Thor Drops Accounting Hammer (THO)

Thor Industries, Inc. (NYSE: THO) is not a typical company we would cover for an earnings report.  Today is no normal earnings report.  The company did post rather impressive numbers, but that is not the issue.  The company disclosed in its press release that it may have restatements on prior reports due to auditor discussions.  If there are two phases investors hate, it is “restatements” and “material adverse events.”

Net income for the quarter was $34.1 million versus $2.1 million a year ago; earnings were $0.66 EPS versus estimates from Thomson Reuters of $0.60 EPS.  Sales for the quarter were $680.19 million, up 64% from $415.47 million a year ago and versus $679.1 million expected.

The problem is not earnings.  It is accounting.  These were preliminary results that have not been completed under auditor review.  And the possible restatement is what hurt shares today.  As started by the company:

• “The Company will file a Form 12b-25 (Notification of Late Filing and Application for Extension to File) with the Securities and Exchange Commission with respect to its Quarterly Report on Form 10-Q for the period ended April 30, 2010 (the “Company’s 10-Q”).  The extension is required because the Company’s independent auditor, Deloitte & Touche LLP (“Deloitte”), has not yet completed its review of the interim financial statements to be included in the Company’s 10-Q due to their evaluation of certain accounting positions previously taken by the Company….. Deloitte is addressing issues relating to the accounting treatment for (a) the Company’s transactions with Stephen Adams and FreedomRoads that were consummated in January 2009, and (b) repurchase reserves relating to agreements with lenders to the Company’s independent dealers and revenue recognition issues with respect to transactions with its independent dealers.  The Company’s accounting treatment for these matters is described in the Company’s 10-K.  The Company continues to work with Deloitte to address these matters.  If the Company is required to change its accounting for these items, there could be material adverse changes to the Company’s results of operations and financial condition for fiscal 2009 and for the first three quarters of fiscal 2010.”

Material adverse changes, that won’t give anyone out there (except short sellers) a THO for Thor….  We have seen over 5 million shares trade hands and the stock is down 6% at $26.34.  At the peak of selling today, the stock briefly traded under $21.00 per share.  The 52-week trading range is $16.65 to $36.85 and the average daily volume is a mere 750,000 shares.

JON C. OGG