The last 12 months have been brutal for the recreational vehicle industry, and Winnebago Industries (WGO 0.59%) wasn't immune to those difficult selling conditions. Yet the RV giant's recent acquisitions in the towable and boating segments helped it post nearly flat results in fiscal 2019 even as motor home sales fell by over 20%.
In its latest earnings report, Winnebago showed encouraging progress in that struggling division that could help the company quickly return to growth in fiscal 2020. Let's dive right in.
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Sales trends
Fourth-quarter sales trends beat expectations, as revenue declined by 1% rather than the 3% drop most analysts had forecast. Consistent with recent quarters, that steady growth picture changes when you look behind the top-line number.
Winnebago's towable segment grew 6% in the quarter and for the full fiscal year. Motor home sales fell 12%, on the other hand, and their 18% decline over the past 12 months represented just minor outperformance compared to the 22% slump for the industry as a whole. Still, executives were happy that overall revenue was roughly steady despite several major headwinds. "In the face of challenging RV market conditions," CEO Michael Happe said in a press release, "we drove increased share in our towables segment and continued to stabilize our motorhome platform with improved products and dealer relationships."
Profits and pricing
At the same time, the consumer discretionary specialist did a good job countering rising tariff rates and higher commodity costs to protect profitability. Gross profit margin rose by 0.6 percentage points as the sales base tilted more toward high-margin towable sales. And extra spending on the supply and manufacturing base had just a minor impact on the bottom line. Operating profit landed at $155 million for the year, or 3% below 2018's mark. A lower tax rate, meanwhile, ensured that net income improved to $112 million, 9% higher year over year.
The motor home division showed some encouraging signs of stabilization in recent months. Earnings were supported by higher prices, reduced promotions, and a well-received product pipeline, management said. As a result, adjusted profitability jumped in the fourth quarter to mark a sharp improvement from the past six months. "We are specialist pleased to deliver record profitability ... against the headwinds of ongoing tariffs and higher levels of competitive promotional activity," Happe said.
Looking forward
Winnebago doesn't issue detailed sales projections, but investors have a few good reasons to expect a return to growth in fiscal 2020. First, dealer inventory levels have been improving in the motor home segment for several quarters and the lots are closer to normal purchasing patterns following the excess shipment surge from late 2018. The company should see solid contributions from its towables segment, as well as from other recently acquired brands like Chris-Craft and now Newmar. Finally, the prospects across the RV industry look good as consumers scale up their commitment to outdoor activities.
It's impossible to know how shopping trends will play out over the next year, but there's no question that Winnebago has a stronger, more diverse portfolio today than it did at the end of fiscal 2018. Judging from the stock's rally in recent weeks, investors are happy with that progress.
