Good news for Winnebago keeps rolling

Winnebago Industries, Inc. (NYSE:WGO), a leading recreation vehicle manufacturer, last week reported financial results for the Company’s second quarter of Fiscal 2018.
Second Quarter Fiscal 2018 Results
Revenues for the Fiscal 2018 second quarter ended February 24, 2018, were $468.4 million, an increase of 26.4 percent compared to $370.5 million for the same Fiscal 2017 period. Gross profit was $67.7 million, an increase of 37.2 percent compared to $49.3 million for the Fiscal 2017 period. Gross profit margin increased 110 basis points in the quarter, driven by the continuation of accelerated growth in the Towable segment, which accounted for 57 percent of revenues in the Fiscal 2018 second quarter. Operating income was $35.3 million for the quarter, an improvement of 24.2 percent compared to $28.4 million in the second quarter of last year. Fiscal 2018 second quarter net income was $22.1 million, an increase of 44.6 percent compared to $15.3 million in the same period last year. Earnings per diluted share were $0.69, an increase of 44 percent compared to earnings per diluted share of $0.48 in the same period last year. As a result of the recently enacted Tax Cuts and Jobs Act, a favorable $2.3 million net tax benefit was recorded in the quarter, impacting earnings per diluted share by $0.07. Consolidated Adjusted EBITDA was $39.4 million for the quarter, compared to $29.1 million last year, an increase of 35.5 percent.
President and Chief Executive Officer Michael Happe commented, “The second quarter marked another period of solid consolidated results for Winnebago Industries, including strong sales growth, overall market share accretion, and margin improvement, as we continue to build a more balanced full-line RV portfolio. Our Towables segment outpaced the industry with robust organic growth and impressive profitability across the Winnebago and Grand Design brands. The Towables backlog position and retail performance remain strong, with reasonable field inventory levels driven by our market momentum, increasing share of dealer lots, and further product line expansion. We continue to make incremental progress facing the market in our Motorized segment, with encouraging double-digit percentage retail growth in the quarter and a strong increase in our Motorized backlog driven by improving product line vitality and appeal. However, there remains much work ahead on Motorized profitability improvement as we work to drive a return on the current costs and investments associated with the turnaround strategy.”
Mr. Happe added, “During the quarter, we recorded a tax reform benefit and expect a similar favorable tax rate for the remainder of Fiscal 2018. We are committed to passing a portion of the tax savings to our hard-working Winnebago Industries employees in the form of a bonus and other selective wage adjustments, making a donation to our foundation, and accelerating facility improvements over the coming months which will create better work environments. As always, I want to sincerely thank each and every one of our employees for their tremendous efforts and dedication to building a stronger future for our Company.”
Motorized
In the second quarter, revenues for the Motorized segment were $202.0 million, up 1.5 percent from the previous year. Segment Adjusted EBITDA was $4.0 million, down 62.7 percent from the prior year. Adjusted EBITDA margin decreased 340 basis points, driven by manufacturing start-up investments, increased material costs, and product mix shifts. For the second quarter, backlog increased 42.5 percent, or over 900 units, compared to the same period last year. This healthy increase reflects the strength of our recently introduced new products.
Towable
Revenues for the Towable segment were $266.4 million for the quarter, up 55.2 percent over the prior year, driven by strong organic growth across the Grand Design RV and Winnebago-branded lines. Segment Adjusted EBITDA was $35.3 million, up 93.8 percent over the prior year. Adjusted EBITDA margin increased 270 basis points, due to fixed cost leverage on the strong sales growth. Backlog remains strong at over 9,000 units, while retail sales continue to outpace the industry for both brands.
Balance Sheet and Cash Flow
As of February 24, 2018, the Company had total outstanding debt of $271.1 million ($279.7 million of debt, net of debt issuance costs of $8.6 million) and working capital of $177.1 million. The debt-to-equity ratio as of February 24, 2018 declined to 56.7 percent from 59.3 percent as of November 25, 2017 and the ratio of net debt to Adjusted EBITDA was 1.4x as of the end of the quarter. Cash flow from operations was $15.0 million for the six months ended February 24, 2018, an increase of $9.9 million from the comparative period in Fiscal 2017, driven by increased earnings, partially offset by changes in working capital.
Tax Reform Impact
As a result of the recently-enacted tax reform legislation, the Company recorded a net benefit of $2.3 million in the second quarter and a tax rate of 27.2 percent. The Company recorded a charge related to the re-measurement of net deferred tax assets, which was more than offset by the benefit recorded associated with the reduction in the federal tax rate. The Company projects its tax rate will be approximately 29 percent for Fiscal 2018, reflecting a blended tax rate for the fiscal year. The Company plans to utilize a portion of the tax reform benefit for employee compensation, making a donation to its foundation, and facility improvements. For the full fiscal year 2018, the Company is currently projecting the improved tax rate to benefit diluted earnings per share by an estimated $0.10 to $0.12, net of the reinvestments mentioned previously.  The Company expects to have a further reduction in its tax rate in fiscal 2019 as the full fiscal year realizes the benefit of the lower federal statutory rate of 21 percent.
Quarterly Cash Dividend
On March 14, 2018, the Company’s board of directors approved a quarterly cash dividend of $0.10 per share payable on April 25, 2018, to common stockholders of record at the close of business on April 11, 2018.
Mr. Happe continued, “As we move into the second half of Fiscal 2018, we are well-positioned to capitalize on the upcoming retail season with an improving product line across both brands, increased capacity within our Grand Design business, and a focus to provide our customers with a high level of product quality and service support. We remain cautiously optimistic about the retail prospects for the RV industry this year and believe Winnebago and Grand Design inventory levels are appropriate in relation to our momentum and the addition of new products entering the market. Initial interest in our recently announced product introductions has been strong, with significant enthusiasm from dealers for the new Grand Design Transcend introductory-level travel trailer and the Revel 4x4 Class B van from Winnebago. We also recently unveiled the new Winnebago Class C Outlook motorhome earlier this month at our national dealer meeting. Our strategic investments specific to ERP implementation and Grand Design campus expansion are on schedule and we are nearing the kick-off of our Winnebago-branded Towable capacity expansion project. Our balance sheet continues to improve and there is strategic focus on identifying new paths to profitable growth around our vision to become a trusted leader in outdoor lifestyle solutions.”
Conference Call
Winnebago Industries, Inc. will conduct a conference call to discuss second quarter Fiscal 2018 results. 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.