
Wholesale Shipments Long Term Growth Resumes

The RV industry suffered its worst year since 1991 in 2009. While 2010 is forecasted to rebound sharply, it will only reach 2008 shipment levels which were off 40% from their peak in 2006. Wholesale shipments in 2010 continue their strong year on year growth. That's little consolation though given the industry's negative growth rates for the past 10 years.

 
   
RV Wholesale Units (000)  Annual Growth Rate '09   Annual Growth Rate '10 
Motorized 1  Year 5 Year 10 Year 1  Year 5 Year 10 Year
Motorhome (Class A) -60.4% -33.8% -19.1% 84.5% -22.1% -12.4%
Van Conversion (Class B) -36.8% -13.7% -10.4% -1.7% -14.6% -10.0%
Mini-Motorhome (Class C) -49.6% -24.1% -11.0% 81.3% -12.8% -4.4%
Motorized Total -54.4% -29.1% -15.8% 75.0% -18.1% -9.4%
Towables            
Travel Trailers -20.8% -9.1% -1.5% 48.0% -5.7% 2.8%
5th Wheels -35.4% -16.6% -4.8% 47.0% -8.6% -1.4%
Folding Camper -34.9% -18.4% -14.7% -19.8% -21.4% -15.2%
Truck Campers -59.6% -27.7% -16.5% -22.5% -30.1% -18.3%
Towables Total -26.9% -12.6% -4.8% 41.4% -8.0% -1.0%
RV Total Units -30.2% -14.9% -6.4% 44.0% -9.4% -2.3%
             
   Annual Growth Rate '09   Annual Growth Rate '10 
RV Wholesale Units (000) 1  Year 5 Year 10 Year 1  Year 5 Year 10 Year
Motorized -54.4% -29.1% -15.8% 75.0% -18.1% -9.4%
Towable -26.9% -12.6% -4.8% 41.4% -8.0% -1.0%
Total Units -30.2% -14.9% -6.4% 44.0% -9.4% -2.3%
Source: RVIA 2010            
 
Consumer Confidence Remains Weak

 

The Conference Board Consumer Confidence Index®, which had decreased in February, rebounded in March. The Index now stands at 52.5 (1985=100), up from 46.4 in February.

According to The Conference Board Consumer Research Center:

  • Consumers continue to express concern about current business and labor market conditions
  • Consumers expecting fewer jobs in the months ahead decreased to 21.6% from 24.7%
  • Those anticipating conditions will worsen over the next six months declined to 13.9% from 15.9%
  • Those anticipating an improvement increased to 18.3% from 16.1%
  • General outlook for the next six months is still rather pessimistic
   
Jobless Recovery - Unemployment Tops 14% in Michigan

According to the BLS, both the number of unemployed persons (15 million) and the unemployment rate (9.7%) remained flat in March.  Over the past 12 months, the number of unemployed persons has increased by 1.1 million and the unemployment rate has risen by 0.7 percentage points. Of the states where most RV's are sold, California and Florida have taken the hardest hits. Unemployment will likely remain over 9% in 2010, in our opinion.

  • 47 California - 12.5%

  • 46 Florida - 12.2%

  • 34 Indiana - 10.7%

  • 19 Texas - 8.3%

  • 29 Arizona - 9.8%
   

Gross Domestic Product and PCE Growth Continue in 2010

We expect that real GDP will grow in the 4 to 5% and that personal consumption spending will increase 2 to 3% in 2010.

 

Highlights from the March fed report:

  • Real gross domestic product increased at an annual rate of 5.6% in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter) In the third quarter, real GDP increased 2.2%.

  • The increase primarily reflected positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment. 

  • Imports, which are a subtraction in the calculation of GDP, increased.

  • Real personal consumption expenditures increased 1.6% in the fourth quarter, compared with an increase of 2.8% in the third. Real nonresidential fixed investment increased 5.3%.

  • Real exports of goods and services increased 22.8% in the fourth quarter, compared with an increase of 17.8% in the third.  Real imports of goods and services increased 15.8%.

  • Real federal government consumption expenditures and gross investment were unchanged in the fourth quarter, compared with an increase of 8.0% in the third.

 
Consumer Debt Shrinks and Interest Rates Rise

We see easing of credit in 2010 as the last wave of the mortgage debacle passes and consumer debt settles into historically sustainable levels. While the Fed has stated that it will hold the range for federal funds under 0.25%, we have already started to see mortgage rates start to climb.

 

More from the Fed's March report:

 

Economic activity has continued to strengthen and the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

 

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities.

 

   

Real Estate Market Rebounds in 2010 after Bumpy Start

The real estate market continued to take a beating in 2009. The average home price has dropped by 25% ($79K) while the median price dropped 19% ($47K) since the peak of the bubble. Average home inventory levels have started to fall, breaking below 8 months in 2009. That's great news for first time buyers in particular, given existing government assistance programs. It's bad news for home builders though. To make things worse, foreclosures reached a 5 year high in March as banks opt out of renegotiating existing mortgages.

 
   
Recreational Vehicle Stock Index up 101% TTM
After setting several new all time lows in 2009, the RV Index has risen 101% in the last twelve months. This is faster than most industry segments and is no doubt benefitting from an overall rise in travel and tourism.
 
Industry Segments

12 Month Growth 
Basic Materials 74%
Financials 67%
Industrials 58%
  Automobiles 176%
Technology 51%
Consumer Services 49%
  Travel & Leisure 63%
      Airlines 96%
      Gambling 121%
      Hotels 133%
      Recreational Services 80%
      Restaurants & bars 32%
      Travel & Tourism 167%
Consumer Goods 38%
  Leisure Goods 53%
      Consumer Electronics 105%
      Recreational Products 91%
Health Care 36%
Oil & Gas 27%
Utilities 21%
Telecommunications 2%

Source: Dow Jones Indices
   

RV Industry Bottomed Financially in Q1'2009

[Composite of Component MRQ's ending in the October to December 2009 Period]

The industry bottomed in the first quarter of 2009 (MRQ-3) as can be seen in the composite snapshots below. We expect this trend to continue through 2010 as the industry returns to a significantly scaled down version of normalcy. As a result, and given our shipments expectations, we have changed the RV Industry signal light to green for the first time.

 

RV Stock Index Quarter    
Consolidated Income Statement MRQ-7 MRQ-6 MRQ-5 MRQ-4 MRQ-3 MRQ-2 MRQ-1 MRQ   TTM
Revenue   1,783,093  1,872,260  1,782,839  1,355,900     849,531  1,158,547  1,271,768  1,365,287      4,645,133
Cost of Goods Sold  1,514,997  1,571,539  1,514,071  1,147,794     740,251     977,221  1,052,925  1,117,920      3,888,317
Gross Margin     268,096     300,721     268,768     208,106     109,280     181,326     218,843     247,367         756,816
As a % of Sales 15.0% 16.1% 15.1% 15.3% 12.9% 15.7% 17.2% 18.1%   16.3%
                     
Operating Expenses                    
R&D      23,945       24,979       24,854       23,155       21,360       19,566       19,441       20,335          80,702
SG&A     160,593     157,335     184,877     149,568     122,723     126,295     119,682     130,519         499,219
Non Recurring        (2,954)       (3,682)       (4,993)       81,384       43,297        7,847        1,840        8,978          61,962
Others            429           429        1,242           429            88            88           563           181               920
Operating Expenses      182,013     179,061     205,980     254,536     187,468     153,796     141,526     160,013         642,803
As a % of Sales 10.2% 9.6% 11.6% 18.8% 22.1% 13.3% 11.1% 11.7%   13.8%
                     
Operating Income      86,083     121,660       62,788     (46,430)     (78,188)       27,530       77,317       87,354         114,013
As a % of Sales 4.8% 6.5% 3.5% -3.4% -9.2% 2.4% 6.1% 6.4%   2.5%
                     
Income from Continuing Operations                    
Total Other Income/Expenses Net       14,543       (3,728)        5,205        7,068       (6,949)           600        2,984       10,466            7,101
Earnings Before Interest And Taxes      100,626     117,932       67,993     (39,362)     (85,137)       28,130       80,301       97,820         121,114
Interest Expense         6,106        5,609        5,418        4,294        3,666        3,611       (2,205)        1,496            6,568
Income Before Tax       94,520     112,323       62,575     (43,656)     (88,803)       24,519       82,506       96,324         114,546
Income Tax Expense       35,378       33,907       21,954        1,814     (19,754)       14,715       67,933       23,596          86,490
Minority Interest               -              -              -              -              -              -              -              -                  -
Net Income From Continuing Ops       59,142       78,416       40,621     (45,470)     (69,049)        9,804       14,573       72,728          28,056
                     
Non-recurring Events                    
Discontinued Operations               -              -              -       (4,850)           459           824           203         (564)               922
Extraordinary Items               -              -              -              -              -              -              -              -                  -
Effect Of Accounting Changes               -              -              -              -              -              -              -              -                  -
Other Items               -              -              -              -              -              -              -              -                  -
Net Income       59,142       78,416       40,621     (50,320)     (68,590)       10,628       14,776       72,164          28,978
Preferred Stock And Other Adjustments               1              2              3              -              -              -              -              -                  -
Net Income Applicable To Common Shares       59,143       78,418       40,624     (55,170)     (68,131)       11,452       14,979       71,600          29,900
As a % of Sales 3.3% 4.2% 2.3% -4.1% -8.0% 1.0% 1.2% 5.2%   0.6%
                     
EBITDA     119,827     153,414     103,422       (6,717)     (46,379)       54,603     111,029     123,361         240,767
As a % of Sales 6.7% 8.2% 5.8% -0.5% -5.5% 4.7% 8.7% 9.0%   5.2%
                     
                     
RV Stock Index (Δ% from previous Quarter)       Quarter        
Consolidated Income Statement MRQ-7 MRQ-6 MRQ-5 MRQ-4 MRQ-3 MRQ-2 MRQ-1 MRQ
Revenue  -15.4% 5.0% -4.8% -23.9% -37.3% 36.4% 9.8% 7.4%
Cost of Goods Sold -14.8% 3.7% -3.7% -24.2% -35.5% 32.0% 7.7% 6.2%
Gross Margin -18.3% 12.2% -10.6% -22.6% -47.5% 65.9% 20.7% 13.0%
As a % of Sales -- ppt -0.5% 1.0% -1.0% 0.3% -2.5% 2.8% 1.6% 0.9%
                 
Operating Expenses                
R&D 2.5% 4.3% -0.5% -6.8% -7.8% -8.4% -0.6% 4.6%
SG&A -4.0% -2.0% 17.5% -19.1% -17.9% 2.9% -5.2% 9.1%
Operating Expenses  -0.3% -1.6% 15.0% 23.6% -26.3% -18.0% -8.0% 13.1%
As a % of Sales -- ppt 1.5% -0.6% 2.0% 7.2% 3.3% -8.8% -2.1% 0.6%
                 
Operating Income -40.9% 41.3% -48.4% -173.9% 68.4% -135.2% 180.8% 13.0%
As a % of Sales -- ppt -2.1% 1.7% -3.0% -6.9% -5.8% 11.6% 3.7% 0.3%
                 
EBITDA -36.0% 28.0% -32.6% -106.5% 590.5% -217.7% 103.3% 11.1%
As a % of Sales -- ppt -2.2% 1.5% -2.4% -6.3% -5.0% 10.2% 4.0% 0.3%
                 
Income from Continuing Operations                
Total Other Income/Expenses Net  5.5% -125.6% -239.6% 35.8% -198.3% -108.6% 397.3% 250.7%
Earnings Before Interest And Taxes  -36.9% 17.2% -42.3% -157.9% 116.3% -133.0% 185.5% 21.8%
Interest Expense  -17.2% -8.1% -3.4% -20.7% -14.6% -1.5% -161.1% -167.8%
Income Before Tax  -37.8% 18.8% -44.3% -169.8% 103.4% -127.6% 236.5% 16.7%
Income Tax Expense  -32.7% -4.2% -35.3% -91.7% -1189.0% -174.5% 361.7% -65.3%
Net Income From Continuing Ops  -40.6% 32.6% -48.2% -211.9% 51.9% -114.2% 48.6% 399.1%
                     
                     
RV Stock Index Quarter    
Asset Management Metrics MRQ-7 MRQ-6 MRQ-5 MRQ-4 MRQ-3 MRQ-2 MRQ-1 MRQ   Average
Asset Turns (Rev/Assets)           1.8           1.9           1.8           1.4           0.9           1.3           1.6           1.8               1.6
Inventory Turns           6.3           6.3           6.0           4.3           3.0           3.9           5.0           5.6               5.3
Days Sales Outstanding            34            35            36            53            71            52            38            34                42
ST+LT Debt to Equity Ratio          0.36          0.39          0.39          0.43          0.39          0.37          0.36          0.41              0.38
Return on Assets (Net Inc/Assets) 6.0% 8.0% 4.2% -5.9% -7.3% 1.3% 1.8% 9.5%   3.1%
                     
Net Receivables     676,421     732,871     721,379     804,714     672,464     665,660     533,612     517,154         664,902
Inventory     962,108  1,005,105  1,001,951  1,072,209     988,416     998,693     848,177     799,223         963,111
Total Assets  3,910,795  3,914,889  3,869,027  3,760,069  3,743,486  3,664,422  3,275,456  3,017,072      3,672,667
                     
Short Term Debt      27,186       24,201       29,692     126,391     129,990     176,817     150,504       56,647          85,005
Long Term Debt     653,767     660,580     656,195     641,658     582,294     491,608     451,850     559,055         591,859
Total Debt     680,953     684,781     685,887     768,049     712,284     668,425     602,354     615,702         676,864
Debt to Equity Ratio          0.36          0.39          0.39          0.43          0.39          0.37          0.36          0.41              0.38
                     
Total Liabilities  2,074,876  2,186,037  2,171,435  2,195,832  2,048,286  1,960,851  1,748,300  1,657,510      2,009,289
Total Shareholder Equity  1,912,040  1,766,827  1,751,700  1,778,071  1,824,869  1,827,391  1,658,276  1,518,885      1,766,561
Total Liabilities + Shareholder Equity  3,986,916  3,952,864  3,923,135  3,973,903  3,873,155  3,788,242  3,406,576  3,176,395      3,775,849
                     
                     
RV Stock Index (Δ% from previous Quarter)  Quarter            
Asset Management Metrics MRQ-7 MRQ-6 MRQ-5 MRQ-4 MRQ-3   MRQ-2   MRQ-1   MRQ      
Asset Turns (Rev/Assets) -15.6% 4.9% -3.6% -21.7% -37.1% 39.3% 22.8% 16.5%    
Inventory Turns -12.2% -0.7% -3.4% -29.2% -30.0% 30.7% 26.9% 12.7%    
Days Sales Outstanding 21.1% 3.2% 3.4% 46.7% 33.4% -27.4% -27.0% -9.7%    
ST+LT Debt to Equity Ratio -1.6% 8.8% 1.0% 10.3% -9.6% -6.3% -0.7% 11.6%    
Return on Assets (Net Inc/Assets) -40.4% 32.5% -47.6% -239.7% 24.0% -117.2% 46.3% 418.9%    
                     
Net Receivables 2.5% 8.3% -1.6% 11.6% -16.4% -1.0% -19.8% -3.1%    
Inventory -3.0% 4.5% -0.3% 7.0% -7.8% 1.0% -15.1% -5.8%    
Total Assets 0.3% 0.1% -1.2% -2.8% -0.4% -2.1% -10.6% -7.9%    
                     
Short Term Debt -37.7% -11.0% 22.7% 325.7% 2.8% 36.0% -14.9% -62.4%    
Long Term Debt 3.8% 1.0% -0.7% -2.2% -9.3% -15.6% -8.1% 23.7%    
Total Debt 1.1% 0.6% 0.2% 12.0% -7.3% -6.2% -9.9% 2.2%    
Total Liabilities 1.7% 5.4% -0.7% 1.1% -6.7% -4.3% -10.8% -5.2%    
                     
Total Shareholder Equity 2.7% -7.6% -0.9% 1.5% 2.6% 0.1% -9.3% -8.4%    
Total Liabilities + Shareholder Equity 2.2% -0.9% -0.8% 1.3% -2.5% -2.2% -10.1% -6.8%    
 
 
2010 Forecast: Wholesale Units 238,200 - Retail Sales $5 Billion

2010 will be a better year than 2009, but worse than 2008 and a bad year historically as can be seen when we look at RV sales versus GDP. In 2010, we are forecasting RV sales to be 0.035% of GDP, one half of the last five years on average. We expect wholesale shipments of 238,200 units and retail sales of $5 billion in 2010.

 

Our forecast methodology remains the same as last year. We have modeled our recovery after the post-1979 crash, adjusted for seasonality and volume.

 

According to the RVIA, RV shipments are projected to total 185,800 units in 2010, a 26.5% increase from the projected 2009 total, according to RV industry analyst and director of consumer surveys at the University of Michigan Dr. Richard Curtin. Gains are expected over the next two years as negative financial factors give way to improved market conditions.
 
Forecast 2010 Wholesale Retail Sales Nominal GDP
Summaries Units % Chg ($B) % Chg ASP % Chg ($T) % Chg RV %
RV Investor      238.2 44.0%        5.0 -48.0%     21.2 -0.3% 14.3