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It gets worse!

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From the Wall Street Journal today

Motor-Home Shares Need a Lift

Will Jump in RV Orders to House
Displaced Hurricane Victims
Help the Industry Rebound?
By IAN MCDONALD

Staff Reporter of THE WALL STREET JOURNAL October 26, 2005

Steep gasoline prices and cash-strapped customers gave shares of motor-home makers flat tires recently. But a brutal hurricane season might get them rolling again.

Sales of motor homes -- a category that includes trailer-type campers as well as higher-end motorized mobile homes -- slumped in recent quarters, thanks partly to rising interest rates and sticker shock at the pump. Average retail gasoline prices have gone to almost $2.63 a gallon from $2 over the past 12 months, according to the American Automobile Association.

Not surprisingly, retirees' "See America" mantra has quieted and shares of mobile-home makers such as Thor Industries Inc., Winnebago Industries Inc., Fleetwood Enterprises Inc. and Monaco Coach Corp. have had double-digit declines this year.

Trailers of FEMA-sponsored temporary housing.

But Hurricanes Katrina and Rita have left hundreds of thousands of Gulf Coast evacuees homeless and vast swaths of the coastline littered with unsalvageable homes. More than 200,000 houses were destroyed or seriously damaged by Katrina in Louisiana alone, state officials estimate. And Hurricane Wilma, which battered Florida's coast this week, is expected to add to the need for housing.

To meet the demand, the Federal Emergency Management Agency, or FEMA, has ordered about 125,000 mobile homes, according to data from the Department of Homeland Security, of which FEMA is a part. The bulk of these recreational-vehicle orders are for so-called travel trailers being delivered to Louisiana, Mississippi, Alabama and Texas.

"We're dealing directly with manufacturers and units are being delivered at a rate of about 500 a day," says James McIntyre, a FEMA spokesman monitoring the housing effort in Baton Rouge, La.

Mr. McIntyre says FEMA hasn't placed any mobile-home orders for Hurricane Wilma yet and it is too early to say whether more mobile homes will be needed to house displaced hurricane victims. Several so-called FEMA villages from past hurricanes in Florida are still in place. Wilma is the eighth hurricane to hit the state in 15 months.

Still, as industry watchers debate whether this storm season could be a transformative event for the industry, investors haven't gotten too excited. Despite some scattered upticks, most RV makers' shares haven't made headway this storm season.

A mother and son in temporary shelter in Mississippi after Hurricane Katrina.

In 4 p.m. composite trading yesterday on the New York Stock Exchange, Thor's stock was down nine cents to $32.90, Winnebago's dropped 51 cents to $26.99, while Fleetwood shed 14 cents to $10.51 and Monaco slid 17 cents to $12.28.

The shares are well below where they started the year. Of the quartet, only the shares of Thor, which has a market value of $1.9 billion, and Fleetwood, which has a market value of $601 million, have made modest progress since Katrina's landfall in late August.

Meantime, corporate orders are coming in, too. Large companies with local operations like Dow Chemical Co., ConocoPhillips and Chevron Corp. have scrambled to secure trailers or other temporary housing for workers, according to local news reports. These orders come during what is usually a lull for the RV business.

The gush of new orders has many RV manufacturers who were trimming costs and production in recent months, going full tilt. "This is usually when things slow down," says Kathy Munson, a Fleetwood spokeswoman. "But the travel-trailer business has been robust."
Travel trailers are towable campers of various sizes that are pulled behind a car or truck. Early on, government officials were buying rigs off of lots, but now they are ordering trailers without tanks to hold water and waste because most of these trailers will be stationary and hooked up to local power and plumbing.

The RV category also includes higher-end mobile homes, and these have been ordered, too. Retail prices for the broad spectrum of rigs can range from $4,000 to more than $400,000, according to data from the Recreation Vehicle Industry Association.

Orders from the government and businesses that need to house staffers to rebuild infrastructure, appear to be significant for the RV industry. FEMA's orders alone add up to nearly $2 billion, according to the Department of Homeland Security. The previous record for FEMA's storm-related orders was 18,000 last year. In total, about 370,000 RV units were sold for about $14 billion in 2004.

Given that most of the industry's roughly 140 manufacturers are private companies, the dispersion of this recent order glut isn't easy to gauge. Public records of government contracts list smaller, closely held firms and dealers nationwide. But some of the industry's publicly traded firms have shed light on the issue.

FEMA has ordered 7,500 travel trailers and about 3,000 manufactured homes from Fleetwood. Monaco Coach has disclosed a 2,000-trailer FEMA order. Champion Enterprises Inc. will build 2,000 manufactured homes for FEMA.

Even without FEMA contracts, the companies are likely to benefit from the jump in demand as dealerships near hurricane areas sell trailers to individuals, local governments and companies due to the lack of viable housing in affected areas. Last month Thor reported a record 13,000 orders for towable RVs with many of the orders coming from dealers selling to Katrina evacuees.

"Industry demand for travel trailer units to house evacuees will likely keep factories operating at near full capacity utilization for at least the next three to six months," BB&T analyst John H.
Diffendal wrote in a Sept. 23 note summarizing the current RV-sales landscape.

Mr. Diffendal has a "hold" rating on Monaco and Winnebago and a "buy" rating on Champion and Fleetwood. His firm "expects to receive or intends to seek compensation for investment-banking services" from the companies.

Most of these RV makers' stocks trade at low- to mid-teen multiples of their expected per-share profits in 2006, within shouting distance of their historical valuations and that of the average stock in the Standard & Poor's 500-stock index.

These stocks were a bright spot during the bear market for stocks when low interest rates and baby boomers approaching retirement age were stoking demand. Last year's sales were the highest since 1978, according to the Recreational Vehicle Industry Association.

In July, Berkshire Hathaway Inc., the Omaha, Neb., holding company managed by investor Warren Buffett, announced plans to acquire closely held Elkhart, Ind., RV maker Forest River Inc.

Hal MAGNA 6477