Editor’s Note: The following report was issued by Robert W. Baird & Associates to clients following a meeting with dealers at Winnebago Industries Inc.’s recently completed Dealer Days event in Las Vegas.
Dealer meetings: Sentiment is running high as the cyclical recovery gains steam. Big picture, management is committed to building a more diversified business, a strategy that likely produces better sustainable margins at the expense of peak margin potential.
Optimistic tone: Sentiment among dealers and other industry contacts is running high, consistent with the near record level observed in our recent dealer survey. After a deep downturn, industry survivors feel good about the recovery and their affiliation with Winnebago. Meanwhile, checks indicate that credit continues to loosen.
New products: Winnebago unveiled its 2014 lineup, highlighted by a new Class B and entry-level Class A diesel and gas motorhomes. We see an opportunity for Winnebago to retain or gain share as the market recovers. Separately, Winnebago recently introduced the Metro Link, a mid-sized bus for highly competitive transit market.
Fixing towables: Winnebago added Johnny Hernandez, a veteran leader in the towable marketplace, as the general manager of the towable division in January. Long term, some see potential for a $100 million towable business. However, the immediate goal is to achieve break-even by the August quarter. Winnebago has cut the complexity of its towable product lineup (20 fewer models) and moved to more modular features that reduce complexity and lower cost.
Focus on sustainability: To build a more durable Winnebago, management is rethinking the business with an emphasis on diversification and more sustainable profitability. We see the benefit of diversifying beyond motorhomes, but note that towables and buses typically offer a lower margin profile, which likely will limit the peak margin potential.
Motorhome recovery: After a painful downturn in which motorhome demand fell from 62K units to 21K units, the industry is recovering. As negative equity evaporates, consumer demand recovers, and dealers rebuild inventory, we see potential for the industry shipments to return to 40K-50K units, near historical cycle averages. In that context, we believe Winnebago has the ability to achieve 8,000 motorhome shipments.