Morningstar | Winnebago Starts Fiscal 2019 in the Right Direction
We are not changing our Winnebago fair value estimate after the company reported a good quarter to start fiscal 2019. Diluted EPS of $0.70 beat consensus of $0.64 and grew 22.8% year over year, while revenue rose 9.7% to $493.6 million, beating consensus of about $486 million. The company finally is seeing meaningful improvement from the restructuring efforts of the motor home segment, with segment EBITDA margin up 400 basis points year over year to 6.6%, despite a 3.6% decline in segment revenue. Motorized deliveries fell 10% despite a 94% rise in Class B sales.Towable segment revenue grew 13% but segment EBITDA fell 8%. Management cited strong discounting pressure by the competition negatively impacting results for Winnebago-branded towables. The brand is young in towables, so it must play a delicate balancing act between protecting the brand while remaining competitive. The premium towable brand, Grand Design, never discounted when it started, which helps it maintain its premium positioning. Winnebago brand on both the motorized and towable side negotiates individually with each dealer on inventory; a practice management wants to change, but we think that will take a long time.
We are glad to see Winnebago's results were not impacted by recent stock market volatility, and continued cost and efficiency measures in motorized should lead to more good news in fiscal 2019 provided the U.S. does not enter a recession. Management also reports its customers' willingness to spend on discretionary goods and services has not waned, and the RV market is not experiencing any credit shortage problems. The company backed up this optimism by announcing a 10% increase in the quarterly dividend to $0.11 per share. The balance sheet also improved from year-end, with net debt to adjusted EBITDA down to 1.4 times from 1.6 times. Fiscal first-quarter free cash flow rose 72% year over year to $41.4 million on better working capital despite capital expenditures more than doubling.
Winnebago Industries is a manufacturer with a portfolio of recreation vehicles and marine products used primarily in leisure travel and outdoor recreation activities. The company's reportable segments include: Towable, which is comprised of products which are not motorized and are generally towed by another vehicle as well as other related manufactured products and services; and Motorhome, which is comprised of products that include a motorized chassis as well as other related manufactured products and services. The company's subsidiary, Chris-Craft USA, Inc., manufactures and sells boats in the recreational powerboat industry through a network of independent authorized dealers.
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