Winnebago and Double-Digit Growth

Winnebago revenues are up. Way up. An increase of 19.2% for the Fiscal 2020 first quarter compared to the Fiscal 2019 first quarter. And organic growth of 12%. Impressive.

I’ve summarized the highlights at the end of the post if you have an interest.

I enjoy the earnings call. Both for the types of questions that the analysts raise and the careful wording of the responses by management.

Let’s check a few of them out, shall we?

We don’t talk about that.

Q. And then, I’m sorry, if I missed it, but did you talk about Newmar’s organic growth in the period that you own them or maybe even for the quarter, overall for the period?

A. No, we don’t disclose that. (Bryan Hughes, CFO)

The value side of Class A motorcoaches is a “struggle”?

Q. And then going forward in future calls, what are the markers that we could look forward and talk about some of the initial progress that will be made from having Winnebago and Newmar working together?

A. The Class A business is obviously where the accretiveness from the Newmar acquisition will take hold in total. It will allow us to become more selective with the Winnebago brand about where we want to play with Class A gas and Class A diesel underneath our flagship brand. We continue to see the efficiency there on that segment versus the rest of the industry. I will tell you though, the entire industry is struggling on the Class A value side of the equation. (Michael Happe, CEO)

Er, only $5 million savings on a $1.2 billion cost base? Really??

Q. Okay, perfect. Thank you for that. And just finally, and I think, Mike, you talked about some of the teams from Newmar and the Motorized — the Winnebago motorized team are starting the integration work now, and at the time you made that acquisition you were looking for $5 million synergies over three years, has that picking changed at all, because if you look at these two businesses together you’ve got a $1.2 billion cost base and you’re calling out $5 million in savings, that just seems at the surface pretty low. Has there been any change in that thinking and any sense of when you might update that?

A. I will be very honest with you, we need to be able to exceed that number. (Michael Happe, CEO)

We have lots of Newmar coaches in stock!

Q. Okay. And then just more of a housekeeping item on Newmar, I think Bryan you gave us what the backlogs were excluding Newmar, but any sense of what the inventory — the inventory for Motorized at quarter end was with Newmar?

A. Sure. Yes. So Mike, real quick. So Newmar we had about 1,400 units, 1,420 units of field inventory related to Newmar. So our reported number was 5,169, of that 1,420 units were Newmar. (Steve Stuber, Investor Relations)

Let’s remain humble and paranoid.

Q. Good morning. Thanks for taking my questions. Just two quick ones here. So, can you talk about the integration of Newmar, how that’s been going? And maybe, have there been any issues or any early lessons that may have been learned?

A. So, very early in the process, we have strong aspirations, but we also need to remain both humble and paranoid that if you don’t keep your head down on an integration like that, that something could surprise you, but nothing to report as of late. (Michael Happe, CEO)

And this one isn’t about Newmar. It is about Winnebago’s Class B products.

B stands for Bumpy. Or maybe Bad (as in bad product quality). But let’s not call them out by name. We’ll just call them “the vendor”.

Q. And also with regards to incoming chassis, the quality issues, are we in the later innings of these issues?

A. As it relates to which inning might we be in, we’re working I’d say very productively with the vendor. I think that we’ve made progress with them. I think it will continue for the foreseeable future here as we work through issues with them. And so we’re not prepared yet to call that we’re in the late innings of this journey. Some of these issues are certainly deep-rooted or systemic, and like I said, we’re working very productively with them. But more work to be done, I would say. (Michael Happe, CEO)

Here are the highlights for the first quarter.

Revenues for the Fiscal 2020 first quarter ended November 30, 2019, were $588.5 million, an increase of 19.2% compared to $493.6 million for the Fiscal 2019 period.

• Winnebago’s towable segment achieved a sales improvement of 16.5%, to $341.3 million, mostly from rising sales of the Grand Design RV brand.
• Motorhome segment revenue increased by 24.6%, to $225.9 million, due to the acquisition of competitor Newmar Corporation on Nov. 8. Winnebago paid $270 million in cash plus 2 million of its common shares in the purchase. After removing Newmar’s impact during the first quarter, motorized sales advanced by 4.9%.
• Adjusting for the Newmar acquisition, organic revenue between both segments rose by 12%, to $552.8 million, an impressive result given that dealer-inventory rationalization (i.e., the rightsizing of vehicles on dealer lots to meet the appropriate level of current retail demand) has continued industrywide during the second half of calendar-year 2019.
• Total order backlog increased by 20.7%, to $627.1 million. Towable backlog dipped by 26%, while motorized backlog essentially doubled from the addition of Newmar’s unfilled orders and the introduction of new Winnebago-branded products.
• The company’s gross margin declined by 100 basis points, to 13.4%, due to a change in product mix stemming from the Newmar acquisition, as well as purchase-accounting adjustments related to the transaction.
• Adjusting for $10 million in Newmar transaction costs, operating margin slipped by 100 basis points, to 5.5%.
• Also adjusting primarily for the impact of the Newmar purchase, earnings per share rose 4.3%, to $0.73.