Winnebago (NYSE: WGO) investors had been bracing for mostly bad news heading into the recreational vehicle specialist's fiscal first-quarter report. After all, management recently warned about a coming slowdown in the RV industry following nine consecutive years of robust expansion. The prospect for worsening profitability also unnerved shareholders, who've sent the stock lower recently on fears that Winnebago will struggle with rising costs on inputs like steel and aluminum.
On Wednesday, the company did reveal that a sales growth slowdown is likely on the way. There's little hope for the RV giant to repeat last year's 30% spike. However, its top- and bottom-line results both came in ahead of expectations and set the company apart from industry peers. Let's take a closer look.
Sales and profits
Sales increased 10% overall to mark a slowdown from the prior quarter's 18% spike. However, that result sharply contrasts with peer Thor Industries (NYSE: THO) , which recently reported a 21% decline . Like Thor, Winnebago faced comparisons with a strong year-ago quarter. But it only endured a 4% drop in motor home sales that was more than offset by a 13% boost in the towable RV segment. "Sales growth remained robust," CEO Michael Happe said in a press release, "as we continued to take overall retail market share on the RV side."
Winnebago also performed surprisingly well on profitability. Gross profit margin ticked up thanks to improvements in the motor home segment and the relative strength of towable products, which carry higher markups. Gross margin improved to 14.4% of sales from 14% a year ago. Thor, in comparison, saw its profitability worsen by 3 percentage points to 11.8% of sales. Winnebago executives credited their wider portfolio, which now includes marine products in addition to the towable brands it purchased in 2017. "Our dual-branded approach with Winnebago and Grand Design on the RV business continues to result in a strengthened line of high-quality, versatile products that reach a broader customer base," Happe explained.
The upcoming quarter could be challenging, given that order backlog dove 24% in the motor home segment. Executives said some of the slump can be blamed on order timing but noted that falling demand seems to also reflect a "more challenging late fall shipment environment." Thor's backlog fell 34%, though, in another indication that Winnebago is finding ways to outgrow the industry right now. Winnebago's towable RV segment is holding up even better, with backlog down just 4%.
Executives said they see more opportunities to grab market share in the RV industry even as it slows to a flat growth result or even modest declines in the year ahead. The company's inventory position appears strong, too, which suggests management won't have to engage in the type of aggressive price cuts sent Thor's net profit margin down to below 1% from 6% a year ago.
While warning that there are plenty of risks ahead, including cost challenges, a slowing RV industry, and rising interest rates, Winnebago is optimistic that it can boost sales and protect earnings in 2019. This latest earnings report represents a surprising step in that direction.
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