Winnebago Industries Inc. on Wednesday reported revenues for the fiscal third quarter of $528.9 million, a decrease of 5.9 percent compared to $562.3 million for the year-ago period, and shy of Wall Street’s expectations by $31.8 million.
GAAP earnings per diluted share of $1.14 were up 11.8 percent compared to earnings per diluted share of $1.02 in the same period last year and beat estimates by 17 cents. Q3 Non-GAAP EPS of $1.04 beat estimates by 1 cent.
“We are pleased to deliver another quarter of solid consolidated results highlighted by continued margin expansion and market share gains,” said President and CEO Michael Happe. “Winnebago Industries’ third quarter results are a testament to the strength and resiliency of our brand portfolio amid a challenging and highly competitive RV market. We continue to focus on manufacturing high-quality products, maintaining disciplined production management and enhancing channel relationships.
“Despite a moderate decrease in overall sales in a difficult RV wholesale market, consolidated margin continued to expand, primarily due to the strength of our dual-branded Towable segment. We continue to be pleased with our strengthened market position as we outperform the industries in which we compete. I want to thank all of our Winnebago Industries employees for their dedication to making the Company a trusted leader in outdoor lifestyle solutions. Their hard work and flexibility during the quarter is appreciated as we continued to manage output during these past several months of marketplace volatility.”
Gross profit was $86.6 million, an increase of 1.3 percent compared to $85.5 million for the Fiscal 2018 period. Gross profit margin increased 120 basis points in the quarter, driven by continued strong margin performance in the Towable segment. Operating income was $49.0 million for the quarter, an increase of 1.4 percent compared to $48.3 million in the third quarter of last year, and was unfavorably impacted by the restructuring costs associated with moving the company’s diesel manufacturing from Junction City, OR, to Northern Iowa, totaling $1.1 million, or 3 cents diluted earnings per share.
Fiscal 2019 third quarter net income was $36.2 million, an increase of 11.2 percent compared to $32.5 million in the same period last year. Earnings per diluted share were $1.14, an increase of 11.8 percent compared to earnings per diluted share of $1.02 in the same period last year. Net income and earnings per share were favorably impacted by an improved tax rate resulting from the Tax Cuts and Jobs Act (“TCJA”), totaling $1.7 million, or 6 cents diluted earnings per share, and a change in estimate related to R&D tax credits of $1.4 million, or $0.04 diluted earnings per share. Consolidated Adjusted EBITDA was $55.9 million for the quarter, compared to $53.4 million last year, resulting in an increase of 4.7 percent.
In the third quarter, revenues for the Motorhome segment were $160.2 million, down 34.6 percent from the prior year driven by decreases in both Class C and Class A unit sales as dealers continue to lower their inventories. Class B unit sales and Motorhome segment profitability were also down versus the prior year due to a temporary, but material, disruption in chassis supply by one of the company’s strategic suppliers, which had a significant impact on shipment availability for two of the company’s most popular Class B units.
Supply is improving during the early part of the company’s fourth quarter, and it expects Class B portfolio to return to strong performance in the back half of our fourth quarter and during Fiscal 2020. Despite these headwinds, the company’s retail performance in the Class B category has remained robust. Segment Adjusted EBITDA was $0.4 million, down 96.7 percent from the prior year. Adjusted EBITDA margin decreased 460 basis points, driven primarily by deleverage, an unfavorable mix due to the decline in sales of the company’s most profitable products, and continued discounting in the marketplace. Backlog decreased 5.6 percent, in dollars, compared to the prior year reflecting dealers efforts to right-size inventory levels, partially offset by an increase in several Class B products due to the temporary disruption in chassis supply.
Revenues for the Towable segment were $346.8 million for the third quarter, up 10.8 percent from the prior year, driven particularly by the strength of the Grand Design RV brand. Segment Adjusted EBITDA was $57.2 million, up 26.0 percent over the prior year. Adjusted EBITDA margin of 16.5 percent increased 200 basis points, reflecting an increase in unit sales, pricing actions taken over the past twelve months, and effectively managing input cost pressures. Backlog decreased 24.2 percent, in dollars, compared to the prior year, reflecting the positive impact of utilizing additional capacity added during calendar 2018 and dealers continuing to normalize inventory levels.
The company’s effective tax rate for the third quarter was 19.4 percent, driven lower by the year-over-year impact of the reduction in the corporate income tax rate associated with the TCJA and a favorable change in estimate related to R&D tax credits. The impact from the TCJA and change in estimate was $0.06 and $0.04 to diluted earnings per share, respectively. Considering the company’s year-to-date tax provision, including all favorable discrete items and changes in estimates, as well as the company’s current ongoing tax rate assumptions for the remainder of the year, it expects full year Fiscal 2019 tax rate to be approximately 20 percent, before consideration of any discrete tax items in the company’s fourth quarter. Under the current tax code, it expects ongoing tax rate in Fiscal 2020 and beyond to be in the range of 23 percent to 24 percent, before consideration of any discrete tax items.
Balance Sheet and Cash Flow
As of May 25, 2019, the Company had total outstanding debt of $259.6 million ($265.6 million of debt, net of debt issuance costs of $6.0 million) and working capital of $186.2 million. The debt-to-equity ratio decreased to 43.0 percent from 54.5 percent as of August 25, 2018, and the ratio of net debt to Adjusted EBITDA was 1.4x as of the end of the quarter. Cash flow from operations was $82.8 million for the first nine months of Fiscal 2019, an increase of $21.8 million from the same period in Fiscal 2018.
Quarterly Cash Dividend
On May 22, 2019, the Company’s board of directors approved a quarterly cash dividend of $0.11 per share payable on July 3, 2019, to common stockholders of record at the close of business on June 19, 2019.
Happe continued, “As we transition into the final quarter of Fiscal 2019, we are well positioned to continue our positive momentum with top line sales and share gains. Our North American RV retail share is approaching 10 percent, up from 3 percent just three years ago. The imbalance between industry wholesale shipments and retail sales continues to improve and will continue to do so in the back half of calendar 2019. The materials cost environment remains volatile, as newly implemented and pending tariffs start to impact cost inputs in the back half of calendar 2019. We absorbed an unexpected challenge to our motorhome sales and profits during the quarter due primarily to a supply interruption of Class B chassis and we remain focused on seeing that situation improve. We are pleased with the recent pace of steady inbound RV orders from dealers. Additionally, Chris-Craft has launched several new models in the front half of 2019, which will continue their momentum forward in the marine industry. Our broader portfolio, combined with our operational resiliency as a company, are working to solidify our unique position within the outdoor lifestyle market and making Winnebago Industries a high-quality company that investors can trust to deliver value.”
Photo courtesy Winnebago