Winnebago (NYSE:WGO) is just about synonymous with recreational vehicles and the RV lifestyle, which is why its decision to buy powerboat maker Chris-Craft was such a surprise.
Other than the fact that they both tend to be large, expensive vehicles, RVs and and pleasure boats don't seem to have much in common, but Winnebago CEO Michael Happe thinks there is a very "significant intersection between the RV and marine lifestyles," and he views the boating life "as a natural adjacency to our existing outdoor lifestyle portfolio, with similar customer demographics and significant ownership crossover."
Winnebago is getting a quality brand in Chris-Craft, though we don't know how much it paid Stellican since the financial details weren't released. The boat company traces its roots back to 1874, but is arguably best known for the beautiful wood hull powerboats it manufactured in the early to mid-part of the last century.
More alike than not
More recently, the powerboat market has been enjoying a resurgence after sinking during the recession. The National Marine Manufacturers Association (NMMA) reports boat sales are at a 10-year high, rising 5% to 262,000 units sold last year, while marine spending was at an all-time high, reaching $39 billion in 2017.
That's not unlike the RV market, which is in the middle of its own renaissance, posting eight consecutive years of higher wholesale shipments, and 2018 is off to a banner start, too.
Also like RVs, the boat market is dependent on a growing economy, and it counts on factors such as growth in the gross domestic product, an improved housing market, strong consumer confidence, and increased disposable income to spur demand for new boats. The economy certainly seems to exhibit all of those factors, which should bode well for both industries.
Powersports vehicle maker Polaris Industries (NYSE:PII) also just dove back into the boating market, buying pontoon maker Boat Holdings for $805 million cash. It, too, says there's a lot of crossover between boat owners and the powersports vehicle market, noting 30% of its owners also own a boat. Winnebago says over 30% of boat owners also own an RV, too.
Looking to diversify
The rationale behind Winnebago's acquisition, though, is that it is looking to diversify its revenue stream. In the investor presentation that accompanied the purchase announcement, the RV maker said buying Chris-Craft "aligns with Winnebago's strategy to further diversify portfolio and add new growth platforms within outdoor lifestyle market."
Expanding into new, profitable markets is one of Winnebago's five strategic priorities, and though Chris-Craft is its first foray into these new waters, it's likely not going to be the last. After digesting the acquisition and exploring ways to expand the boat maker's organic opportunities, the RV maker says it will look for additional acquisitions in the space.
Even so, because the two industries have such similar demographics and appear to rely upon many of the same individuals to buy both types of vehicles, this may not be quite as diversifying as Winnebago's management suggests.
Rough seas ahead
Although the powerboat market has been speeding along on relatively calm waters, the Trump administration's decision to impose tariffs on aluminum and steel has caused turmoil. The NMMA called them a "severe blow to the competitive global market manufacturers depend on," and said the entire boat market was being targeted in retaliation by Canada, Mexico, and Europe.
Moreover, those trading partners are the top three export markets for U.S. marine products, and last year, they represented almost 70% of marine exports.
Winnebago already reported feeling the effects of the tariffs even before they were imposed because steel and aluminum producers began raising prices in anticipation. Other industry players like Camping World Holdings and Thor Industries are bracing for the impact as well.
Still, buying into the boat market seems appropriate as it represents an $8 billion market opportunity. With an expanding economy, higher disposable incomes, low unemployment, and buoyant consumer confidence, Winnebago ought to be able to navigate potentially choppy waters caused by existing trade policies.