Winnebago (NYSE:WGO) recently posted mixed quarterly results that paired solid sales growth in its towable RV fleet with mounting profit struggles in its motor home division. The company also projected caution about demand levels heading into the peak selling season.
Following the earnings announcement, CEO Michael Happe and his executive team held a conference call with analysts to put those trends into perspective. Below are a few highlights from that presentation (all quotes are Happe's).
Strong sales results
We're pleased that overall revenue continues to grow organically and profitably at a strong pace.
With a year having passed since the acquisition, this was Winnebago's first quarter of fully integrating its Grand Designs business into its results. And, while revenue growth slowed to 26% from 83% in the prior quarter, the expansion pace still reflects healthy gains on both the top and bottom lines. Sales grew at a faster pace than the broader industry, and gross profitability improved to 14.4% of sales from 13.3% a year ago.
Towables are in high demand
The towable industry segment remains healthy, continues to grow, and importantly, we as a company are capturing meaningful shipment and retail market share across the segment with both the Winnebago and Grand Design brands.
Most of the quarter's gains came from Winnebago's towable products, which expanded by 55% and now account for 57% of the overall business. Executives see a long runway for growth, here, given that the segment accounts for 85% of RV sales in the industry. Winnebago's share of that market has jumped to the mid-single-digits today, they estimate, from less than 1% before the Grand Designs acquisition. And with backlog continuing to expand, management is "optimistic about the ability of our towables businesses to make materially more progress in the market."
Struggles in the motorized segment
[Motor home] shipment numbers were light versus the industry's overall numbers, but both Winnebago dollar and unit shipment showed a positive comp versus our own second quarter a year ago.
Winnabago's motorized division expanded by less than 2%, which implies steady, or slightly lower, market share. Yet that result marked an improvement over the prior quarter and suggests the business may finally be stabilizing. On the other hand, cost challenges mounted thanks to rising expenses and extra investments in manufacturing lines. Adjusted profitability fell by 3.4 percentage points, in fact, and executives promised a tough road ahead on this score. "This won't be an overnight fix," Happe said, "rather a gradual but certain ascent to stronger performance."
The industry outlook
We remain cautiously optimistic that the calendar year 2018 will see another positive increase in shipments and retail in North America.
The recreational vehicle industry association predicts that the industry will grow for its ninth straight year in 2018, and the rate they landed on was 7%. Winnebago executives said they see that forecast as a good starting point, but cautioned that risks such as rising interest rates and increasing cost pressures from steel and aluminum tariffs could drive the actual result lower.
Looking forward to warmer weather
Foot traffic and buying interest and results in various RV retail shows across the country has generally been quite solid. Not foreshadowing a material and sudden decrease in consumer interest in RVs this spring or summer.
Winnebago believes its inventory position is well balanced today and that the broader industry isn't suffering from the type of overproduction that would drive reduced profitability and a sharp sales slump. That said, the real test is coming over the next few months, when its fleet of new RV products goes up against tough competition in dealership lots around the country.