Recreational vehicle giant Winnebago (NYSE:WGO) has benefited from a mix of good luck and solid execution lately. Shares trounced the market in 2017 as the RV industry completed its eighth straight year of healthy expansion. Winnebago made the most of that positive momentum, too, as an acquisition of a competitor filled out its portfolio and delivered soaring sales gains last year.

The company is aiming to extend its growth into 2018 with fiscal second-quarter earnings due out on Wednesday, March 21. Let's take a look at what investors can expect from that report.

A motor home driving past a snow-covered field.

Image source: Getty Images.

Dealership inventory

Wall Street expects Winnebago to post sales of roughly $442 million, which would translate into a 19% gain over the prior-year period. The boost would mark a sharp deceleration from the prior quarter's 83% revenue spike, but only because a full year has now passed since the company added Grand Design and its portfolio of towable RV products to its sales base.

Winnebago's last quarterly report showed no hints of weakening demand as the industry enters its ninth year of expansion. Backlog, which represents orders from dealerships set to ship over the next six months, jumped 21% in the motorized division and leapt by 59% in the towable segment. However, not all investors think that momentum will hold up. The stock has declined so far in 2018 thanks to worries that Winnebago's growth pace will stall as dealers pare back on inventory levels. We'll find out on Wednesday whether those fears were justified.

Expanding profitability

Winnebago's acquisition of the Grand Design franchise instantly made the company a complete RV specialist that could market a full range of motor homes, towables, and travel trailers. It also boosted profit margins to new highs because towable products are so profitable.

WGO Operating Margin (TTM) Chart

WGO Operating Margin (TTM) data by YCharts.

Gross profit margin improved to 14.4% of sales in the most recent fiscal year, up from 11.6%. And that positive trend has continued so far in 2018, with gross margin up by over 2 percentage points in the fiscal first quarter. Another solid profitability hike this week would suggest Winnebago's new lineup of vehicles is resonating with RV fans. It would also demonstrate that management's $500 million acquisition of the Grand Design brand in late 2016 is still paying dividends.

Looking beyond 2018

Winnebago's long-term plans target reaching market share of at least 10% in the core U.S. industry by 2020, up from 6.5% at the end of 2017. It will need much higher production capacity to achieve that ambitious goal, and so management is pouring resources into three major expansion projects, the first of which should begin aiding the towables business in the fiscal third and fourth quarters of 2018.

The company has to balance that production need against the risk that it overbuilds and is burdened with too much capacity during a cyclical downturn. Manufacturing gains that closely track demand, on the other hand, should help Winnebago expand its sales base while executives make progress toward the 10% operating margin they hope to achieve in the next three years, up from the 7% rate the RV specialist posted in 2016.

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