With only a slight top-line decline and a welcome mid-single-digit profit advance in earnings released Wednesday, consumer discretionary investment Winnebago Industries (NYSE: WGO) took another step toward distancing itself from competitors still struggling with choppy retail demand. Investors piled into the WGO symbol following relatively benign fiscal fourth-quarter 2019 results: Shares of the recreational vehicle (RV) manufacturer leaped 15% during the trading session. As we walk through the results below, note that all comparative numbers are presented against the prior-year quarter.
A bird's-eye view of the fourth quarter
|Metric||Q4 2019||Q4 2018||Change|
|Revenue||$530.4 million||$536.2 million||(1.1%)|
|Net income||$31.9 million||$29.8 million||7%|
|Diluted earnings per share||$1.01||$0.94||7.4%|
Key details from Winnebago's report
- Towable segment revenue increased by 6.3% to $307 million. Management attributed the improvement to pricing actions and a second consecutive quarter of strong organic growth in its Grand Design RV brand.
- Motorhome segment revenue dipped 12.2% to $200.7 million, as solid sales of Class B units (i.e., "camper van" vehicles) were offset by Class A and Class C sales (the largest RV class and mid-size RV class, respectively). The double-digit decline was actually an improvement in comparison to the previous sequential quarter, in which motorhome sales cratered 35% on a year-over-year basis.
- During the quarter, Winnebago announced the acquisition of Newmar Corporation, an Indiana-based premium RV manufacturer, for total consideration of $344 million, which includes $270 million in cash and 2 million shares of Winnebago's common stock.
- Winnebago nudged gross margin up by 10 basis points to 15.7%, and similarly held expenses in check, generating an operating margin of 8.4%, just 10 basis points below the operating margin of the comparable prior-year quarter. The static margins provided shareholders with another data point to support firming business conditions.
- Winnebago's order backlog decreased by just 0.7% to $400 million as strength in Class B motorhome orders was offset by continuing dealer inventory rationalization as well as the company's increase in manufacturing capacity.
- Operating cash flow for the full fiscal year jumped more than 60% to $133.7 million, which management attributed to changes in working capital.
Management's comments on Winnebago's performance
Winnebago's slight revenue decrease and stable backlog at quarter-end point to tightening demand and suggest that retail sales may improve in the coming year, resulting in better order flow versus 2019.
In the company's earnings press release, CEO Michael Happe discussed Winnebago's recent product diversification efforts, which have helped it weather a difficult year in the RV industry:
With the mid-November close of our latest acquisition, we will have four of the most premium and sought after brands in the outdoor lifestyle arena -- Winnebago, Grand Design, Newmar, and [powerboat manufacturer] Chris-Craft. Each of these business platforms offers a unique and distinct value proposition to outdoor enthusiasts, but all have golden threads via our enterprise focus on quality, service, and innovation. We are a larger, more balanced, increasingly diversified organization delivering consistent and rising profitability in challenging market conditions.
While pleased with our progress over the last four years, we remain determined and driven to outperform the industries in which we compete in the future. There is significant runway in front of our team and overall business. The North American consumer continues to participate in record levels in outdoor recreation activities and we believe our brands are poised to help our customers have extraordinary experiences as they travel, live, work, and play in the outdoors.
Happe also remarked that the company was able to sustain a record level of profitability in fiscal 2019 despite headwinds from tariffs and ongoing inventory adjustments on dealer lots. Investors have endorsed the company's profit-making prowess during a period of brand expansion: After losing 56% of its value in 2018, Winnebago's stock has doubled year to date, nearly recapturing its pre-2018 trading levels.
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