The recreational vehicle industry is in its ninth straight year of expansion, and that tailwind has provided a nice lift for Winnebago's (NYSE:WGO) business lately. The company has made its own luck, too, including by expanding its towable camper offerings through its recent acquisition of the Grand Designs portfolio.
Despite strong sales gains and increasing profitability overall, though, Winnebago's business is showing signs of stress. Specifically, order backlog wasn't especially robust last quarter, and its core motorized RV segment is struggling with rising costs.
Those challenges raise the stakes for the company to show progress in its upcoming earnings report, set for Wednesday, June 20. Let's take a closer look at what shareholders can expect to see in that highly anticipated announcement.
Winnebago's sales pace has been holding up well, with revenue up 26% last quarter. That figure beat investor expectations, in fact, and was powered by a 57% spike in deliveries of towable camper products, while motorized RVs grew at a much slower rate.
However, backlog, both for towables and for motorized RVs, grew at a slower pace than in the prior quarter. As a result, management said they were "cautiously optimistic" that demand trends would be healthy as the company kicked off its peak spring and summer selling period.
We'll find out on Wednesday whether that optimism was warranted. Executives don't issue quarterly sales guidance, but Wall Street analysts are expecting sales of around $540 million, which would translate into a 14% increase over the prior-year period.
Meanwhile, investors have two good reasons to be focused on costs in this week's report. For one, Winnebago announced a sharp drop in profitability in its motorized RV segment last quarter. Management warned that it may take some time to stabilize this business as they invest in the company's manufacturing lines, but promised a "gradual but certain ascent to stronger performance." Shareholders will want to see evidence of that improvement in Wednesday's numbers.
Second, rival Thor Industries recently announced lower profit margins that management said were driven in part by the implementation of new tariffs on steel and aluminum inputs. With that backdrop, it will be interesting to see how those challenges impacted Winnebago's business.
The closest that management has come to issuing a full-year fiscal outlook was saying in comments back in March that the industry could grow at a roughly 7% pace in 2018. Given that Winnebago will likely boost market share in the period, it's reasonable for investors to expect significantly higher sales gains.
Still, CEO Michael Happe and his executive team cautioned back then that the industry expansion rate, while being supported by overall economic growth, could be held down by rising interest rates and higher costs associated with new trade barriers. Investors should find out this week just how significantly these challenges are impacting RV demand as warmer weather reached dealerships around the country.
News of a modest growth slowdown might hurt the stock over the short term. But it likely wouldn't be enough to knock Winnebago off of management's broader targets.
The company predicts steady market share expansion in each of the next three fiscal years as efficiency improvements and rising prices lift operating margin up to at least 10% of sales from 7.7% today. The key factor in those long-term results, in addition to the industry's health, will be Winnebago's ability to release a steady stream of innovative RV products. We'll find out on Wednesday whether the company got off to a strong start with its latest 2018 models.