Image source: Winnebago.

Recreational vehicle specialist Winnebago Industries (NYSE:WGO) has been a leader in the RV industry for a long time, and it has gone through plenty of up and down cycles in the business. The price of fuel is a key component in demand for RVs, and with gasoline as cheap as it's been in years, rival Thor Industries (NYSE:THO) had reported solid revenue gains earlier in March. Coming into Thursday's fiscal second-quarter financial report, Winnebago investors wanted to see the same pace of growth. But even though earnings did better than expected, Winnebago's sales dropped, raising some concerns about whether the company is taking full advantage of favorable industry conditions. Let's take a closer look at Winnebago's latest results and what they say about what's down the road for the RV manufacturer.

Winnebago mixes it up
Winnebago's fiscal second-quarter results gave a mixed impression of how well the company is doing in the eyes of investors. Revenue once again posted a substantial decline, falling almost 4% to $225.7 million and confounding expectations for roughly flat performance compared to the previous year's quarter. On the positive side, net income jumped 16% to $9.4 million, and the resulting earnings of $0.35 per share topped the consensus forecast by $0.02 per share.

Looking at Winnebago's detailed metrics, investors could see a major shift in the products that customers are buying. Large Class A RVs saw an increase of 3% in deliveries during the quarter, which is a far cry from the double-digit percentage declines that Winnebago has seen at the larger end of its product line in past quarters. By contrast, formerly strong demand for smaller Class B and C motorhomes gave way to delivery declines, including a 7% drop for Class B and a decline of 8% in the Class C arena. Travel trailer and fifth-wheel sales once again posted huge gains that sent towable deliveries up 58%, but that wasn't enough to outweigh the greater impact on overall revenue of the total 3% drop in motor home deliveries.

Backlog figures also shifted from past patterns. Motor home backlogs rose 23% to 2,792 units, and towables backlogs climbed 29% to 168 units. Measured in potential revenue, the key motorhome backlog figure climbed by a sixth to $253.5 million, representing more than a full quarter's worth of sales.

Winnebago also continued to see benefits on the margin front. Gross margins were up almost a full percentage point, and stable operating expenses helped push most of that benefit down to the bottom line. In particular, a decline in overhead costs played a key role in keeping the company's expenses under control.

New Winnebago CEO Michael Happe expressed his confidence in the company, but he also wasn't comfortable with the results. "While we are pleased with the improved profitability delivered this quarter and the strong continued momentum of our towables business," Happe said, "we are mindful of lower motorized revenues against the industry's strong fundamentals."

Can Winnebago rev up?
Still, Happe is confident in Winnebago's longer-term prospects. "With the success of recent new products, a current robust backlog, and ongoing investments in new systems and facilities," the CEO said, "we believe we have a strong foundation to continue to build future value."

The big question that Winnebago will have to address is how it can catch up to the better performance of its peers. Thor Industries saw relatively weak growth in its towable business, but the company posted 37% higher sales in its motorized RV segment. Some of that performance came from accelerated shipments that had a one-time calendar effect, but Thor's success makes it necessary for Winnebago to find ways to match it and eventually exceed it.

Winnebago investors seemed generally satisfied with the RV maker's performance, and the stock traded up about 1.5% at midday following the announcement. Nevertheless, to mount a full recovery, Winnebago needs to prove that it can take full advantage of favorable industry conditions before they start to fade and move closer to normal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.