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Winnebago Industries Announces Third Quarter Fiscal 2019 Results

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-- Sales Performance Continues to Outperform RV and Marine Industries --

-- Quarterly Gross Margins of 16.4% Increased 120 Basis Points Over Prior Year --

-- Quarterly Diluted EPS of $1.14, Up 12% Over Prior Year --

-- Strong YTD Operating Cash Flow, Up 36% Over Prior Year --

FOREST CITY, Iowa, June 19, 2019 (GLOBE NEWSWIRE) -- Winnebago Industries, Inc. (WGO), a leading outdoor lifestyle product manufacturer, today reported financial results for the Company's Fiscal 2019 third quarter.

Third Quarter Results
Revenues for the Fiscal 2019 third quarter ended May 25, 2019, were $528.9 million, a decrease of 5.9% compared to $562.3 million for the Fiscal 2018 period. Gross profit was $86.6 million, an increase of 1.3% compared to $85.5 million for the Fiscal 2018 period. Gross profit margin increased 120 basis points in the quarter, driven by continued strong margin performance in the Towable segment. Operating income was $49.0 million for the quarter, an increase of 1.4% compared to $48.3 million in the third quarter of last year, and was unfavorably impacted by the restructuring costs associated with moving our diesel manufacturing from Junction City, Oregon to Northern Iowa, totaling $1.1 million, or $0.03 diluted earnings per share. Fiscal 2019 third quarter net income was $36.2 million, an increase of 11.2% compared to $32.5 million in the same period last year. Earnings per diluted share were $1.14, an increase of 11.8% compared to earnings per diluted share of $1.02 in the same period last year. Net income and earnings per share were favorably impacted by an improved tax rate resulting from the Tax Cuts and Jobs Act ("TCJA"), totaling $1.7 million, or $0.06 diluted earnings per share, and a change in estimate related to R&D tax credits of $1.4 million, or $0.04 diluted earnings per share. Consolidated Adjusted EBITDA was $55.9 million for the quarter, compared to $53.4 million last year, resulting in an increase of 4.7%.

President and Chief Executive Officer Michael Happe commented, “We are pleased to deliver another quarter of solid consolidated results highlighted by continued margin expansion and market share gains. Winnebago Industries’ third quarter results are a testament to the strength and resiliency of our brand portfolio amid a challenging and highly competitive RV market. We continue to focus on manufacturing high-quality products, maintaining disciplined production management and enhancing channel relationships. Despite a moderate decrease in overall sales in a difficult RV wholesale market, consolidated margin continued to expand, primarily due to the strength of our dual-branded Towable segment. We continue to be pleased with our strengthened market position as we outperform the industries in which we compete. I want to thank all of our Winnebago Industries employees for their dedication to making the Company a trusted leader in outdoor lifestyle solutions. Their hard work and flexibility during the quarter is appreciated as we continued to manage output during these past several months of marketplace volatility.”

Motorhome
In the third quarter, revenues for the Motorhome segment were $160.2 million, down 34.6% from the prior year driven by decreases in both Class C and Class A unit sales as dealers continue to lower their inventories. Class B unit sales and Motorhome segment profitability were also down versus the prior year due to a temporary, but material, disruption in chassis supply by one of our strategic suppliers, which had a significant impact on shipment availability for two of our most popular Class B units. Supply is improving during the early part of our fourth quarter, and we expect our Class B portfolio to return to strong performance in the back half of our fourth quarter and during Fiscal 2020. Despite these headwinds, our retail performance in the Class B category has remained robust. Segment Adjusted EBITDA was $0.4 million, down 96.7% from the prior year. Adjusted EBITDA margin decreased 460 basis points, driven primarily by deleverage, an unfavorable mix due to the decline in sales of our most profitable products, and continued discounting in the marketplace. Backlog decreased 5.6%, in dollars, compared to the prior year reflecting dealers efforts to right-size inventory levels, partially offset by an increase in several Class B products due to the temporary disruption in chassis supply.

Towable
Revenues for the Towable segment were $346.8 million for the third quarter, up 10.8% from the prior year, driven particularly by the strength of the Grand Design RV brand. Segment Adjusted EBITDA was $57.2 million, up 26.0% over the prior year. Adjusted EBITDA margin of 16.5% increased 200 basis points, reflecting an increase in unit sales, pricing actions taken over the past twelve months, and effectively managing input cost pressures. Backlog decreased 24.2%, in dollars, compared to the prior year, reflecting the positive impact of utilizing additional capacity added during calendar 2018 and dealers continuing to normalize inventory levels.

Tax
Our effective tax rate for the third quarter was 19.4%, driven lower by the year-over-year impact of the reduction in the corporate income tax rate associated with the TCJA and a favorable change in estimate related to R&D tax credits. The impact from the TCJA and change in estimate was $0.06 and $0.04 to diluted earnings per share, respectively. Considering our year-to-date tax provision, including all favorable discrete items and changes in estimates, as well as our current ongoing tax rate assumptions for the remainder of the year, we expect our full year Fiscal 2019 tax rate to be approximately 20%, before consideration of any discrete tax items in our fourth quarter. Under the current tax code, we expect our ongoing tax rate in Fiscal 2020 and beyond to be in the range of 23% to 24%, before consideration of any discrete tax items.

Balance Sheet and Cash Flow
As of May 25, 2019, the Company had total outstanding debt of $259.6 million ($265.6 million of debt, net of debt issuance costs of $6.0 million) and working capital of $186.2 million. The debt-to-equity ratio decreased to 43.0% from 54.5% as of August 25, 2018, and the ratio of net debt to Adjusted EBITDA was 1.4x as of the end of the quarter. Cash flow from operations was $82.8 million for the first nine months of Fiscal 2019, an increase of $21.8 million from the same period in Fiscal 2018.

Quarterly Cash Dividend
On May 22, 2019, the Company’s board of directors approved a quarterly cash dividend of $0.11 per share payable on July 3, 2019, to common stockholders of record at the close of business on June 19, 2019.

Mr. Happe continued, “As we transition into the final quarter of Fiscal 2019, we are well positioned to continue our positive momentum with top line sales and share gains. Our North American RV retail share is approaching 10%, up from 3% just three years ago. The imbalance between industry wholesale shipments and retail sales continues to improve and will continue to do so in the back half of calendar 2019. The materials cost environment remains volatile, as newly implemented and pending tariffs start to impact cost inputs in the back half of calendar 2019. We absorbed an unexpected challenge to our motorhome sales and profits during the quarter due primarily to a supply interruption of Class B chassis and we remain focused on seeing that situation improve. We are pleased with the recent pace of steady inbound RV orders from dealers. Additionally, Chris-Craft has launched several new models in the front half of 2019, which will continue their momentum forward in the marine industry. Our broader portfolio, combined with our operational resiliency as a company, are working to solidify our unique position within the outdoor lifestyle market and making Winnebago Industries a high-quality company that investors can trust to deliver value.”

Conference Call
Winnebago Industries, Inc. will discuss third quarter Fiscal 2019 earnings results during a conference call scheduled for 9:00 a.m. Central Time today. Members of the news media, investors and the general public are invited to access a live broadcast of the conference call via the Investor Relations page of the Company's website at http://investor.wgo.net. The event will be archived and available for replay for the next 90 days.

About Winnebago Industries
Winnebago Industries, Inc. is a leading U.S. manufacturer of outdoor lifestyle products under the Winnebago, Grand Design, and Chris-Craft brands, which are used primarily in leisure travel and outdoor recreation activities. The Company builds quality motorhomes, travel trailers, fifth wheel products, and boats. Winnebago Industries has multiple facilities in Iowa, Indiana, Minnesota, and Florida. The Company's common stock is listed on the New York Stock Exchange and traded under the symbol WGO. For access to Winnebago Industries' investor relations material or to add your name to an automatic email list for Company news releases, visit http://investor.wgo.net.

Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements, including, but not limited to increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities, business interruptions, any unexpected expenses related to ERP, risks related to compliance with debt covenants and leverage ratios, and other factors. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission ("SEC") over the last 12 months, copies of which are available from the SEC or from the Company upon request. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this release or to reflect any changes in the Company's expectations after the date of this release or any change in events, conditions or circumstances on which any statement is based, except as required by law.


Winnebago Industries, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)

Three Months Ended

May 25, 2019

May 26, 2018

Net revenues

$

528,940

100.0

%

$

562,261

100.0

%

Cost of goods sold

442,356

83.6

%

476,747

84.8

%

Gross profit

86,584

16.4

%

85,514

15.2

%

Selling, general, and administrative expenses

35,332

6.7

%

35,304

6.3

%

Amortization of intangible assets

2,278

0.4

%

1,933

0.3

%

Total operating expenses

37,610

7.1

%

37,237

6.6

%

Operating income

48,974

9.3

%

48,277

8.6

%

Interest expense

4,446

0.8

%

4,172

0.7

%

Non-operating income

(360

)

(0.1

)%

(100

)

%

Income before income taxes

44,888

8.5

%

44,205

7.9

%

Provision for income taxes

8,717

1.6

%

11,684

2.1

%

Net income

$

36,171

6.8

%

$

32,521

5.8

%

Income per common share:

Basic

$

1.15

$

1.03

Diluted

$

1.14

$

1.02

Weighted average common shares outstanding:

Basic

31,493

31,582

Diluted

31,644

31,753

Nine Months Ended

May 25, 2019

May 26, 2018

Net revenues

$

1,455,278

100.0

%

$

1,480,641

100.0

%

Cost of goods sold

1,231,269

84.6

%

1,264,635

85.4

%

Gross profit

224,009

15.4

%

216,006

14.6

%

Selling, general, and administrative expenses

106,303

7.3

%

95,381

6.4

%

Amortization of intangible assets

7,204

0.5

%

5,921

0.4

%

Total operating expenses

113,507

7.8

%

101,302

6.8

%

Operating income

110,502

7.6

%

114,704

7.7

%

Interest expense

13,293

0.9

%

13,871

0.9

%

Non-operating income

(1,330

)

(0.1

)%

(212

)

%

Income before income taxes

98,539

6.8

%

101,045

6.8

%

Provision for income taxes

18,609

1.3

%

28,478

1.9

%

Net income

$

79,930

5.5

%

$

72,567

4.9

%

Income per common share:

Basic

$

2.53

$

2.30

Diluted

$

2.52

$

2.28

Weighted average common shares outstanding:

Basic

31,546

31,617

Diluted

31,722

31,825

Percentages may not add due to rounding differences.


Winnebago Industries, Inc.

Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)

May 25,
2019

August 25,
2018

Assets

Current assets:

Cash and cash equivalents

$

4,176

$

2,342

Receivables, net

185,546

164,585

Inventories, net

190,883

195,128

Prepaid expenses and other assets

10,480

9,883

Total current assets

391,085

371,938

Property, plant, and equipment, net

121,977

101,193

Other assets:

Goodwill

275,657

274,370

Other intangible assets, net

258,513

265,717

Investment in life insurance

27,111

28,297

Other assets

8,860

10,290

Total assets

$

1,083,203

$

1,051,805

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

84,304

$

81,039

Income taxes payable

15,655

Accrued expenses

114,047

107,491

Current maturities of long-term debt

6,500

Total current liabilities

204,851

204,185

Non-current liabilities:

Long-term debt, less current maturities

253,071

291,441

Deferred income taxes

5,255

4,457

Unrecognized tax benefits

3,501

1,745

Deferred compensation benefits, net of current portion

13,161

15,282

Other

371

250

Total non-current liabilities

275,359

313,175

Stockholders' equity

602,993

534,445

Total liabilities and stockholders' equity

$

1,083,203

$

1,051,805


Winnebago Industries, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

Nine Months Ended

May 25,
2019

May 26,
2018

Operating activities:

Net income

$

79,930

$

72,567

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

9,788

6,679

Amortization of intangible assets

7,204

5,921

Amortization of debt issuance costs

1,186

1,222

Last in, first-out expense

1,544

1,238

Stock-based compensation

5,735

4,983

Deferred income taxes

362

4,807

Other, net

1,265

194

Change in assets and liabilities:

Receivables

(20,961

)

(24,595

)

Inventories

2,701

(36,351

)

Prepaid expenses and other assets

(653

)

3,320

Accounts payable

3,954

9,617

Income taxes and unrecognized tax benefits

(13,898

)

(1,081

)

Accrued expenses and other liabilities

4,692

12,491

Net cash provided by operating activities

82,849

61,012

Investing activities:

Purchases of property and equipment

(31,681

)

(18,123

)

Acquisition of business, net of cash acquired

(702

)

Proceeds from the sale of property

134

316

Other, net

1,752

(83

)

Net cash used in investing activities

(30,497

)

(17,890

)

Financing activities:

Borrowings on credit agreement

342,549

19,700

Repayments of credit agreement

(375,438

)

(43,700

)

Payments of cash dividends

(10,201

)

(9,557

)

Payments for repurchases of common stock

(7,724

)

(6,481

)

Other, net

296

Net cash used in financing activities

(50,518

)

(40,038

)

Net increase in cash and cash equivalents

1,834

3,084

Cash and cash equivalents at beginning of period

2,342

35,945

Cash and cash equivalents at end of period

$

4,176

$

39,029

Supplement cash flow disclosure:

Income taxes paid, net

$

33,852

$

24,833

Interest paid

$

10,335

$

11,935

Non-cash transactions:

Capital expenditures in accounts payable

$

9

$

607


Winnebago Industries, Inc.
Supplemental Information by Reportable Segment (Unaudited) - Motorhome
(in thousands, except unit data)

Three Months Ended

May 25,
2019

% of
Revenues

May 26,
2018

% of
Revenues

$ Change

% Change

Net revenues

$

160,239

$

244,870

$

(84,631

)

(34.6

)%

Adjusted EBITDA

381

0.2

%

11,677

4.8

%

(11,296

)

(96.7

)%

Three Months Ended

Unit deliveries

May 25,
2019

Product
Mix (1)

May 26,
2018

Product
Mix (1)

Unit
Change

% Change

Class A

378

19.3

%

722

25.3

%

(344

)

(47.6

)%

Class B

515

26.2

%

606

21.2

%

(91

)

(15.0

)%

Class C

1,069

54.5

%

1,528

53.5

%

(459

)

(30.0

)%

Total motorhomes

1,962

100.0

%

2,856

100.0

%

(894

)

(31.3

)%

Nine Months Ended

May 25,
2019

% of
Revenues

May 26,
2018

% of
Revenues

$ Change

% Change

Net revenues

$

506,229

$

632,148

$

(125,919

)

(19.9

)%

Adjusted EBITDA

16,716

3.3

%

22,264

3.5

%

(5,548

)

(24.9

)%

Nine Months Ended

Unit deliveries

May 25,
2019

Product
Mix(1)

May 26,
2018

Product
Mix(1)

Unit
Change

% Change

Class A

1,329

23.7

%

2,326

32.8

%

(997

)

(42.9

)%

Class B

1,847

33.0

%

1,387

19.6

%

460

33.2

%

Class C

2,430

43.3

%

3,372

47.6

%

(942

)

(27.9

)%

Total motorhomes

5,606

100.0

%

7,085

100.0

%

(1,479

)

(20.9

)%

May 25,
2019

May 26,
2018

Change

% Change

Backlog(2)

Units

2,074

2,155

(81

)

(3.8

)%

Dollars

$

182,354

$

193,079

$

(10,725

)

(5.6

)%

Dealer Inventory

Units

4,235

4,750

(515

)

(10.8

)%

(1) Percentages may not add due to rounding differences.
(2) We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.


Winnebago Industries, Inc.
Supplemental Information by Reportable Segment (Unaudited) - Towable
(in thousands, except unit data)

Three Months Ended


May 25,
2019

% of
Revenues

May 26,
2018

% of
Revenues


$ Change

% Change

Net revenues

$

346,811

$

313,016

$

33,795

10.8

%

Adjusted EBITDA

57,172

16.5

%

45,378

14.5

%

11,794

26.0

%

Three Months Ended

Unit deliveries

May 25,
2019

Product
Mix(1)

May 26,
2018

Product
Mix(1)

Unit
Change

% Change

Travel trailer

6,185

59.5

%

6,063

62.1

%

122

2.0

%

Fifth wheel

4,216

40.5

%

3,703

37.9

%

513

13.9

%

Total towables

10,401

100.0

%

9,766

100.0

%

635

6.5

%

Nine Months Ended

May 25,
2019

% of
Revenues

May 26,
2018

% of
Revenues

$ Change

% Change

Net revenues

$

890,335

$

839,039

$

51,296

6.1

%

Adjusted EBITDA

121,638

13.7

%

115,066

13.7

%

6,572

5.7

%

Nine Months Ended

Unit deliveries

May 25,
2019

Product
Mix(1)

May 26,
2018

Product
Mix(1)

Unit
Change

% Change

Travel trailer

16,564

60.5

%

16,495

61.3

%

69

0.4

%

Fifth wheel

10,818

39.5

%

10,428

38.7

%

390

3.7

%

Total towables

27,382

100.0

%

26,923

100.0

%

459

1.7

%

May 25,
2019

May 26,
2018

Change

% Change

Backlog(2)

Units

7,089

9,968

(2,879

)

(28.9

)%

Dollars

$

237,708

$

313,513

$

(75,805

)

(24.2

)%

Dealer Inventory

Units

18,984

15,986

2,998

18.8

%

(1) Percentages may not add due to rounding differences.
(2) We include in our backlog all accepted orders from dealers to generally be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.


Winnebago Industries, Inc.
Non-GAAP Reconciliation (Unaudited)
(in thousands)

Non-GAAP financial measures, which are not calculated or presented in accordance with accounting principles generally accepted in the United States (“GAAP”), have been provided as information supplemental and in addition to the financial measures presented in the accompanying news release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the news release. The non-GAAP financial measures presented may differ from similar measures used by other companies.

The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA.

Three Months Ended

Nine Months Ended

(in thousands)

May 25,
2019

May 26,
2018

May 25,
2019

May 26,
2018

Net income

$

36,171

$

32,521

$

79,930

$

72,567

Interest expense

4,446

4,172

13,293

13,871

Provision for income taxes

8,717

11,684

18,609

28,478

Depreciation

3,520

2,351

9,788

6,679

Amortization of intangible assets

2,278

1,933

7,204

5,921

EBITDA

55,132

52,661

128,824

127,516

Acquisition-related costs

800

850

Restructuring expenses

1,102

1,321

Non-operating income

(360

)

(100

)

(1,330

)

(212

)

Adjusted EBITDA

$

55,874

$

53,361

$

128,815

$

128,154

We have provided non-GAAP performance measures of EBITDA and Adjusted EBITDA as a comparable measure to illustrate the effect of non-recurring transactions occurring during the reported periods and improve comparability of our results from period to period. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation and amortization expense, and other adjustments made in order to present comparable results from period to period. We believe Adjusted EBITDA provides meaningful supplemental information about our operating performance because this measure excludes amounts that we do not consider part of our core operating results when assessing our performance. Examples of items excluded from Adjusted EBITDA include acquisition-related costs, restructuring expenses, and non-operating income.

Management uses these non-GAAP financial measures (a) to evaluate its historical and prospective financial performance and trends as well as its performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of its board of directors to enable its board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company; (d) to evaluate potential acquisitions; and, (e) to ensure compliance with covenants and restricted activities under the terms of its Credit Agreement. We believe these non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.

Contact: Steve Stuber - Investor Relations - 952-828-8461 - srstuber@wgo.net

Media Contact: Sam Jefson - Public Relations Specialist - 641-585-6803 - sjefson@wgo.net