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Winnebago Investors Brace for Bad News on Wednesday

By Demitri Kalogeropoulos - Mar 22, 2020 at 10:00AM

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The RV giant will give a peek into the latest sales trends in just a few days when it releases Q2 2020 earnings.

Winnebago (WGO 1.67%) investors had plenty of reasons for optimism before the recent COVID-19 outbreak. While the recreational vehicle industry was contracting following a modest decline in 2018, the company's last few earnings reports showed it was winning market share through most of 2019. Sales even returned to growth in Winnebago's struggling motorized division last quarter.

The company's upcoming second-quarter fiscal 2020 report, slated for release on Wednesday, March 25, will take place in a far different economic environment. While investors will be watching to see how well sales fared during the start of Winnebago's key spring season, more attention will be focused on how management plans to weather the sales slump that's accompanying social distancing moves in the U.S. Winnebago might also detail a few significant initiatives aimed at slashing its fixed cost base.

Let's take a closer look.

the Winnebago Voyage camper

Image source: Winnebago

Looking backward

The good news is that backward-looking metrics are likely to be strong. Winnebago enjoyed a 12% organic sales boost in the previous quarter, which turned into a 19% increase after including the added sales from the acquired Newmar brand. Most investors who follow the stock are expecting similar gains for the fiscal second quarter. Sales are predicted to jump 45% to $614 million, thanks mainly to the new RV franchise.

It will be interesting to see whether Winnebago continued the volume rebound it showed in its lighter motorized RVs. The company might also show firming results in heavier vehicle classes, while its towables division is likely to continue expanding nicely, at least through the months covered in this report.

Looking ahead

Winnebago's forward-looking metrics could describe significant operating stress, beginning with an order backlog that's likely to slump precipitously in response to demand changes in recent weeks resulting from concern about the coronavirus pandemic. RVs fit squarely in the consumer discretionary industry along with vacation services and restaurant chains, so operating trends likely worsened significantly in March. The good news is that dealerships had already whittled their inventories down over the past year, so they didn't enter this volatile period with particularly bloated supplies.

Still, management should spend the bulk of this week's report describing Winnebago's plans to manage cash flow, inventory, and manufacturing at a time when sales volumes have paused at its network of over 600 dealerships around the U.S. and Canada. These initiatives might include slowing the planned expansion of production capacity and making other moves aimed at immediately cutting costs. Winnebago could consider downtime at a few of its manufacturing facilities to help it maintain balance between supply and demand.

Liquidity updates will be important to watch for signs of building financial stress. Cash flow surged last quarter and Winnebago entered the fiscal second quarter with roughly $460 million of net debt. That burden was easily sustainable under normal operating procedures, but it's a safe bet to say the RV industry will be heavily disrupted this year.

CEO Michael Happe and his team won't be able to project any details about the score of that disruption on Wednesday. But executives could reassure investors that they have ample resources to thrive through even a prolonged pause in sales and manufacturing.

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