Winnebago Opts Not to Enter Towable Sector
Steve Bibler
RV Business
Friday, March 16, 2007

Winnebago Industries Inc. has decided not to enter the towable market.

In a conference call with analysts on Thursday (March 15), Bruce Hertzke, chairman and CEO of the Forest City, Iowa-based manufacturer, signaled that the company will remain strictly motorized.

“We feel we have a lot better (chance for) profitability in the motorized category,” Hertzke said. Expanding upon Winnebago’s second quarter, ending Feb. 24, in which it earned $7.5 million on revenues of $199 million, Hertzke said the company will focus this year on promoting its new products and increasing its share of the diesel Class A market, which stood at 9.9% at year-end.

He said the towable market is very competitive, especially with the influx of thousands of FEMA units scheduled to become available by auction this spring. While many are in poor condition and should be junked, he said, others are in good condition and some are brand new and were never used.

Hertzke had indicated in recent conference calls that Winnebago was considering entering the towable business, perhaps by acquisition. Winnebago’s steady accumulation of cash and an aggressive stock repurchase program fostered the towable talk.

Now, with the towable prospect put to rest and some $167 million in cash and $22.2 million remaining available under the stock repurchase authorization, the company’s future moves will be a topic at next week’s board meeting, Hertzke said.

Analysts generally applauded Hertzke and his management team for reporting a profit during the quarter and exceeding industry norms. Wall Street responded Thursday as Winnebago shares gained $2.99, finishing at $33.55 per share.

Meanwhile, Hertzke said his company received “mixed signals” from the season’s retail shows across the country. He predicted the motorized segment of the RV industry overall would be flat this year. While he sees “no big increase in our industry,” the current quarter should be stronger, he said, adding, “Without a doubt it will pick up some just due to seasonality.”

Ending the second quarter, Winnebago had 1,896 units in backlog, a 19.9% increase from a year ago. The breakdown was 650 Class A gas units, 394 Class A diesel units and 852 Class C units. The Class A backlog was 47% higher than a year ago.

Hertzke and Ed Barker, Winnebago president, attributed the Class A growth in part to dealers’ acceptance of Winnebago’s new products, the Winnebago Destination and Itasca Latitude, and more willingness to restock their inventory on a one-to-one basis each time a new unit is sold.

Barker said consumers may experience some sticker shock this spring as they go to purchase higher-priced diesel Class A units that are compliant with tougher diesel emission standards. But he said past trends show that consumers are willing to spend the extra money for certain product features.

How consumers react once the pipeline is filled with the new diesels as well as gas pusher platforms remains to be seen, he said.

“Over the next year and a half, we will see which way the market goes,” Hertzke said.

The company’s Class C shipments were down in the second quarter from a year ago, but Hertzke said he remains pleased with the performance of the company’s fuel-efficient, Sprinter-based Navion and View that were introduced a year ago. Higher deliveries were needed during the second quarter last year to provide adequate stocking levels in the dealer channel.

The company utilized 65% of its production capacity in the second quarter, up from 52-53% in the first quarter, Barker noted.

At calendar year-end, Winnebago remained No. 1 in all motorized sales with 19% of the market and in Class C sales with 25.5%, according to Statistical Surveys Inc. However, the company fell to second place in Class A gas sales behind Fleetwood Enterprises Inc. and was a distant fourth in Class A diesel sales. Winnebago remained in third place in all sales of Class A units.