Winnebago Beats Inflation to Nearly Double EPS in Its Fiscal Third Quarter

Winnebago successfully fought inflation in its fiscal third quarter to grow adjusted EPS 84% to $4.13, beating the Refinitiv consensus of $2.96. A 41% year-over-year organic revenue increase from higher pricing and 7.4% growth in RV unit shipments drove, by our calculation, operating margin up by 220 basis points to 12.7% and more than doubled free cash flow to $179.3 million. Management expects to see continued inflation likely into fiscal 2023, which we agree with, but CEO Mike Happe’s answer to our question on passing price along suggests dealers tolerated price increases after placing initial orders which helped company gross margins rise by 100 basis points to 18.7%. Happe, however, indicated that the third quarter was likely the peak pricing power the company will see, but he also said there will be more price increases if inflation continues. In that scenario however, we expect gross margin will compress due to higher input costs not being entirely offset. We are raising our fair value estimate to $80, from $77, on time value of money, a lower share count after record share buybacks of $70 million, and more revenue growth for fiscal 2022 than we were previously modeling.