Winnebago Profit Down but Better Than Expected

Recreational vehicle maker Winnebago Industries Inc. (WGO) Thursday reported a sharp decline in quarterly profit as high fuel prices and low consumer confidence hurt sales, but the results beat Wall Street forecasts and pushed shares up 3 percent.

While Winnebago said it relied less on customer incentives, it reported sharp sales drops across its line of motor homes, especially large "Class A" vehicles (search).

"Motor homes are a luxury item and we expect to see continued cyclical swings in demand," Chairman and Chief Executive Bruce Hertzke said on a conference call with analysts.

"Everybody in the industry is waiting for consumer confidence to improve and the market to take off again," he added. "When it turns, we'll have a good opportunity to resume growth."

Net income fell to $15.4 million, or 46 cents per share, in the fiscal fourth quarter ended Aug. 27, from $19 million, or 55 cents a share, a year earlier.

Analysts on average had expected 42 cents per share, according to Reuters Estimates.

Revenue fell 18 percent to $231.5 million, below analysts' average forecast of $236 million.

"We've been seeing weakness in the RV market for the better part of this year, so we're not surprised to see a down earnings quarter," said analyst Edward Aaron of RBC Capital Markets. "What we tend to see in the RV market during periods of weakness is relative strength at the value end of the market."

Aaron has a "sector perform" rating on Winnebago shares and a $36 price target.

Winnebago delivered 2,551 vehicles during the quarter, a 17 percent drop. Deliveries of Class A gas-powered vehicles fell 20 percent, while Class A diesel vehicle deliveries fell 36 percent.

By contrast, deliveries of Class C vehicles (search) — smaller, lower-margin motor homes built atop a van-type chassis — were down just 2.5 percent.

The company said it expected the shift in its product mix, and the trend toward weaker consumer confidence, to continue into 2006 and said it has cut production to reflect lower demand.

The Forest City, Iowa-based company said its sales order backlog fell to 2,059 units from 2,541 a year earlier. The decrease was "due to lower consumer confidence levels, driven primarily by the volatility of fuel costs," Hertzke said on the analyst call.

He added, "We anticipate these factors, along with a continued shift in product mix, to continue into fiscal 2006."

The company has cut production to better reflect demand, Hertzke said, including the layoff of about 170 workers.

Winnebago's report came a day after rival Thor Industries Inc. (THO) reported higher quarterly profits and sales despite a soft recreational vehicle market. Unlike Thor, Winnebago did not benefit from the need for temporary housing in the wake of hurricanes Katrina and Rita.

"We don't have any big numbers to report because of FEMA," Hertzke said, referring to the Federal Emergency Management Agency.

Separately, Winnebago did not rule out using more price discounts to drive sales, but executives said they prefer to focus on maintaining profit margins.

Shares of Winnebago were up 90 cents at $28.50 in morning trade on the New York Stock Exchange.

The shares are down 27 percent since the start of the year, underperforming rivals Fleetwood Enterprises Inc. (FLE) and Thor. But Winnebago shares have fared better than Monaco Coach Corp. (MNC), which is down 35 percent year-to-date.