Company Reports

Winnebago’s second-quarter fiscal 2024 adjusted diluted EPS of $0.93 beat the $0.85 LSEG consensus despite continued hesitation by its dealers to increase inventory. Management expects fiscal third-quarter results to be better than fiscal second quarter, mostly on towable segment growth, but it also stressed uncertainty on if the normal seasonal demand of robust spring and summer sales will happen this year. We have lowered our fiscal 2024 revenue projection for this reason, but we are increasing our fair value estimate to $86 from $81 on time value of money and from raising our midcycle operating margin by 50 basis points to 8.5%. The margin increase results from management announcing midcycle organic growth targets, including revenue of $4.5 billion to $5 billion and gross margin of 18%-18.5%. Timing is uncertain, but CEO Michael Happe said in roughly at least three years time it hopes to achieve these levels. Our midcycle fiscal 2028 gross margin is 14.5% to capture upside and downside profit levels over time, per our methodology, but we model 18% in fiscal 2027.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2023, towables were about 41% of total revenue compared with just 9% in fiscal 2016. Marine was about 13.5% of fiscal 2023 sales and Barletta is a top five pontoon brand. Management wants non-RV revenue to be 15%-20% of total sales.

Winnebago warned on its October earnings call that the first two quarters of fiscal 2024 would have formidable challenges due to dealers being very cautious on inventory accumulation while they clear out 2023 model year product. First-quarter fiscal 2024 results showed that is the case, and management expects fiscal second-quarter revenue and profit to be lower than the first quarter. We don’t see a reason to change our fair value estimate, however, because we and the company expect a second half rebound once dealer restocking resumes, provided the U.S. avoids a recession. Recent news on 2024 interest-rate cuts coming may help nudge dealers’ confidence levels upward to resume orders in the spring. As we said in our Oct. 18 note, the assumption of a rebound in the second half of the fiscal year is critical to fiscal 2024 results. CEO Michael Happe also said that on the March fiscal second-quarter earnings call the company will update long-term guidance given at the November 2022 investor day, but unlike that day, guidance will be for beyond fiscal 2025.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2023, towables were about 41% of total revenue compared with just 9% in fiscal 2016. Marine was about 13.5% of fiscal 2023 sales and Barletta is a top five pontoon brand. Management wants non-RV revenue of 15% by fiscal 2025.

Winnebago's fiscal 2023 fourth-quarter results gave us no reason to change our fair value estimate, but we will reassess all valuation inputs once we roll our model for the 10-K. Adjusted diluted EPS of $1.59 fell 47.4% year over year but beat the Refinitiv consensus of $1.35. Revenue declined by 34.6% on lower units and more discounting as the industry continues to come off pandemic-fueled record delivery levels. We view these volume declines as dealers resetting their inventory levels to something more normal rather than a sign of an imminent recession. Management expects a "formidable" fiscal 2024 first and second quarter as dealers continue to be cautious on inventory. But management expects dealers to restock in the second half of fiscal 2024. This assumption is critical to fiscal 2024's results, so it could change if the U.S. enters recession next year, but we are encouraged to hear CEO Michael Happe say towable backlog increased sequentially for every month of the fiscal fourth quarter. Towable is the firm's largest EBITDA contributor. Total recreational vehicle deliveries fell 32.4%, with motorhomes down 51.7% and towables down 26.3%, while total RV backlog declined by 60.4% (down 13.5% sequentially) to $896.7 million. This balance is still more than double the end of fiscal 2019's RV backlog of $399.7 million. Cost-cutting efforts in towables, along with favorable warranty performance, enabled towable EBITDA margin to rise by 170 basis points to 12.5% despite a 19.7% decline in that segment's EBITDA dollars.

We are initiating coverage on recreational vehicle manufacturer Thor Industries with a no-moat rating and a fair value estimate of $139 per share. Thor is the world’s largest RV manufacturer with greater than 40% market share in North America for both motorhomes and towables, and greater than 20% market share in Europe, generating over $11 billion in sales in fiscal 2023. The company boasts a portfolio of over 30 brands, most notably Airstream and Tiffin, targeting customers in both the North American and European market. For fiscal 2023, North America accounted for over 72% of sales and Europe accounted for over 27% of sales.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2022, towables were about 52% of total revenue compared with just 9% in fiscal 2016. Marine was about 9% of fiscal 2022 sales and Barletta is a top five pontoon brand. Management wants non-RV revenue of 15% by fiscal 2025.

Winnebago’s fiscal 2023 third-quarter earnings gave us no reason to change our thesis or fair value estimate. Adjusted diluted EPS of $2.13 fell 48.4% year over year but beat the Refinitiv consensus of $1.82. The company continues to post results that are seeing the North American recreational vehicle industry come off record volume levels in calendar 2021 induced by the COVID-19 pandemic, which caused a surge in outdoor living and recreation demand. This shift has caused large declines in revenue, such as Winnebago’s 38.2% year-over-year drop for the quarter to $900.8 million, which missed consensus by about $55 million, as well as increases in wholesale discounting. However, the company said on the earnings call that discounts are not elevated compared with levels just before the pandemic in 2018 and 2019, which we believe is an important point for investors to remember. Winnebago’s RV backlog is now about $1.04 billion, down about 10% from the fiscal second quarter and about 71% year over year. Although these deltas are large, we are not worried because massive pandemic demand was likely to eventually bring large declines. The balance sheet remains in strong shape, in our view, with $225.9 million in cash and net debt/adjusted EBITDA of only 0.9 times.

We are not changing our fair value estimate after Winnebago reported second-quarter fiscal 2023 results. We think the company had a good quarter given macroeconomic uncertainty and inflation pressure. Adjusted diluted EPS fell 40.1% year over year to $1.88, but still beat the $1.25 Refinitiv consensus. The prior year’s quarter was a very tough comparable and all three segments (towable, motorhome, and marine) saw volume declines. Towables took the largest impact with a 51.4% decline. Higher material costs and nearly $10 million of lost revenue from the Mercedes Sprinter chassis recall announced in December meant price increases in all segments could only do so much. We calculate that adjusted operating income and margin fell by 43.7% and 310 basis points, respectively, with the latter at 9.4%. The chassis recall was remedied earlier than management expected, so the nearly $10 million revenue hit for the quarter was far below the roughly $50 million impact guided. We calculate total company free cash flow burn for the quarter of $34.7 million versus a $30.6 million burn in the prior year’s quarter. Working capital has been a drag on the metric and we are glad to hear management expects improvement in the back half of fiscal 2023.

Winnebago reported an excellent fiscal 2023 first quarter, given the macroeconomic environment and declining year-over-year figures from a very tough comparable with the first quarter of fiscal 2022. We are maintaining our fair value estimate. Adjusted diluted EPS of $2.07 fell 41% year over year but far surpassed the Refinitiv consensus of $1.82. Revenue fell 17.6% as a 47% decline in towable revenue more than offset 10% growth in the motorhome segment and 66% growth in marine. Winnebago passed through price increases for higher input costs, which helped mitigate a 49% decline in recreational vehicle unit sales split as 56% towable and 8% motorhome. Despite revenue growth, free cash flow fell 94% to $2.1 million as higher input costs and $50 million of lost revenue from the Mercedes chassis recall disclosed last month ate into cash flow. CEO Michael Happe said that across the towable industry, dealers don’t need much more inventory, which may explain Winnebago’s stock falling on Dec. 16. Towable in the prior-year quarter was about two thirds of adjusted EBITDA but only just over one third this quarter, by our calculation. Motorhome backlog fell 47% while towable declined 79% and marine grew 21%.

Winnebago unveiled ambitious fiscal-year 2025 targets at its Nov. 15 investor day. We are raising our fair value estimate to $86 from $77 to give some benefit of the doubt to what we consider a high performing management team, however, we are skeptical on full realization of the targets. Fiscal 2025 revenue is targeted at $5.5 billion, while CEO Michael Happe called for fiscal 2023 to be a softening year for the recreational vehicle market and fiscal 2024 a year of stabilization. Based on current Refinitiv fiscal 2024 revenue consensus, Winnebago’s revenue would have to grow nearly 50% in fiscal 2025 to reach $5.5 billion, and we find growth that fast unlikely given Happe said most growth will be organic. Fiscal 2025 gross margin is targeted at 19% (18.7% in fiscal 2022) and adjusted EBITDA margin at 13% (13.1% in fiscal 2022). The stock fell nearly 8% on Nov. 15, possibly from market skepticism on growth or no EBITDA margin expansion from fiscal 2022.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2022, towables were about 52% of total revenue compared with just 9% in fiscal 2016. Marine was about 9% of fiscal 2022 sales and Barletta is a top five pontoon brand. Management wants non-RV revenue of 15% by fiscal 2025. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2022, towables were about 52% of total revenue compared with just 9% in fiscal 2016. Marine was about 9% of fiscal 2022 sales and Barletta is a top five pontoon brand. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

Winnebago finished fiscal 2022 with fiscal fourth-quarter adjusted diluted EPS of $3.02 growing 14% year over year and beating the Refinitiv consensus of $2.77. We are not changing our fair value estimate, but will reassess all modeling assumptions shortly when we roll our model forward for the 10-K filed on Oct. 19.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is 12%, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2021, towables were about 55% of total revenue compared with just 9% in fiscal 2016. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

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.

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is 12%, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2021, towables were about 55% of total revenue compared with just 9% in fiscal 2016. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

We are not changing our Winnebago fair value estimate after the company’s stock fell over 9% on March 23 following release of fiscal 2022 second-quarter earnings. We consider our modeling assumptions to be conservative over the next five years with low-single-digit revenue growth on average across fiscal 2023-26 and total company backlog remains robust at $4.37 billion, though down slightly from fiscal first quarter’s $4.54 billion. Still, with inflation and supply chain issues likely to remain for the rest of fiscal 2022 and into fiscal 2023, in our view, we think the stock may remain undervalued for a while. We understand some investors may fear these macro headwinds worsening, but the pandemic has created tremendous new demand for recreational vehicles even among Americans younger than the baby boomer generation, and we see Winnebago’s premium brands and healthy balance sheet enabling it to keep posting good results for a while.

Winnebago Industries' strong brand equity in recreational vehicles and its balance sheet should allow the firm to persevere through economic turmoil. Winnebago reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design and sees itself as a leading outdoor lifestyle firm rather than just a RV firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s North American towables share is about 12%, up from under 2% before Grand Design, so we see a long growth runway if it can keep chipping into Thor's and Forest River's roughly 80% combined share. In fiscal 2021, towables were about 55% of total revenue compared with just 9% in fiscal 2016. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

Winnebago Industries started fiscal 2022 with an outstanding first quarter as diluted adjusted EPS of $3.51 rose 97.2% year over year and beat the Refinitiv consensus of $2.26. Organic revenue, which excludes the acquisition of Barletta pontoon boats that closed on Aug. 31, increased by 37.5% and total revenue rose by 45.7% to $1.16 billion, beating consensus of $1.01 billion. EPS was an all-time record on both an adjusted and GAAP basis. We are leaving our fair value estimate unchanged for now as we want to see how Winnebago’s margins (as well as consumers) battle inflation pressures. We feel given the company’s normal seasonal performance of stronger results in the second half of the fiscal year than the first half that Winnebago’s fiscal 2022 profits could be much higher than current consensus levels, but we will likely wait for an update at fiscal second-quarter results before making a decision.