Profit margins....

Travelnut and Wintersun ...

Thank you for your insightful descriptions/explanation...
really good stuff. Complex subject matter. I have never
considered many of the aspects revolving around / in the RV
industry. Like some, I focus on "why can't I get more for less" ?,
and do feel guilty about never (in my life) having produced
a single widget...always on the consumer end. I can only
imagine the pressures on the CEO of privately held "family"
RV manufacturers...no thanks, not for me. I'll try to tone down
my grousing....

thanks.

Charles

Where do you draw the line between profit and safety? 2007 Forest River pin box/frame failure!. scroll down and check out the damage to this 7 year old 5`er. I don`t care if it was 30 years old, damage like this should not happen. This is cost cutting at it`s finest to increase profit margins!

The manufacturer need to make an RV at a price point that is competitive and allow for their dealers to make enough of a profit to invest in stocking their RV's on their lots. In 2007-2008 80% of the RV manufacturers in the USA closed their doors thanks to the destruction of our economy by the bankers and Wall Street. I would expect that the few that survived did so because they had little or no debt and had not expanded their operations in the preceeding years.

Petroleum goes into making many of the plastic and fiberglass and even the cost of making aluminum extrusions and this is reflected in higher manufacturing costs for each RV company. If the RV manufacturer does not stay on top of these costs and have a product that is 10% more expensive than a competitor, unless they are in the ultra high end segment of the market, their sales will take a hit.

Problem is that when sales or retail selling prices fall by 10% the bottom line impact on profits can be 50% or more as the manufacturers fixed costs stay the same. If a 100K RV costs $70K to build and the dealer needs to make $10K the manufacturer can make a $20K profit and probably stay in business. If the cost to build that RV increases only 10% to $77k they can either increase the MSRP to $110k and lose sales to competitors and possibly even have their dealers switch to selling another company's RV's instead or they can eat the $7k and instead of making $20K per unit they are making only $13K for a 35% decrease in their gross income. If their overhead spread across their sale units is only 5% or $5k their net income goes from $15K to $8K for a decrease in bottom line profits of 46%. 10% increase in production costs creating a 46% decrease in income for an RV manufacturer is something they are aware of and it keeps them looking for ways to at least keep costs from increasing year to year.

Naturally the RV manufacturers are going to focus on items that are not obvious to the consumer and don't show up in RV construction or component comparisons. I don't mind that but it would be great if they designed their products so it was easier and required less labor to make repairs or to upgrade individual components or make additions like solar panels without it becoming a "project".

cdlaine,

Having had a fine business for nearly 40 years before retiring, I do know something about true profits and perceived profits. I've watched so many of my competitors get into financial trouble, go under, or closedown over the years and I have also served on the board of directors of non-competitors for many years. A business can only manipulate bottomline financial reports for so long before it becomes known and the facts rear their ugly heads! True profits in businesses are much lower than most people seem to think.

An actual true example is that if I were to tell you that one large business I know well had just under 1 billion in after taxes net profit. Sounds like WOW! until I tell you that they had over 16 billion in sales for the business year. Actual true profit was a mere 5.5% and yet they were honored as an extremely profitable business partly because the previous year's bottomline final profit was only 3.9%. Simply and wisely investing that same 16 billion would have resulted in nearly the same 5.5% proceeds and not having but a few people employed to do it. Where would the present between 10,000 and 20,000 employees be working then? (not going to give the actual number of employees as it could be traced to the business name).

The only thing that is common to ALL businesses it that the proceeds coming into the coffers must be more than the overall cost of keeping the business operating/running. If not, certain demise will take over. The healthcare costs of uncertainty over the last few years is and has created a tight fist grip turmoil on business operations and outlooks. Depending on the near future developments/decisions, it may or will most likely decimate a huge percentage of businesses viability and any future growth unless solved correctly and honestly. Remember that the monies taken to finance forced programs/actions comes directly from the purchaser's of a businesses products or services. YOU, the buying public ultimately pay these costs whether you like it or not as no legal business prints their own money. It comes to them from SALES and the debt holders/stock owners must be repaid or the businesses stock/operating capital/borrowing ability will cease! You, the public are the one who is the product/services purchasers!

westernrvparkowner prettymuch summed it up as there's no difinitive answer to your thread post overall. There are vast differences in short term profits and long term profits. Most businesses bottomline goes up and down like yo-yo. One defined time period may exhibit high profitability and the next may be deep in the red. One thing to remember is that an "in the red" period doesn't just vanish into thin air. What actions taken or financial step entered into caused by the "in the red" period are usually spread out over a long period into the future plus interest etc accrued. Only way for a business to escape repayment is to file a bankruptcy section or sellout.

cdlaine wrote:
That's OK...

Thor’s stock is currently trading at a P/E multiple of 15.82 against the industry average multiple of 4.76 says StockCall. Other financials are also healthy indicators of the company’s growth potential including a gross profit margin of 12.58 and net profit margin of 4.20 percent against the industry average of 26.82 percent and 41.69 percent respectively whilst Thor’s Return on equity of 15.32 percent surpassed the industry average return of 2.19 percent.

Thank you ....guess it was answerable.... I have a brother
with an MBA from Stanford... they really do talk like the
blurb quoted. And he does it with twinkle in his eye !
Good stuff , thanks again. Appears a few players in the
marketplace must be doing much better then the industry
average. Hopefully, a good sign.

BTW... I don't even have a clue what "Googled the Q" entails. Ha !

Charles

Even with those figures, you really can't tell how well the company is performing. Are they spending enough on research and development to continue into the next decade? If not, they are overstating their earnings. Do they have interest rate exposure (i.e loans the come due that currently have a below market interest rate) so that when the loans renew, interest expense will escalate. Is maintance of buildings and equipment current or are there deferred expenses coming? Are they facing potential labor cost increases? Are pensions adequately funded? Do they have the ability to raise prices should cost of materials rise or will that squeeze margins? Profit statements are but a snapshot, and like photos, can be manipulated to show things differently than they really are.

That's OK...

Thor’s stock is currently trading at a P/E multiple of 15.82 against the industry average multiple of 4.76 says StockCall. Other financials are also healthy indicators of the company’s growth potential including a gross profit margin of 12.58 and net profit margin of 4.20 percent against the industry average of 26.82 percent and 41.69 percent respectively whilst Thor’s Return on equity of 15.32 percent surpassed the industry average return of 2.19 percent.

Thank you ....guess it was answerable.... I have a brother
with an MBA from Stanford... they really do talk like the
blurb quoted. And he does it with twinkle in his eye !
Good stuff , thanks again. Appears a few players in the
marketplace must be doing much better then the industry
average. Hopefully, a good sign.

BTW... I don't even have a clue what "Googled the Q" entails. Ha !

Charles

Francesca Knowles wrote:

JALLEN4 wrote:
You would first need to define profit...gross or net.

The word "profit" only has one meaning: the net left after all expenses are met.

That said:
The question asked in the opening post strikes me as unanswerable.

In a world populated by "Lemonade Stands" you are absolutely correct. In the real world of manufacturing and product retailing you could not be further from the truth!

Well I googled the the Q and snipped this from an article dated 6/25/2011

Thor’s stock is currently trading at a P/E multiple of 15.82 against the industry average multiple of 4.76 says StockCall. Other financials are also healthy indicators of the company’s growth potential including a gross profit margin of 12.58 and net profit margin of 4.20 percent against the industry average of 26.82 percent and 41.69 percent respectively whilst Thor’s Return on equity of 15.32 percent surpassed the industry average return of 2.19 percent.

Mr. Bombero,

It strikes me as.....so what?

What does it matter?

Why ask?

Post originator here... just wanted to increase my knowledge base...
nothing sinister...have learned much from the responses to this post...
thought that was the purpose of this forum. Thank you for your insights.

Charles

The Mfg per unit cost is based on how many units that they make. I would guess that RV mfg is on a 85% learning curve. In simple terms every time the number of units doubles it takes 15% fewer hrs to mfg the unit. If it takes 1000 hrs to make the first unit the second would be 850 hrs, the 4th would be 722 hrs and so on. The Mfg that builds and sells the most units that are the same would be able to sell the units cheaper and make the most profit. If they plan on building 1000 of the same units the 1000th unit would take about 440 mhrs to build, they would price the RV according.