Winnebago Industries reported a slight decline in earnings in the second quarter ended February 23 as sales retreated 7.6 percent.
Second Quarter Fiscal 2019 Results
Revenues for the Fiscal 2019 second quarter ended February 23, 2019, were $432.7 million, a decrease of 7.6 percent compared to $468.4 million for the Fiscal 2018 period. Gross profit was $66.4 million, a decrease of 1.8 percent compared to $67.7 million for the Fiscal 2018 period. Gross profit margin increased 100 basis points in the quarter, driven by revenue mix, pricing and Motorhome segment operational improvements, partially offset by inflationary cost pressures and heightened dealer incentives. Operating income was $28.9 million for the quarter, a decrease of 18.0 percent compared to $35.3 million in the second quarter of last year, driven primarily by the decline in RV unit sales. Fiscal 2019 second quarter net income was $21.6 million, a decrease of 2.2 percent compared to $22.1 million in the same period last year. Earnings per diluted share were $0.68, a decrease of 1.4 percent compared to earnings per diluted share of $0.69 in the same period last year. Net Income and earnings per share were favorably impacted by discrete tax items totaling $2.5 million, or $0.08. Consolidated Adjusted EBITDA was $34.5 million for the quarter, compared to $39.4 million last year, a decrease of 12.4 percent.
President and Chief Executive Officer Michael Happe commented, “Our solid consolidated second quarter results represent the growing strength of our brands in the marketplace. We continued to make progress advancing our competitive position, gaining market share and increasing the overall appeal of our products with customers, despite challenging macro conditions within the RV industry as dealers continued to reduce their overall inventory levels in the quarter. Although Company sales decreased modestly, we continued to materially outpace the industry and expand our year-over-year margins, primarily due to the improved product vitality and profitability of our Motorhome segment and the continued strength and momentum of our Towables segment. Our Chris-Craft business also continues to grow and establish a presence for our enterprise in the growing marine industry. We continue to remain confident in the potential of our multi-branded lineup and the opportunities we have to further leverage our strong position and outperform the markets in which we compete. I want to thank all of our Winnebago Industries employees for their hard work during the quarter and for helping to transform our Company into the trusted leader in outdoor lifestyle solutions.”
In the second quarter, revenues for the Motorhome segment were $164.7 million, down 17.3 percent from the prior year driven primarily by a decrease in Class A and Class C unit sales, partially offset by an increase in Class B unit sales. Segment Adjusted EBITDA was $4.4 million, down 23.4 percent from the prior year. Adjusted EBITDA margin decreased 30 basis points, driven primarily by the decline in sales, and further impacted by investments in SG&A, partially offset by favorable product mix. Backlog decreased 38.6 percent, in dollars, versus the prior year, reflecting dealers continuing to right-size inventory levels and prior year Class B new product order timing.
Revenues for the Towable segment were $250.7 million for the second quarter, down 5.9 percent from the prior year, driven by dealer network efforts to reduce inventory levels and comparing against very strong shipments in the prior year, partially offset by pricing. Segment Adjusted EBITDA was $33.6 million, down 7.3 percent from the prior year. Adjusted EBITDA margin of 13.4 percent decreased 20 basis points, reflecting pricing actions taken during the last twelve months which did not fully recover increases to cost inputs. Backlog levels remained strong at over 8,000 units but declined 5.7 percent, in dollars, versus the prior year, reflecting the positive impact of utilizing additional capacity added during calendar 2018 and dealers continuing to right-size inventory levels.
The effective tax rate for the second quarter was 12.8 percent, driven lower primarily by favorable discrete items. These discrete items, totaling $2.5 million, were primarily related to R&D tax credits and had an $0.08 impact to earnings per share. Considering the first quarter tax provision and the second quarter favorable discrete items, as well as the current ongoing tax rate assumptions for the remainder of the year, Winnebago expects the full year fiscal 2019 tax rate to be approximately 22 percent. Under the current tax code, the ongoing tax rate in fiscal 2020 and beyond is expected to be in the range of 23 percent to 24 percent.
Balance Sheet and Cash Flow
As of February 23, 2019, the Company had total outstanding debt of $276.9 million ($283.3 million of debt, net of debt issuance costs of $6.4 million) and working capital of $175.3 million. The debt-to-equity ratio decreased to 48.5 percent from 54.5 percent as of August 25, 2018, and the ratio of net debt to Adjusted EBITDA was 1.6x as of the end of the quarter. Cash flow from operations was $51.9 million for the first six months of Fiscal 2019, an increase of $36.9 million from the same period in Fiscal 2018.
Quarterly Cash Dividend
On March 8, 2019, the Company’s board of directors approved a quarterly cash dividend of $0.11 per share payable on April 17, 2019, to common stockholders of record at the close of business on April 3, 2019.
Happe continued, “As we move into the second half of Fiscal 2019, Winnebago Industries is positioned within the outdoor lifestyle market to drive consolidated share growth and long-term value for shareholders. While the RV industry has been challenged over the past 6 months, we believe the wholesale shipment and retail sales equation will approach a new equilibrium during our fiscal Q3. We are well positioned to capitalize on the upcoming retail season across all of our brands. As demonstrated by the strong showing of our new product launches at the recent RVX show, including the new Class B Winnebago Boldt; the Class C Winnebago View; the Grand Design Transcend XPlor travel trailer and our award-winning Winnebago All-Electric Specialty Vehicle, we continue to expect our prospects to remain strong and result in continued share gains. Our efforts to strengthen and expand our core RV business as well as diversify into new, profitable markets, demonstrated by our entrance into the marine industry with the integration of Chris-Craft, have created significant momentum that we aspire to build on through the second half of Fiscal 2019. The Chris-Craft team has had a strong start to Calendar Year 2019 via the introduction of several new models and positive results at the retail shows across the country.”