The RV industry is in its ninth consecutive year of expansion, and that growth has helped Winnebago (NYSE:WGO) establish significantly stronger operating trends lately. On top of that success, management made a timely acquisition of a rival last year, and the acquisition has allowed the RV specialist to fill out its portfolio while boosting profit margins to new highs.

Yet investors turned bearish on the stock, especially over the last few months, as industry prospects weakened. How Winnebago deals with these mounting cost and demand challenges will determine whether shares can bounce back to their prior winning ways. And investors will get their first glimpse at these responses when the company announces its fourth-quarter earnings report on Wednesday, Oct. 17.

Sales and cost trends

Winnebago's last quarterly outing showed few signs of an impending sales slump. In fact, revenue jumped 18% to edge past management's guidance. Most of those gains came from the newly acquired towables business, though, as motorized RV sales inched higher by just 3%.

A motorized RV.

Image source: Getty Images.

CEO Michael Happe and his executive team are trying to address several challenges with the motorized lineup, including elevated production costs and a bloated portfolio. While being careful to warn investors that fixes will take time to lift sales and profit results, they say they're moving in the right direction. We'll find out on Wednesday if that's still the case, particularly as Winnebago's newest lineup of products makes its way into dealership inventories.

Faster growth will be hard to manage in this current sales environment, though. Rival Thor Industries announced a 13% decline in its motorized RV sales in late September, after all, while citing elevated dealership inventory levels.

More worryingly, Thor revealed lower profit margins that management blamed on rising labor expenses and higher commodity costs due to tariffs on key inputs like steel and aluminum. Winnebago was better able to manage these expenses in its last quarterly report, but that gap might be difficult to maintain for long. Thus, investors should keep a close eye on gross profit margin to see whether it rises, as it did last quarter, or begins contracting, as it has for industry peers.

Updated outlook

If Winnebago's stock makes a big move in response to Wednesday's report, it will likely be due to the company's updated outlook for the new fiscal year. By late July, that forecast stood at an approximate 8% boost in RV shipments in 2018, which would mark another record as more consumers sign up for the lifestyle that recreational vehicles provide.

Thor announced a sharp decline in its order backlog, though, which suggests dealers could be getting more cautious about demand over the next few months. The company also predicted that sales growth and profit margins will likely be pressured through the first half of 2019 before beginning to rebound again later in the year.

Winnebago will update its shareholders on these forward-looking indicators, including backlog, dealership inventories, and dealer price cuts, on Wednesday. It should also issue a more general outlook for the new fiscal year that will determine whether management thinks a 10th straight year of healthy industry growth is still in the cards despite those mounting cost challenges.

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