Investors had low expectations heading into Winnebago's (NYSE: WGO) fiscal second-quarter report, given weakening demand in the recreational vehicle industry. That trend contributed to a painful sales decline for rival Thor (NASDAQ: THOR), which also endured slumping profits due to rising costs and excess inventory.
Winnebago's latest results showed that the company wasn't immune to broader industry pressures. However, its results again outperformed its major RV rivals. The company also had some positive things to say to shareholders about its sales volume pace heading into the second half of its fiscal year .
Let's dive right in.
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Winnebago posted an 8% sales decline, which was significantly worse than the 2% downtick investors had expected. Still, that result compares favorably to Thor's 35% slump. Winnebago benefited from a deeper product portfolio that tilts heavily toward towable RV products and is increasingly including marine sales.
CEO Michael Happe credited that robust lineup for helping deliver market-share growth. "We continued to make progress advancing our competitive position," Happe said in a press release, "gaining market share and increasing the overall appeal of our products, despite challenging macro conditions."
Looking beyond the headline result, Winnebago's towable segment dropped 6%, consistent with the order backlog decline in the prior quarter. Its motor home unit fared worse with a 17% decrease as dealers pared back on their inventory levels.
Winnebago made progress at returning the motor home division to healthy profitability, even though the sales decline masked most of those gains. The segment's adjusted profit margin held steady, in fact, despite rising input costs and a lower sales base. A higher proportion of towable sales, meanwhile, helped gross profit margin improve to 15.4% of sales from 14.4% a year ago. Thor's comparable figure fell 3 percentage points to 11% of sales.
Winnebago's management team said cost pressures raised manufacturing prices. The company also spent more heavily on marketing and selling. As a result, operating profitability fell to $29 million, or 6.7% of sales, from $35 million, or 7.5% of sales. "We continued to materially outpace the industry and expand our margins, primarily due to the improved product vitality and profitability of our motorhome segment," Happe told investors.
Backlog, which represents orders likely to ship over the next six months, dove by 39% in the motor home division and fell 7% in towables. Management said the slumps had to do with dealers paring excess inventory compared to last year's elevated volumes. Yet Winnebago's premium market position appears to be helping it avoid the worst of the industry slowdown, given that Thor's backlog decreased 55%.
Management had positive comments as it looked out to the peak spring selling season and the second half of fiscal 2019. "While the RV industry has been challenged over the past 6 months," Happe explained, "we believe the wholesale shipment and retail sales equation will approach a new equilibrium during our fiscal Q3." With dealers having reached the right inventory levels by that point, Winnebago plans to be ready with a strong lineup of fresh travel-trailer and motor home products. Executives are hoping that a decent showing for these innovations will deliver market-share gains, modest sales growth, and improving profitability in the motor home division despite a flat overall RV market in 2019.
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