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WGO > SEC Filings for WGO > Form 10-Q on 27-Jun-2014All Recent SEC Filings

Show all filings for WINNEBAGO INDUSTRIES INC

Form 10-Q for WINNEBAGO INDUSTRIES INC


27-Jun-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This management's discussion should be read in conjunction with the Condensed Unaudited Financial Statements contained in this Form 10-Q as well as the Management's Discussion and Analysis and Risk Factors included in our Annual Report on Form 10K for the fiscal year ended August 31, 2013 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Forward-Looking Information

Certain of the matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. A number of factors could cause actual results to differ materially from these statements, including, but not limited to availability of chassis and other key component parts, increases in interest rates, availability of credit, low consumer confidence, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, a breach of our information technology systems, the effect of global tensions, integration of operations relating to mergers and acquisitions activities and other factors which may be disclosed throughout this report. Although we believe that the expectations reflected in the "forward-looking statements" are reasonable, we cannot guarantee future results, or levels of activity, performance or achievements. Undue reliance should not be placed on these "forward-looking statements," which speak only as of the date of this report. We undertake no obligation to publicly update or revise any "forward-looking statements" whether as a result of new information, future events or otherwise, except as required by law or the rules of the NYSE.

Executive Overview
Winnebago Industries, Inc. is a leading US manufacturer of RVs with a proud history of manufacturing RV products for more than 50 years. We produce all of our motorhomes in vertically integrated manufacturing facilities in Iowa and we produce all of our travel trailer and fifth wheels in Indiana. We distribute our products primarily through independent dealers throughout the US and Canada, who then retail the products to the end consumer.


Table of Contents

Our motorized and towable retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Note that this data is subject to adjustment and is continuously updated.

                                       Motorized
                        Through April 30        Calendar Year
US                       2014      2013       2013   2012   2011
Class A gas              19.8 %     23.0 %   22.4 % 24.2 % 22.2 %
Class A diesel           19.5 %     17.5 %   18.0 % 19.4 % 17.6 %
Total Class A            19.7 %     20.8 %   20.7 % 22.2 % 20.2 %
Class C                  20.1 %     15.2 %   17.5 % 18.3 % 17.4 %
Total Class A and C      19.9 %     18.1 %   19.2 % 20.5 % 19.0 %

Class B                  20.4 %     18.7 %   17.0 % 17.6 %  7.9 %

Canadian                 2014      2013       2013   2012   2011
Class A gas              16.8 %     12.0 %   13.9 % 15.3 % 16.5 %
Class A diesel           17.2 %     16.4 %   15.6 % 17.3 % 18.0 %
Total Class A            16.9 %     13.6 %   14.5 % 16.1 % 17.1 %
Class C                  12.8 %     15.3 %   11.9 % 14.9 % 15.9 %
Total Class A and C      14.9 %     14.5 %   13.1 % 15.5 % 16.5 %

Class B                  13.7 %     17.5 %   20.1 % 12.7 %  7.1 %


                                 Towables
                  Through April 30       Calendar Year
US                 2014      2013       2013  2012  2011
Travel trailer      0.9 %     0.9 %     1.0 % 0.8 % 0.6 %
Fifth wheel         0.6 %     0.8 %     0.8 % 1.1 % 0.5 %
Total towables      0.8 %     0.9 %     0.9 % 0.9 % 0.6 %

Canadian           2014      2013       2013  2012  2011
Travel trailer      0.6 %     0.8 %     0.9 % 0.6 % 0.5 %
Fifth wheel         1.1 %     1.3 %     1.4 % 1.5 % 0.6 %
Total towables      0.7 %     0.9 %     1.0 % 0.9 % 0.5 %

Presented in fiscal quarters, certain key metrics are shown below:

                                  Class A, B & C Motorhomes                             Travel Trailers & Fifth Wheels
                                                       As of Quarter End                                     As of Quarter End
                       Wholesale         Retail        Dealer      Order      Wholesale       Retail         Dealer       Order
(In units)             Deliveries     Registrations   Inventory   Backlog     Deliveries   Registrations    Inventory    Backlog
Q4 2012                  1,321               1,334       1,927     1,473            695             700         1,365       411
Q1 2013                  1,534               1,416       2,045     2,118            557             367         1,555       687
Q2 2013                  1,419               1,072       2,392     2,752            548             328         1,775       381
Q3 2013                  1,978               1,736       2,634     2,846            713             846         1,642       443
Rolling 12 months        6,252               5,558                                2,513           2,241
Jun 2012-May 2013

Q4 2013                  1,890               1,870       2,654     3,409            717             748         1,611       221
Q1 2014                  2,005               1,524       3,135     3,534            484             504         1,591       151
Q2 2014                  2,055               1,283       3,907     2,900            575             394         1,772       206
Q3 2014 (1)              2,331               2,783       3,798     2,357            727             724         1,775       303
Rolling 12 months        8,281               7,460                                2,503           2,370
Jun 2013-May 2014

(1) An additional 343 units were delivered but not included in Q3 2014 motorhome wholesale deliveries as presented in the table above as the units are subject to repurchase option. These units were included as retail registrations, not in dealer inventory, as the units were immediately placed into rental service once delivered. See Note 5 to the financial statements.


Table of Contents

Industry Outlook
Key statistics for the motorhome industry are as follows:
                           US and Canada Industry Class A, B & C Motorhomes
                   Wholesale Shipments(1)                   Retail Registrations(2)
                        Calendar Year                            Calendar Year
(In units)   2013         2012  Increase  Change       2013        2012  Increase  Change
Q1          8,500        6,869     1,631    23.7 %    7,145       5,706     1,439    25.2 %
Q2         10,972        7,707     3,265    42.4 %   10,898       8,206     2,692    32.8 %
Q3          9,469        6,678     2,791    41.8 %    9,111       6,916     2,195    31.7 %
Q4          9,391        6,944     2,447    35.2 %    6,276       4,922     1,354    27.5 %
Total      38,332       28,198    10,134    35.9 %   33,430      25,750     7,680    29.8 %

(In units)   2014         2013  Increase  Change       2014        2013  Increase  Change
Q1         11,125        8,500     2,625    30.9 %    8,026       7,145       881    12.3 %
April       4,092        3,780       312     8.3 %    4,108       3,512       596    17.0 %
May         4,486        3,698       788    21.3 %           (4)  3,787
June        4,391  (3)   3,494       897    25.7 %           (4)  3,599
Q2         12,969  (3)  10,972     1,997    18.2 %           (4) 10,898
Q3         11,300  (3)   9,469     1,831    19.3 %           (4)  9,111
Q4         10,600  (3)   9,391     1,209    12.9 %           (4)  6,276
Total      45,994  (3)  38,332     7,662    20.0 %               33,430

(1) Class A, B and C wholesale shipments as reported by RVIA.

(2) Class A, B and C retail registrations as reported by Stat Surveys for the US and Canada combined.

(3) Monthly and quarterly 2014 Class A, B and C wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Summer 2014 Industry Forecast Issue. The revised RVIA annual 2014 wholesale shipment forecast is 46,500 and the annual forecast for 2015 is 47,300.

(4) Stat Surveys has not issued a projection for 2014 retail demand for this period.

Key statistics for the towable industry are as follows:

                             US and Canada Travel Trailer & Fifth Wheel Industry
                    Wholesale Shipments(1)                      Retail Registrations(2)
                        Calendar Year                                Calendar Year
(In units)    2013         2012  Increase  Change        2013         2012    Increase   Change
Q1          66,745       60,402     6,343    10.5 %    42,987       39,093       3,894     10.0  %
Q2          79,935       71,095     8,840    12.4 %    94,670       83,990      10,680     12.7  %
Q3          61,251       56,601     4,650     8.2 %    79,758       67,344      12,414     18.4  %
Q4          60,104       54,782     5,322     9.7 %    37,011       32,469       4,542     14.0  %
Total      268,035      242,880    25,155    10.4 %   254,426      222,896      31,530     14.1  %

                                                                              Increase
(In units)    2014         2013  Increase  Change        2014         2013  (Decrease)   Change
Q1          75,458       66,745     8,713    13.1 %    45,477       42,987       2,490      5.8  %
April       28,269       26,716     1,553     5.8 %    27,814       28,325        (511 )   (1.8 )%
May         29,467       27,179     2,288     8.4 %            (4)  34,610
June        29,000  (3)  26,040     2,960    11.4 %            (4)  31,735
Q2          86,736  (3)  79,935     6,801     8.5 %            (4)  94,670
Q3          66,200  (3)  61,251     4,949     8.1 %            (4)  79,758
Q4          61,000  (3)  60,104       896     1.5 %            (4)  37,011
Total      289,394  (3) 268,035    21,359     8.0 %                254,426

(1) Towable wholesale shipments as reported by RVIA.

(2) Towable retail registrations as reported by Stat Surveys for the US and Canada combined.

(3) Monthly and quarterly 2014 towable wholesale shipments are based upon the forecast prepared by Dr. Richard Curtin of the University of Michigan Consumer Survey Research Center for RVIA and reported in the Roadsigns RV Summer 2014 Industry Forecast Issue. The revised RVIA annual 2014 wholesale shipment forecast is 288,500 and the annual forecast for 2015 is 298,400.

(4) Stat Surveys has not issued a projection for retail demand for this period.


Table of Contents

Company Outlook
Our motorized dealer backlog is an indicator of demand for our product in the
current marketplace. We believe that the decrease in our backlog (as noted in
the table below) is a result of more timely delivery through increased
production rates and improved chassis supply. We have been increasing our
production rates throughout the fiscal year and leased an additional production
facility in which production began late in the second quarter of Fiscal 2014.

Our motorized sales order backlog of 2,357 as of May 31, 2014 represents orders
to be shipped in the next two quarters:
                                                             As Of
                                                                            (Decrease)     %
(In units)                         May 31, 2014          June 1, 2013        Increase    Change
Class A gas                            752   31.9 %       1,397   49.1 %         (645 ) (46.2 )%
Class A diesel                         280   11.9 %         499   17.5 %         (219 ) (43.9 )%
Total Class A                        1,032   43.8 %       1,896   66.6 %         (864 ) (45.6 )%
Class B                                264   11.2 %         149    5.2 %          115    77.2  %
Class C                              1,061   45.0 %         801   28.1 %          260    32.5  %
Total motorhome backlog(1)           2,357  100.0 %       2,846  100.0 %         (489 ) (17.2 )%

Travel trailer                         224   73.9 %         359   81.0 %         (135 ) (37.6 )%
Fifth wheel                             79   26.1 %          84   19.0 %           (5 )  (6.0 )%
Total towable backlog(1)               303  100.0 %         443  100.0 %         (140 ) (31.6 )%

Approximate backlog revenue in thousands Motorhome $ 219,676 $ 292,307 $ (72,631 ) (24.8 )% Towable $ 6,072 $ 9,562 $ (3,490 ) (36.5 )%

(1) Percentages may not add due to rounding differences.

(2) Our backlog includes all accepted purchase orders from dealers to be shipped within the next six months. Orders in backlog can be cancelled or postponed at the option of the purchaser and, therefore, backlog may not necessarily be an accurate measure of future sales.

Our unit dealer inventory was as follows:

           May 31,  June 1,                 %
             2014     2013     Increase  Change
Motorhomes   3,798    2,634       1,164   44.2 %
Towables     1,775    1,642         133    8.1 %

We believe that the increased level of our motorized dealer inventory at the end of the third quarter of Fiscal 2014 is aligned with current market conditions given the improved retail demand and the strong sales order backlog of our product. We have introduced a number of new products in the past nine months (Class B: Travato; Class C: Trend, Viva; Class A diesel: Forza, Solei), many of these products were delivered to the dealers during Fiscal 2014 for their initial stocking. We believe that these innovative products will generate additional retail demand in the coming quarters. We have also expanded our points of distribution for these new product offerings in the past year as our dealer locations have increased 9.5%, which is another factor contributing to our dealer inventory growth.
The recreation vehicle industry has, from time to time, experienced shortages of chassis due to various causes such as component shortages and/or production delays due to quality issues at the chassis manufacturers. In the first half of Fiscal 2014 we have experienced shortages of certain motorized RV chassis which has negatively affected our sales and earnings. Conditions improved during the third quarter of Fiscal 2014 with Ford's improved Class A chassis supply and resolution of their Class A chassis quality issues which had caused a supply constraint. We continue to closely monitor our chassis suppliers and work with them to minimize impact to our production.


Table of Contents

Results of Operations
Current Quarter Compared to the Comparable Quarter Last Year
The following is an analysis of changes in key items included in the statements
of operations:
                                                        Three Months Ended
(In thousands, except
percent                    May 31,        % of         June 1,        % of         Increase        %
and per share data)          2014     Revenues(1)        2013     Revenues(1)     (Decrease)     Change
Net revenues             $  247,747        100.0 %   $  218,199        100.0 %   $    29,548      13.5  %
Cost of goods sold          221,266         89.3 %      197,002         90.3 %        24,264      12.3  %
Gross profit                 26,481         10.7 %       21,197          9.7 %         5,284      24.9  %

Selling                       4,887          2.0 %        4,857          2.2 %            30       0.6  %
General and
administrative                6,005          2.4 %        6,092          2.8 %           (87 )    (1.4 )%
Operating expenses           10,892          4.4 %       10,949          5.0 %           (57 )    (0.5 )%

Operating income             15,589          6.3 %       10,248          4.7 %         5,341      52.1  %
Non-operating income            735          0.3 %          144          0.1 %           591     410.4  %
Income before income
taxes                        16,324          6.6 %       10,392          4.8 %         5,932      57.1  %
Provision for taxes           4,939          2.0 %        2,731          1.3 %         2,208      80.8  %
Net income               $   11,385          4.6 %   $    7,661          3.5 %   $     3,724      48.6  %

Diluted income per
share                    $     0.42                  $     0.27                  $      0.15      55.6  %
Diluted average shares
outstanding                  27,319                      28,087                         (768 )    (2.7 )%

(1) Percentages may not add due to rounding differences. Unit deliveries and ASP, net of discounts, consisted of the following:

                                                      Three Months Ended
                            May 31,     Product        June 1,     Product       Increase       %
(In units)                   2014      Mix % (1)        2013      Mix % (1)     (Decrease)    Change
Motorhomes:
Class A gas                      786       33.7 %           656       33.2 %          130      19.8  %
Class A diesel                   280       12.0 %           323       16.3 %          (43 )   (13.3 )%
Total Class A                  1,066       45.7 %           979       49.5 %           87       8.9  %
Class B                          224        9.6 %            78        3.9 %          146     187.2  %
Class C                        1,041       44.7 %           921       46.6 %          120      13.0  %
Total motorhome
deliveries (2)                 2,331      100.0 %         1,978      100.0 %          353      17.8  %

ASP (in thousands)       $      93.9                $      97.9                $     (4.0 )    (4.1 )%

Towables:
Travel trailer                   598       82.3 %           587       82.3 %           11       1.9  %
Fifth wheel                      129       17.7 %           126       17.7 %            3       2.4  %
Total towable
deliveries                       727      100.0 %           713      100.0 %           14       2.0  %

ASP (in thousands)       $      23.9                $      21.5                $      2.5      11.5  %

(1) Percentages may not add due to rounding differences.
(2) An additional 343 motorhomes were delivered in Fiscal 2014 but not included in wholesale deliveries as presented in the table above as the units are subject to repurchase option. See Note 5 to the financial statements.


Table of Contents

Net revenues consisted of the following:

                                                   Three Months Ended
                                   May 31,              June 1,                       %
(In thousands)                       2014                 2013           Increase  Change
Motorhomes (1)                $ 221,191   89.3 %   $ 194,796   89.3 %   $  26,395   13.6 %
Towables (2)                     17,174    6.9 %      15,345    7.0 %       1,829   11.9 %
Other manufactured products       9,382    3.8 %       8,058    3.7 %       1,324   16.4 %

Total net revenues $ 247,747 100.0 % $ 218,199 100.0 % $ 29,548 13.5 %

(1) Includes motorhome units, parts and services.

(2) Includes towable units and parts.

Motorhome net revenues increased $26.4 million or 13.6% in the third quarter of Fiscal 2014. The increase was attributed primarily to a 17.8% increase in unit deliveries driven by higher dealer and retail consumer demand, partially offset by a decrease in motorhome ASP of 4.1% as compared to the same period a year ago. The decrease in ASP was primarily due to a shift in class A diesel product to lower price points and a higher percent of Class B unit sales in the third quarter of Fiscal 2014.

During the third quarter of Fiscal 2014 we delivered 520 rental units to Apollo, a US RV rental company. According to repurchase conditions in the sales agreement, only 177 were reported as motorhome sales in the quarter. See Note 5 to the financial statements.

The increase in Towables revenues of $1.8 million or 11.9% was attributed to an increase in ASP of 11.5% and a 2.0% increase in unit deliveries as compared to the third quarter of Fiscal 2013.

Cost of goods sold was $221.3 million, or 89.3% of net revenues for the third quarter of Fiscal 2014 compared to $197.0 million, or 90.3% of net revenues for the same period a year ago due to the following:
Total variable costs (materials, direct labor, variable overhead, delivery expense and warranty), as a percent of net revenues, decreased to 84.0% compared to 84.6%. The decrease is due to favorable product mix and year-over-year price changes in Fiscal 2014.

Fixed overhead (manufacturing support labor, depreciation and facility costs) and research and development-related costs decreased to 5.3% of net revenues compared to 5.7% for Fiscal 2013. This difference was primarily due to significantly higher production levels in Fiscal 2014 which resulted in higher absorption of fixed overhead costs.

All factors considered, gross profit increased to 10.7% from 9.7% of net revenues.

Selling expenses were 2.0% and 2.2% of net revenues in the third quarter of Fiscal 2014 and Fiscal 2013, respectively, as expenses were essentially flat as compared to the prior year.
General and administrative expenses were 2.4% and 2.8% of net revenues in the third quarter of Fiscal 2014 and Fiscal 2013, respectively. General and administrative expenses decreased $87,000, or 1.4% in the third quarter of Fiscal 2014 compared to the same period in Fiscal 2013.
Non-operating income was $735,000 and $144,000 in the third quarter of Fiscal 2014 and Fiscal 2013, respectively. The increase was primarily due to proceeds from our COLI policies in the third quarter of Fiscal 2014.
The overall effective income tax rate for the third quarter of Fiscal 2014 was 30.3% compared to the effective tax rate of 26.3% for the same period in Fiscal 2013. The increase in tax rate for the third quarter of Fiscal 2014 is primarily a result of the increased level of pretax book income earned during the quarter and a reduced level (in comparison to book income) of benefits recorded for tax credits and tax free and dividend income during the quarter. The legislation for various applicable tax credits expired on December 31, 2013; therefore our projected benefits for these credits are limited to four months of our fiscal year.
Net income and diluted income per share were $11.4 million and $0.42 per share, respectively, for the third quarter of Fiscal 2014. In the third quarter of Fiscal 2013, net income was $7.7 million and diluted income was $0.27 per share. The impact of stock repurchases in the last twelve months on diluted net income per share was an increase of $0.01 for the third quarter of Fiscal 2014. See

Part II, Item 2.


Table of Contents

Nine Months of Fiscal 2014 Compared to the Comparable Nine Months of Fiscal 2013 The following is an analysis of changes in key items included in the statements of operations:

                                                         Nine Months Ended
(In thousands, except
percent                    May 31,        % of          June 1,        % of         Increase        %
and per share data)          2014      Revenues(1)        2013     Revenues(1)     (Decrease)     Change
Net revenues             $  699,228      100.0  %     $  588,919        100.0 %   $   110,309      18.7  %
Cost of goods sold          623,940       89.2  %        529,784         90.0 %        94,156      17.8  %
Gross profit                 75,288       10.8  %         59,135         10.0 %        16,153      27.3  %

Selling                      13,709        2.0  %         13,649          2.3 %            60       0.4  %
General and
administrative               16,577        2.4  %         16,392          2.8 %           185       1.1  %
(Gain) loss on sale of
real estate                    (629 )     (0.1 )%             28            - %          (657 )     NMF
Operating expenses           29,657        4.2  %         30,069          5.1 %          (412 )    (1.4 )%

Operating income             45,631        6.5  %         29,066          4.9 %        16,565      57.0  %
Non-operating income            752        0.1  %            739          0.1 %            13       1.8  %
Income before income
taxes                        46,383        6.6  %         29,805          5.1 %        16,578      55.6  %
Provision for taxes          14,259        2.0  %          8,468          1.4 %         5,791      68.4  %
Net income               $   32,124        4.6  %     $   21,337          3.6 %   $    10,787      50.6  %

Diluted income per
share                    $     1.16                   $     0.76                  $      0.40      52.6  %
Diluted average shares

outstanding 27,666 28,218 (552 ) (2.0 )%

(1) Percentages may not add due to rounding differences. Unit deliveries and ASP, net of discounts, consisted of the following:

                                                       Nine Months Ended
                            May 31,     Product        June 1,     Product       Increase        %
(In units)                   2014      Mix % (1)        2013      Mix % (1)     (Decrease)     Change
Motorhomes:
Class A gas                    2,085       32.6 %         1,779       36.1 %           306      17.2  %
Class A diesel                 1,133       17.7 %           989       20.1 %           144      14.6  %
Total Class A                  3,218       50.4 %         2,768       56.1 %           450      16.3  %
Class B                          524        8.2 %           263        5.3 %           261      99.2  %
Class C                        2,649       41.4 %         1,900       38.5 %           749      39.4  %
Total motorhome
deliveries (2)                 6,391      100.0 %         4,931      100.0 %         1,460      29.6  %

ASP (in thousands)       $      98.1                $     106.2                $      (8.1 )    (7.6 )%

Towables:
Travel trailer                 1,468       82.2 %         1,433       78.8 %            35       2.4  %
Fifth wheel                      318       17.8 %           385       21.2 %           (67 )   (17.4 )%
Total towable
deliveries                     1,786      100.0 %         1,818      100.0 %           (32 )    (1.8 )%

ASP (in thousands)       $      23.3                $      21.6                $       1.7       8.1  %

(1) Percentages may not add due to rounding differences. . . .

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