Fleetwood Enterprises: High Gas Prices Means Slow RV Sales

There was a time in 2002 and 2003, when I vocally advocated on TV business shows (and was right) that the RV industry might see a big upswing due to all the Baby Boomers retiring.

What better way was there to spend one's new-found free time than to travel around the country in relative luxury, stopping wherever you please, whenever you please? But I was ahead of the curve then, and for the past year, I've been bearish on this once ripe for upside sector. The reason? High gas prices and less money in retirees' pockets.

On May 4, 2006, I blogged that "The Road Trip was Over" for Thor Industries, Inc. (THO), an RV manufacturer. I got many adamant responses telling me that I had it all wrong. Many of you said that nothing would tear you from your RV travel, so I started thinking maybe these Boomers were more dedicated to their RVs than I thought, and willing to pay for them, no matter the price. But gas prices continue to go up without any sign of improvement, and sales performance of RV makers continue to fall. Even the Boomers with expendable income are finding it just doesn't pay to travel with a vehicle that typically only gets between seven and 12 miles-per-gallon. With gas prices solidly in the $3-plus a gallon price range, we're looking at one expensive cross-country road trip! You might as well fly.

Which is why I'm bearish on Fleetwood Enterprises, Inc. (FLE), a leading producer of recreational vehicles and manufactured homes. FLE recently reported a fourth quarter sales decrease of 16% over last year, and within that, the RV group took a particular hit, declining by 12% for the quarter. Inventories seem to be piling up, as they didn't anticipate sales falling so much. I simply don't see how this can turn around any time soon.

Type of stock: A leading producer of mobile homes and RVs that has been hit by high gas prices.

Price Target: At its current price of $8.86, I don't think this is a smart buy. We're going to see Fleetwood sink more as gas prices rise. Ultimately, there could be consolidation which could provide a lift to the price, but it isn't worthwhile to chase the stock today in anticipation of an event whichmay be a few months or years off.

FLE 1-yr chart:

Comments

[NO DooDahs]

The problems I have with your writeup are that it lacks understanding of the issues on several accounts, lacks historical perspective, and apparently lacks research to back your conclusion (high gas prices = declining sales), which seems to have been predetermined.

RV owners "might as well fly?" Why? There's a lot to the RV experience that you don't seem to understand. There's a freedom of the open road and a itinerary that is penciled, not inked, in; there's an atmosphere at the parks and campgrounds where people meet their neighbors and chat; you can bring a lot more of home with you in an RV, including toys like ATVs or motorcycles, and you get to cook your own food. Keep in mind that the gas bill is shared by a family, while plane tickets are per person. There's also the fact that 5 nights at an RV park are a lot cheaper than 5 nights at a hotel. I don't think gas prices are going to influence that, and gas would have to be pretty expensive to outweigh the increased costs of parking your personal vehicle at the departure airport, renting another vehicle at the other airport, eating out, and increased lodging costs. One can bring their pets and get electric, water/sewer, and cable hookups, plus wifi and waterfront for around $30 a night in an RV park.

You have a glaring error in your writeup: "fourth quarter sales decrease of 16% over last year, and within that, the RV group took a particular hit, declining by 12% for the quarter." Hmm. It seems to me that if the average decrease was 16% and the RV group took 12%, that SOME OTHER GROUP besides RVs is the culprit. Like the Housing group? Duh, they only got cut in half! Plus, the housing group was shrinking before Katrina, in absolute and in share-of-revenues terms. BTW, if one really believes that stick-built housing is on the fritz for a while, and interest rates are going nowhere but up, the housing group could actually be a good turn-around segment. But back to the issue at hand, let's not forget that RV's, especially towables, have some really mean post-Katrina comps to meet. Not to worry, though, FEMA is hiding all of those trailers in Nebraska rather than releasing them on the open market, so there won't be a flood of used ones anytime soon. Plus, with the condition that FEMA is keeping them in, there won't be many buyers ...

I can understand why you want to sensationalize the gas price issue, it's sexy and current, and would be attractive to the mindset of the typical AOLer (disclosure, I'm on AOL, but apparently not typical). However, the price of gasoline would have little to do with the sales of the Housing group (-48%). It's obvious that Katrina had a huge impact on the Towable sales. Where one would expect gasoline prices to show up the most is the Class A and Class C sales, the Motor Home group, because these are the vehicles that consume their own gas. Fascinatingly, this group was +26% in sales, quarter to quarter. So much for gas prices. Year over year, this group was only –6% in sales, compared to the Towables –22% on Katrina comps.

I'm not long FLE, although with a short ratio of 3 weeks to cover and almost a year of trading under $9.50, it actually looks mildly interesting to me as a trade, after some review. It's obviously a company with some problems, and I'm not convinced it's a buy. I am convinced that your writeup needed some debunking, however.