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What Winnebago Wants Investors to Know

By Demitri Kalogeropoulos - Dec 22, 2018 at 2:00PM

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Highlights from the RV giant's latest earnings call.

It has been a surprisingly strong sales period for Winnebago (WGO -3.08%). The recreational vehicle specialist reported double-digit revenue growth for its fiscal first quarter, along with healthy earnings gains, to set it apart from RV industry rivals.

CEO Michael Happe and his executive team recently held a conference call with analysts to discuss those results and explain their outlook for the coming quarters. Below are a few highlights from that presentation.

An RV being towed by a truck

Image source: Getty Images.

Winning market share

We are pleased that overall revenues continue to grow organically and at a healthy pace, at a time when the RV industry is working to normalize its overall field inventory levels in relation to a more moderate retail pace. -- Happe

Investors had good reasons to fear a weak sales result this quarter, including the fact that peer Thor Industries (THO -4.18%) had just posted a 21% revenue slump while complaining about aggressive promotions on the part of RV dealerships. But Winnebago fared much better, with overall sales rising 10% thanks to a 13% spike in its towable business that was offset by a slight decline in the motorhome segment.

Executives said both the Winnebago and the Grand Design towable product franchises met with robust consumer demand in what they called a "clear affirmation" of their duel-branded selling approach. The 4% drop in motorhome sales also translated into market-share gains given the wider contraction in the industry.

Profitability success

Gross profit margin increased in the quarter, driven by favorable business mix due to continued growth in our towable segment and improved margins in our motorized segment, courtesy of pricing that has been implemented over the past year and also through operational improvements. -- Happe

Winnebago revealed improving profitability to buck the industry trend as gross profit margin ticked up to 14.4% of sales from 14%. The towables segment got a bit less profitable but still helped the business as the demand mix shifted toward those high-margin products. The motorhome division, meanwhile, managed healthy margin gains as Winnebago's investments in manufacturing started to pay off. Prices rose in that segment, too.

A soft landing ahead?

We are not projecting an RV industry shipment regression in calendar year 2019 that comes anywhere close to the historical RV downturn averages over the past 40 or 50 years. In fact, as our Q1 sales and results demonstrated, we at Winnebago are still focused on driving accretive growth to the industry in sales and EPS for as long as market conditions allow. -- Happe

Executives outlined several headwinds that could make the next few quarters choppy for its business and the wider industry, including rising interest rates and stock market declines. "sentiment in the broader RV market has been somewhat skittish lately," Happe explained, while admitting that some dealers are cutting back on their inventory levels.

Still, their best guess is that these challenges could still lead to a flat RV industry in 2019 after nine straight years of increases. That result would translate into only a modest slowdown rather than the sharp cyclical downturn that many investors feared.

Management noted that, in any case, Winnebago's retailing growth has been running at between 15 and 20 percentage points higher than the broader industry over the past few quarters. That success gives them confidence to believe that they'll boost sales and profits next year, even if the RV market stalls or takes a small step backwards.

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Stocks Mentioned

Winnebago Industries, Inc. Stock Quote
Winnebago Industries, Inc.
WGO
$45.31 (-3.08%) $-1.44
Thor Industries, Inc. Stock Quote
Thor Industries, Inc.
THO
$69.42 (-4.18%) $-3.03

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