Investors were happy with Winnebago Industries' (WGO 0.50%) latest earnings report, which showed surprising sales growth even as the RV industry contracts. The gains imply another record fiscal year ahead for the company, which has now made three game-changing acquisitions since 2015.
In a conference call with investors, CEO Micheal Happe and his team discussed the impact of that growing portfolio, and how it should ensure steady sales growth in 2020.
Image source: Getty Images.
Breaking down the results
Top-line growth during the quarter was driven once again by strong performance from our towable segment, Class B motor home performance, and ... a short period of sales contribution from Newmar. We are particularly encouraged that organic revenues at Winnebago Industries without Newmar continue to grow at a healthy pace, up over 12% versus the prior year.
-- Happe
Winnebago's 19% sales boost was partly due to its recent acquisition of the luxury RV brand Newmar, but the company's organic growth also impressed, with towable RV products spiking and motor homes rising, too. Overall, organic sales climbed 12%, which translated into more market share gains against peers like Thor Industries.
Fixing the motor home segment
Reestablishing a premium leadership position in [the motor home] business remains a key priority for us in fiscal year 2020. We've enhanced our lineup of high-quality Winnebago-branded motorized RVs by launching innovative products and designs. Additionally, the acquisition of Newmar has energized our company by adding a highly respected premium brand that allows us to compete in the high-end luxury motor home markets.
-- Happe
Investors mostly saw costs from the Newmar acquisition reflected in this earnings report. Transaction expenses and early integration moves pushed operating margin down to 5.5% of sales from 6.5% a year ago, in fact.
Executives said they're confident that the purchase will pay off over time, mainly by boosting Winnebago's strength in the high-end, luxury, and Class A niches of the motorized RV industry. Wins here should help lift that segment closer to the blockbuster results that investors have seen with the company's towable segment, which itself was boosted by the 2017 acquisition of Grand Designs. Management is hoping for a repeat performance in 2020, with the Newar purchase allowing it to grow RV sales in a difficult selling environment.
Staying in the winners' circle
In total, we feel that there is a better equilibrium in the market, where the winners fairly gain ground and market share and those with work to do have difficulty with traction. Winnebago Industries is hopeful we will be one of those winners in 2020.
-- Happe
Winnebago's best guess is that the RV industry will contract for a second straight year in 2019, falling by a mid-single-digit percentage. That drop will be magnified by a slower ordering pace by dealers, who are choosing to make smaller, more frequent vehicle orders.
The good news is that inventory levels are closer to equilibrium today. The broader consumer stock industry is still strong, too, with annual sales volumes likely to be among the market's top five so far. Winnebago also appears set to gain plenty of market share in both the towables and motor home segments.
These trends gave management confidence to predict organic sales gains this year, even as the company integrates the Newmar business and looks forward to large revenue contributions from that franchise. Investors will be watching that integration process for signs of speed bumps along the way, but they have every reason to expect another record fiscal year from Winnebago in 2020.
