Winnebago Industries Inc. reported a net loss for its fiscal second quarter, as profit margins were driven down by heavy discounting coupled with a rise in raw material costs.
Interestingly, Wall Street seemed to focus on Winnebago’s healthy order backlog. In a conference call today (March 15) following the Forest City, Iowa-based company’s earnings release, Winnebago’s President, Chairman and CEO Randy Potts noted that “we are better positioned with the model year changeover, which occurs in the third quarter, being essentially sold out of current model year products.” Winnebago shares were up significantly in yesterday’s trading.
Regarding Winnebago’s discounting, Potts explained that it implemented cost-cutting to “secure additional volume in the quarter and minimize production shutdowns, which would have resulted in additional unabsorbed overheads and higher inventory.”
He added, “A winter seasonal slowdown in conjunction with the excess motorized industry capacity created a competitive environment that negatively impacted earnings.”
A rise in raw material costs also dented Winnebago’s bottom line. Potts noted that the company opted not to pass on those costs, again pointing to the “competitive nature of the marketplace.”
As a result, Winnebago reported that gross profit margins shrank to 5.2% from 10.6% in the same period last year.
While admitting the quarter was “disappointing,” Potts said there are reasons to be positive about the remainder of the fiscal year. “We are cautiously optimistic about growth in the general economy, given the improvement in consumer confidence, employment and housing starts,” he said.
Winnebago also will be resurrecting its Dealer Days in May after a four-year absence, according to Potts. “This gives us the opportunity to showcase all of our redesigned products for dealers,” he said.
While profits were down, Winnebago posted 23.5% growth in revenue during the second quarter, in part driven by its towable division. The company purchased Sunnybrook RV Inc. in late 2010 then followed with the launch of its Winnebago towable brand last summer.
Winnebago delivered 562 towable units, up from 85 units in the previous year. The company is expecting continued improvement in travel trailer and fifth-wheel sales, particularly heading into the prime selling season.
Motorhome deliveries also increased, up 10.1% in the quarter to 1,001 units compared with 909 the year prior. All categories outpaced the previous year.