For three quarters running, RV maker Winnebago (NYSE:WGO) had been beating analyst estimates hands-down -- until last quarter, when the company posted a sizeable "earnings miss." Will Winnebago make it back to the right side of the median in tomorrow morning's fiscal Q3 2006 report?

What analysts say:

  • General consensus. Six analysts follow Winnebago, splitting their votes evenly between buy and hold.
  • Revenues. Quarterly sales are expected to fall 3.5% versus this time last year. The target is $246.1 million.
  • Earnings. Profits are predicted to decline 27%, to $0.38 per share.

What management says:
Fiscal Q2 2006 was not at all kind to Winnebago, bringing with it two unfriendly trends, one toward "decreased industry retail demand" overall, and the other toward "lower priced motor home products." CEO Bruce Hertzke said then that this was an industrywide trend, however, and cited statistics from the Recreation Vehicle Industry Association to back up his assertion that it wasn't just Winnebago that blew a tire last quarter. Throughout the industry, sales of Class A motor homes declined 13%, while cheaper Class Cs dropped just 2%.

Many of Winnebago's competitors apparently responded to the tough industry environment by upping their incentives to goose sales. Hertzke said that Winnebago, in contrast, "did not participate in offering incentives at the same level as our major competitors."

What management does:
In theory, holding the line on prices should keep a company's margins stable. That's not necessarily the case, though, in a world where raw materials costs have gone wild. Winnebago's gross and operating margins have all been on a slide for the past 18 months, and its net margins, although they rose from late 2004 through mid-2005, are now edging down in tandem with the gross and operating numbers.

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

14.5

14.3

14

13.8

13.4

12.9

Op.

10.6

10.3

10

9.9

9.4

8.8

Net

6.4

6.3

6.6

6.6

6.3

6
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Winnebago's strategy -- in this world of high energy and raw materials costs, price-sensitive customers, and price-slashing rivals -- appears to be to hold the line on pricing and wait out the industry downturn. Admirable in theory, but in practice, the company can suffer a loss of market share if buyers defect to lower-priced competitors' models.

In 2005, Winnebago says that Statistical Surveys, Inc., gave the firm a 17.9% market share in combined Class A and Class C retail sales in 2005, down 110 basis points from 2004. Things may be turning back up, however. At last report, Winnebago's market share had rebounded to 19.3%, and the company's introduction of new classes of fuel-efficient Class C diesel motor homes may have helped the company to capture additional market share in the quarter we'll hear about tomorrow. Winnebago is a Motley Fool Hidden Gems Watch List stock, and believe you me -- we'll be watching for that market share update tomorrow.

Competitors:
We covered the whole industry, basically, in "Trailer Park Treasures" last year. But for those who missed it, Winnebago competes with companies such as Thor (NYSE:THO), Fleetwood (NYSE:FLE), Champion (NYSE:CHB), Monaco (NYSE:MNC), Palm Harbor (NASDAQ:PHHM), and Coachmen (NYSE:COA).

What did we expect out of Winnebago last quarter, and what did we get? Read all about it:

Fool contributor Rich Smith has no interest, short or long, in any company named above.