The recreational vehicle (RV) industry may be experiencing only a gradual rebound in retail demand after a late 2018 peak, but manufacturer Winnebago Industries (WGO 2.06%) is outpacing peers in sales growth and market-share capture. The Forest City, Iowa-based RV giant released fiscal first-quarter 2020 results on Friday morning, and its surprisingly strong organic revenue growth kindled an enthusiastic market response, as shares traded up nearly 10% at midday.
Let's parse the details of the quarter below, keeping in mind that all comparative numbers refer to those of the prior-year quarter.
Winnebago: The big-picture numbers
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $588.5 million | $493.6 million | 19.2% |
| Net income | $14.1 million | $22.2 million | (36.5%) |
| Diluted earnings per share | $0.44 | $0.70 | (37.1%) |
Data source: Winnebago Industries.
Key highlights from the quarter
- Winnebago's towable segment achieved a sales improvement of 16.5%, to $341.3 million, mostly from rising sales of the Grand Design RV brand.
- Motorhome segment revenue increased by 24.6%, to $225.9 million, due to the acquisition of competitor Newmar Corporation on Nov. 8. Winnebago shelled out a total consideration of $270 million in cash plus 2 million of its common shares in the purchase. After removing Newmar's impact during the first quarter, motorized sales advanced by 4.9%.
- Adjusting for the Newmar acquisition, organic revenue between both segments rose by 12%, to $552.8 million, an impressive result given that dealer-inventory rationalization (i.e., the rightsizing of vehicles on dealer lots to meet the appropriate level of current retail demand) has continued industrywide during the second half of calendar-year 2019.
- Total order backlog increased by 20.7%, to $627.1 million. Towable backlog dipped by 26%, while motorized backlog essentially doubled from the addition of Newmar's unfilled orders and the introduction of new Winnebago-branded products.
- The company's gross margin declined by 100 basis points, to 13.4%, due to a change in product mix stemming from the Newmar acquisition, as well as purchase-accounting adjustments related to the transaction.
- Adjusting for $10 million in Newmar transaction costs, operating margin slipped by 100 basis points, to 5.5%.
- Also adjusting primarily for the impact of the Newmar purchase, earnings per share rose 4.3%, to $0.73.
Image source: Getty Images.
Management's perspective
As I noted last quarter, demand for Winnebago's product offerings seemed to stabilize in its last reporting period, and this quarter's organic top-line advance indicates solid momentum in the new fiscal year. In the company's earnings press release, CEO Michael Happe discussed its progress in gaining market share via both current and acquired product lineups:
We delivered strong consolidated results for the first quarter of Fiscal 2020 as we continued to make progress in transforming Winnebago Industries into a premier outdoor lifestyle company. Overall revenue growth remains strong, driven by vibrant Class B sales in our Motorhome segment and another stellar quarter from Grand Design in the Towable segment. These businesses are driving significant market share gains in the RV industry. Our RV retail market share is now 10.8% on a trailing three month basis through October, up 1.7 share points over the prior year period and exceeding our 2020 goal of 10% we established in November, 2017.
Our results included approximately three weeks of contribution from the recently acquired Newmar business, the foremost luxury motorhome manufacturer in North America. We are extremely focused on the integration of the Newmar business and ensuring a smooth transition for Newmar's employees, dealers, and end-customers. Our continued growth reflects our competitive position in the RV industry and the resilience of our diversified portfolio, which has positioned us well to deliver solid results despite prevailing industry headwinds.
Sales of Class B vehicles (i.e. camper vans, the smallest class size), which Happe refers to above, have recently compensated for slightly softer sales in Class A and Class C vehicles (the largest class and midsize class, respectively, of RVs). This is the second-consecutive quarter in which the Class B sales have propelled motorized revenue, while the Grand Design RV brand has led the towable category.
If orders in Winnebago's two larger vehicle classes firm up in the coming quarters, this consumer discretionary investment, which more than doubled in 2019, may continue to reward shareholders in the new year.
