RVs have come a long way since Winnebago started. Image source: Winnebago.

Many companies provide unique insights on the health of the U.S. economy, and Winnebago Industries (NYSE:WGO) sheds light on how American road trippers feel about their ability to make big-ticket purchases of recreational vehicles.

Coming into Thursday morning's fiscal fourth-quarter financial report, Winnebago investors were hoping that the company would keep up its positive momentum from the previous quarter, although they still thought it would have trouble sustaining growth in earnings per share. Winnebago's results turned out to be less encouraging than hoped, and even a dividend increase wasn't enough to keep the stock from falling in response.

Let's take a closer look at Winnebago's latest performance to see why shareholders were disappointed.

Winnebago breaks down
Winnebago's fiscal fourth-quarter results weren't everything that investors had wanted to see. Revenue climbed just 2.1% to $251 million, which was well short of the roughly 6.5% growth rate in the consensus forecast among those following the stock. Net income fell about 9% to $11.7 million, and that worked out to earnings of $0.43 per share, down a nickel from last year and failing to hit the $0.47 per share that analysts were expecting.

Looking at Winnebago's various product lines, sluggishness in the key motorhome segment was largely to blame for the company's overall performance. Deliveries of motorhomes were flat for the quarter, with a big rise in smaller Class C motorhome deliveries getting wiped out by a one-third drop in larger Class A models. Gains in towable travel trailer and fifth-wheel products helped to drive growth in deliveries, but the trends were even more adverse to Winnebago when you look at its backlog, as motorhome backlogs fell nearly 8% even as backlogs for towables soared by more than half.

The larger percentage decline in earnings came from a couple of primary sources. Deteriorating gross margins stemmed from higher warranty expenses and the creation of a warranty recall reserve, as well as costs relative to manufacturing inefficiencies. An increase in operating expenses came as expected from the moves to implement new enterprise resource planning systems and other key initiatives. Costs associated with the retirement of former CEO Randy Potts also pushed profits downward.

CFO Sarah Nielsen tried to put the quarter's challenges into the broader context of Winnebago's long-range plan. "During the year, we made considerable progress on both of our strategic initiatives," Nielsen said, "and saw early benefits from our strategic sourcing project." Nielsen also pointed to moves like the purchase of its Iowa facility and the decision to leave the bus and aluminum extrusion business next year as helping to boost efficiency and margins.

Can Winnebago get back on the highway?
Winnebago certainly doesn't see the quarter's results as a significant obstacle to future success. "We maintain a positive long-term outlook for the business," Nielsen said, "and are encouraged with the continued consumer demand for our products." Industry groups expect 3% growth through the RV sector next year, and Winnebago expects its ERP and strategic sourcing initiatives to help take advantage of that greater traffic.

Indeed, Winnebago was confident enough in its prospects to move forward with an 11% dividend increase. The new $0.10-per-share payout will take effect in November and will push Winnebago's dividend yield above 2%, all the while still leaving it with a low payout ratio around 25%.

Yet, to move forward Winnebago will need to resolve what has become a minor leadership crisis. After announcing Potts' retirement in August, interim CEO Robert Olson served for barely a month before himself choosing to leave. Board Chairman Larry Erickson has subsequently stepped in to fill the interim CEO role, but despite assurances that the process of finding a permanent chief executive would be completed in the near future, Winnebago didn't announce anything related to the search in its report today.

Winnebago investors weren't happy with the poor performance, sending the stock down about 5% in the first hour of trading following the announcement. Given how long gasoline prices have stayed low, it's disappointing to see the RV maker's sales figures start to show signs of weakness. Once a new CEO comes on board, Winnebago will need to set a new strategic vision in order to foster its future growth prospects as much as possible.