Strong Financials and Growth
After being founded in 1958, Winnebago was at one time synonymous with the term "RV," and had a great 2013. For the quarter ended June 1 (Q3), Winnebago Industries beat expectations on revenues and met expectations on earnings per share. Compared to the prior-year quarter, revenue increased significantly. GAAP earnings per share grew significantly, and margins also increased across the board.
WGO chalked up revenue of $218.2 million. The two analysts polled by S&P Capital IQ anticipated a top line of $197.8 million on the same basis. GAAP reported sales were 40% higher than the prior-year quarter's $155.7 million.
EPS came in at $0.27. The three earnings estimates compiled by S&P Capital IQ predicted $0.27 per share. GAAP EPS of $0.27 for Q3 were 108% higher than the prior-year quarter's $0.13 per share.
For the quarter, gross margin was 9.7%, 190 basis points better than the prior-year quarter. The operating margin was 4.7%, 240 basis points better than the prior-year quarter. Net margin was 3.5%, 100 basis points better than the prior-year quarter.
Net income for the third quarter of fiscal 2013 was $7.7 million, an increase of 94.4%, versus $3.9 million for the third quarter of fiscal 2012. Diluted earnings per share for the third quarter of fiscal 2013 was $0.27, an increase of 107.7%, versus $0.13 for the third quarter of fiscal 2012.
Sales of motor homes jumped 55 percent to 1,978 units in the third quarter ended June 1, while sales of trailers rose 10 percent. Going back to February 2012, the backlog of orders for RVs was 1,004. Moving ahead to February 2013, the backlog has more than doubled to 2,572.
Chairman, CEO and President Randy Potts said that the company had exceptional growth throughout fiscal 2013, experiencing the best shipment quarter in over five years. According to the Recreational Vehicle Industry Association, the number of RVs sold in the U.S. in 2013 will be about 307,300, an increase of 7.5 percent over 2012.
Winnebago Industries has received the Quality Circle Award from the Recreation Vehicle Dealers Association every year since the award's inception in 1996.
The challenge always faced by Winnebago and the RV industry in general is it is totally subjected to the performance of the economy. If the economy is doing well, sales will flourish, if not, sales will diminish. The performance of the industry is also affected by the depth of the weakness in the economy. That is evidenced by the last recession when it resulted in many periods of time when the factories were closed because of little or no business. Other threats include gasoline shortage and higher prices of gasoline, increased competition from GM, Ford and Toyota.
The company has introduced features such as bunk beds to attract families with younger children in their vehicles. Many of them have three televisions, hot water heaters, dishwashers, deep freezers, washer dryer combinations, porcelain tile floors, etc. The increase in consumer confidence and banks making financing more available at low rates has brought in new customers. WGO has come up with some entry-level products that are appealing to buyers. This is attracting new buyers.
Potts also said that they worked extremely hard to deliver significant improvement in the third quarter as compared to the prior year, and they have increased their shipment volume in nearly every sector of their business due to the continued rise in customer demand.
To Wrap Things Up
Winnebago has some significant tailwinds at this time, the strongest being its growing backlog, which is based upon a positive economic outlook in the recent past. That momentum should carry on for the rest of the year.
WGO is expecting incremental income from its bus segment (non-RV). It is ramping up its production, which provides another clear growth signal. A key risk, however, is that economic growth may not grow at a pace WGO expects. Therefore, ramping up production will lead to huge inventories.
As the economy continues to pick up the pace this stock will reward its valued investors, and WGO looks good from a long-term perspective. Therefore, I am pretty bullish about WGO.