Investors were pleased with most of what they heard from Winnebago (WGO -0.62%) in its fiscal second quarter results. The recreational vehicle giant gained market share and grew sales across both its towable and motorized RV divisions. Management also noted positive developments in the wider industry -- right up until COVID-19 ground economic growth to a halt.
CEO Michael Happe and his team discussed that slowdown in a conference call with investors while detailing Winnebago's plan to navigate through the financial and operational aspects of this slump. Let's look at a few highlights from that call.
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Firming market performance
Happe said: "Prior to this evolving situation, the trends we have seen indicate that the RV industry conditions have been showing signs of improvement. We are realizing the benefits of having a diverse portfolio and relentless focus on improving operational efficiency across the organization."
Winnebago's backward-looking statistics were strong, with sales rising 13% thanks to growth in each of its major market segments. Management estimates that its share of the RV market is now just over 13%, or about two percentage points higher than a year ago.
The industry has been improving, too, with dealership inventory levels better matching with demand and pricing trends stabilizing. Executives believe that adds up to a healthy position for the business. "We are pleased with our ability to outperform the RV market and expect we will continue to do so in the coming quarters," Happe explained.
A strong cash position
We have worked diligently to model several scenarios for the economic impacts of the coronavirus and the resulting impact to our financial performance, all of which will serve our go-forward action planning to ensure we maintain a healthy level of liquidity. We start from a place of strength in that our cash at the end of the second quarter, as mentioned, was approximately $123 million and that balance has grown nicely from that point during the first three and a half weeks of March. -- CFO Bryan Hughes
Winnebago's operating trends worsened significantly in mid-March when social distancing efforts began affecting states and localities around the country. In response, the company announced a pause to its entire manufacturing process, which will gradually slow to zero at least through April 12, management said.
The company believes it is in a good position to weather such a pause in selling activities, and executives cited its cash balances of over $123 million and an additional $200 million of available credit lines.
Cloudy future
We fully understand there could be lasting and real consequences of the economic disruption happening now in North America and around the world. And we will need to manage through those, whatever they may be. However, we feel that the North American consumer will stay safely engaged with outdoor recreation activities in both the short term and the long term. -- Happe
Its position within the highly discretionary recreational automotive industry exposes Winnebago to significant sales risk during an economic downturn. "The crystal ball is always a bit more dynamic than in other industries," Happe noted.
Despite that cloudy outlook, management sees plenty of support for continued long-term growth in the industry despite the current economic slump. Outdoor activities might even become more popular as consumers reconsider the cash they allocate toward other discretionary entertainment such as movies, international travel, and theme parks.
Still, Winnebago's immediate focus, Happe said, is to "navigate whatever period of disruption lies ahead of us, whether that is weeks or months."
