Winnebago (WGO 0.19%) recently posted fiscal third-quarter earnings results that seemed disappointing at first glance. Sales fell for the second straight quarter despite the company having predicted stabilizing trends three months earlier. Winnebago managed healthy growth in its towable RV segment, but its motorized division suffered from slumping revenue and reduced profitability.
Yet management said in a conference call with investors that there are a few reasons they see that decline quickly reversing itself in the fiscal fourth quarter, and below we'll take a closer look at a few highlights from that presentation.
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Winning market share in a tough selling environment
While we are not immune from the North American RV industry headwinds that have persisted during our fiscal year, our consolidated, competitive position and the strength of our diverse set of product lines have enabled us to once again outpace the industry. -- CEO Michael Happe
Sales fell 6% to mark just a small improvement over the prior quarter's 8% decline. Executives pointed to continued efforts by dealerships to trim their inventory following booming sales in 2018. Still, Happe and his team noted that Winnebago won market share again during the quarter, mainly thanks to its more robust portfolio of products that span the towable and motorized niches. Rival Thor Industries (THO 0.31%) announced a 23% sales volume drop over the same period.
Standout towable wins
Unit shipments in our towable segment were up 6.5% for the quarter, despite efforts by dealers to lower inventories on most competitive towable product lines, leading to industry wholesale market declines of 24% calendar year-to-date. -- Happe
The towable segment, which benefits from having two massive franchises, Winnebago and Grand Design, far outpaced the industry by logging 7% higher volume. Further indications of strength here include rising average prices and improved profitability, with adjusted profit margin jumping to 16.5% of sales from 14.5% of sales. The results, Happe said, translated into more than a full percentage point of market-share gains on towable products.
Just a temporary hit
We believe we will return to normalized levels of production and sales [of motorized RVs] by the end of our current fourth quarter, as we are already seeing an improvement in flow of supplies today in the fourth week of the quarter. -- CFO Bryan Hughes
The most worrying sign in the report was a surprising 35% drop in motorized RV sales that management said in a press release was driven in part by a supply disruption for a key input. On the conference call, executives said that not only do they see the problem ending in the current quarter, but they believe they'll recapture most of the lost sales from the disruption over the next few months. They cited the slight backlog decrease as evidence that sales and production levels will return to normal in the fiscal fourth quarter.
A bright long-term outlook
It appears RV industry retail sales for calendar year 2019 will be down versus last year in the mid-single-digit range and this will elongate the recovery period for the industry. -- Happe
Management lowered their industry outlook slightly as they now see RV volumes falling in the mid-single-digit range rather than the low-single-digits. Winnebago still expects to gain market share throughout 2019, with sales falling only modestly as profitability inches higher.
Happe and his team said they are as confident as ever about the company's long-term opportunities across the RV and recreational boating spaces. And those comments weren't simply positive talk. The company backed up their bullish statements by announcing two major capital projects, one on towables and the other on Chris-Craft boats, that will lift capacity starting in 2020.
