Winnebago Industries Inc (WGO) 2003 Q2 法說會逐字稿

Good day everyone, and welcome to the Winnebago Industries second quarter 2003 earnings release conference call. This call is being recorded. With us today are the chairman, president and chief executive officer, Mr. Bruce Hertzke, and the senior vice president and chief financial officer, Mr. Ed Barker.

At this time, I would like to turn the call over to Ms. Sheila Davis, the public relations and investor relations director at Winnebago Industries. Please go ahead, ma'am.

Thank you, Abe. And welcome to the Winnebago Industries conference call to review the company's results for the second quarter and first six months of fiscal 2003 ending March 1st.

Conducting the call today are Bruce Hertzke, Winnebago Industries' chairman, CEO and president, and Ed Barker, senior vice president and CFO.

Before we start today, let me offer the following cautionary notes. This presentation contains forward-looking statements within the means of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain A number of factors could cause actual results to differ materially from these statements. These factors are contained in the company's filings with the SEC over the last 12 months, copies of which are available from the SEC and from the company upon request.

I will now turn the call over to Bruce Hertzke -- Bruce?

Thank you, Sheila. Good morning.

I would like to welcome everybody to our company's conference call this morning. I will briefly review a few of the highlights of Winnebago Industries, and then Ed Barker, our senior vice president and chief financial officer will review our financials with you. Each of you should have received a copy of our earnings release this morning.

We are extremely pleased with our earnings and strong performance in our second quarter and want to thank our 3600-plus employees and our dealer partners for their continued success. We continue to be bullish on the future of the industry and especially, Winnebago Industries. Our new motor home production facility in Charles City is evidence of our commitment to the future of the RV industry. It is in the final stage of completion and our first production unit was completed last week. The facility will continue to ramp up during the remainder of this year.

Certainly, with the current economic and the geopolitical conditions that face our nation that our nation has created a challenging environment for the entire U.S. economy. While interest rates are at the lowest levels we have seen during the last several decades, consumer confidence levels are also very low. Yet Winnebago Industries continues to believe our future is bright. That is why we continue to repurchase our stock.

Winnebago Industries has completed its seventh stock repurchase program. Since June of 2002, we have repurchased 450,200 outstanding shares of the company's stock, leaving Winnebago Industries with 18,472,000 outstanding shares. Since December of 1997, Winnebago Industries has purchased approximately 33% of the company's stock. We continue to believe that the repurchase of our stock is the best use of our excess capital for our shareholders.

At this time, I will turn it over to Ed Barker for the financial review - Ed.

Good morning.

I am pleased to report a very profitable quarter thanks to the hard work of the Winnebago team. Net income for the second quarter ended March 1, 2003 was 12.3 million, an increase of 31% compared to the second quarter last year. On a per share basis, the company earned 64 cents for the second quarter ended March 1, 2003, up 42% when compared to the second quarter of last year. Revenues for the second quarter ended March 1, 2003, were 186.7 million, up 2% when compared to the second quarter of last year.

The results for the quarter benefited from an improved mix of products, a favorable outcome of the annual physical inventory, lower stock-based incentive compensation expense partially offset by startup costs of the new motor home production facility in Charles City, Iowa. That income for the first 26 weeks of fiscal 2003 was 28.6 million, a 42% increase compared to the first 27 weeks of fiscal 2002.

On a per share basis, the company earned $1.50 for the first 26 weeks of fiscal 2003, up 58% when compared to the first 27 weeks last year. Revenues for the first 26 weeks of fiscal 2003 were 420.8 million, up 17% compared to the first 27 weeks of fiscal 2002.

Moving to the balance sheet, the company's cash balance during the quarter decreased 27 million. This was due primarily to 9.1 million in purchases of the company's stock, 8.5 million in capital expenditures, 2 million in a payment of cash dividends and an increase in inventory of 27 million.

I will now turn it back to Bruce.

Thank you, Ed. At this time, we will open up our conference call to questions, so I'll turn it back over to the operator.

Thank you. Our question and answer session is conducted electronically. If you would like to signal to ask a question it is star 1 on your touch-tone phone. Again, star 1 on your touch-tone phone. If you are using a speaker phone, please make sure you are not muted -- that might block your signal. Again, star 1 to ask a question. We will pause a moment to allow every one to signal. One moment please.

Gentlemen, our first question will come from Craig Kennison at Robert W. Baird.

Good morning. Good to talk to you, gentlemen.

Good morning, Craig.

Good morning, Craig.

First question has to do with the production schedule, you talked about it in the note. When did you start cutting back to four days in the February quarter and how long is temporary?

We started our four-day work week actually the very last day of February, I think February 28th, the Friday, the first Friday we started and we have scheduled a grand total of seven total, but again, we have told the people it could move either way. Actually, our order in retail has been a little higher, we're hoping that maybe it won't be that long.

When you say order on retail has been higher, you are talking about what you have seen in February and early March that might not be in the stat survey data yet?

That is correct. Our second week in March actually is what I'm referring to.

Okay. Can you review again for those of us who are unfamiliar with it the seasonality of inventory and backlog and what we should expect going forward?

As far as the backlog, if you remember last year, we had in there, it was a very high 3206, actually that backlog was too high, that was actually over a quarter's production and we were not getting our product out to our -- to our dealers in time. Our order backlog this year is 1890 and that is probably actually closer in line. The only reason that we are on the four-day work week is we actually built up a little in-house inventory. We think our dealer inventory is more appropriately at the proper level and we are just controlling our inventory here in-house, because we came out with four new product lines last year so we believe our inventory should be larger.

And just from a guidance perspective, clearly not providing guidance, as we model this out it sounds like we might, relative to working five days a week we might lose seven days of production in the coming quarter? Is that what you are saying?

We actually had one day, February 28th was last quarter, so it would be six for this quarter, if you were figuring it that way, Craig.

Okay. And then could you comment on RVIA (ph) forecast which suggests that motor home sales in 2003 could be down as much as 3%? What is your feeling on that number?

Well, I think they feel that -- I just came back from the RVIA meeting and I think that in the discussions that I was involved with at the meeting is, you know, due to the economy right now everybody is apprehensive on exactly how long this is going to last, but everybody believes also that just like after the tragedy of 9/11, our industry came back very strong. In fact, Winnebago Industries was on nine months of overtime just trying to keep up after that period of time. So everybody is looking for kind of a surge afterwards.

Terrific. Thanks for your time.

Thank you.

Gentlemen, next question comes from Scott Stember. He's with Sidoti and Company.

Good morning.

Good morning, Scott.

Can you just comment on the costs, startup costs, maybe quantify that as well as the inventory benefited, as well as the stock-based incentive expense?

It is our intent, Scott, not to go into particularly a lot of details there. I can tell you that the startup costs in Charles City is above what we had planned. There isn't anything unusual about that, we all kind of knew what was coming.

In terms of the lower stock-based incentive plan, we have a plan which at the beginning of a three-year period, I think this was described certainly in our proxy, but at the beginning of a three-year period, the officer long-term incentive plan, the amount of shares are identified in terms of what the plan is, we have to so to speak, mark those to market each quarter. The substantial drop in the price of the stock this quarter has actually benefited the financials simply because we had to reduce the crude expenses that are planned for that. You can kind of see that reflected in our G and A line.

Okay. And do you have the revenue breakout by agencies for the quarter?

I do.

Last year as well?

I think I do -- I can give you that. You are looking for average sales price?

Average sales price or actual dollars. Whatever works for you.

The average sales price this year for a class C in the second quarter was 50,455 and for a class A was 90,553.

Okay.

We look back at what our average sales price was last year during the second quarter, for a class C was 46,963 and class A was 85,744.

Okay. Two last questions. Now that you finished this recent stock buyback program, can we expect to see something else being announced pretty soon?

We have our board committee meeting today -- they start at 10:00. And we have our board of directors meeting tomorrow and that is part of the discussion. At that time, I am sure we will make an announcement to everybody.

Okay. And as far as the tax rate is going forward, I see that has been creeping up the last couple of quarters, 40% this last quarter. Can you just comment where we expect to see that for the remainder of the year?

Most likely, Scott, we'll probably see it where it was in the second quarter. It is variable. We are required to kind of estimate that on an annualized basis. Given the circumstances we have right now, we expect it to probably stay where it is at.

Okay. That is all I have. Thanks.

Next we will go to Bill Lerner at Prudential Securities.

Hi, guys, how are you doing?

Good, Bill.

A few questions here. One, let's see, can you just address the -- let me ask two together and then one follow up. The competitive environment, what has been going on in recent moments and what you expect the next couple of months, given the difficult external environment. And number two, as you guys I'm sure have heard over recent months, there has been a lot of noise about the prospects in the future, the impact of interest rate increases, an oil embargo, fuel price increases, and so forth. Can you guys just address your thoughts on those and then I have a follow up.

Okay. Start off with competitive environment. Naturally when the -- everybody's business gets a little tougher it gets a lot more competitive. We have been very pleased that we have been able to continue to hold our margins and not get into what we call the discount game so much. We do have some programs, but definitely not as aggressive as some of our competition.

I think that also, as far as the interest rates, we really believe that interest rates could actually go up a couple hundred basis points before we would run into any type of problems -- in fact, probably 2 to 300 basis points. We really never have seen it affect our industry until we start getting close to double digit interest for our products. I think that we continue to see, like I said, very favorable interest rates. Even if they do start going up a little bit we do not think that that will effect it.

Were there any other parts?

Just on, you know, recent fuel price increases and what have you seen as it relates to consumer behavior, perhaps it impacts maybe usage in the near-term, but what has that done and can you guys just talk a little bit about that and the prospect of an oil embargo and the impact?

We track the energy prices very closely. In fact, every week we work with our driveway company -- as far as the average price of gas as of March 10th across the United States was $1.71.2, according to the Energy Information Administration. We track that every week. We may see a few of our consumers, maybe they won't travel quite as far, if they have a real concern on that, but I guarantee you, everybody is still going to take as much vacation and continue to enjoy the lifestyle. They just may not travel quite as far if that is an issue to them.

Okay. And then additionally, if you can, comment on, you know, current estimates out there how comfortable are you, given that you have scheduled six less production days, how comfortable are you with estimates out there, at the very least for the next quarter? I think (inaudible) this is 95 cents.

I think -- this is Ed. I think given the current economic environment and what we have seen in terms of, obviously, the message that the president delivered last night there is a lot of uncertainty in regards to what we can do going forward and I think -- I assume that will be reflected in the analysts' estimates going forward. But it is a challenging environment.

Okay. Thanks, guys.

Thank you.

Our next question will come from Barry Vogel, Barry Vogel and Associates.

Good morning, gentlemen.

Good morning, Barry.

Great quarter.

Thank you.

A couple of questions. Can you tell us how many class Bs you shipped and are you finished with shipping class Bs?

We are finished with those, Barry, I think it was 166. We finally shipped and that concludes the final units on that class B product.

Okay. And, Ed, do you have a firmer number this year on your capital expenditures and depreciation and amortization?

Um, yes, I do. We are looking at about 25 million in capital expenditures, about 10 million in -- 9 to 10 million in depreciation.

Okay. And as far as the comment about a pickup in your P & L for physical inventory count, can you give us an idea what that amount was in the quarter?

It wasn't that significant, Barry, I think in terms of total dollars, we don't -- I don't think I want to use the conference call to get into all the specifics of those issues. I can comment that they are listed in order of significance. The most significant issue in the quarter was the improvement in mix and products for the company.

Okay. As far as your dealer inventory that you gave on your press release, could you break down those gross numbers in As and Cs for the period ending 2/24/02, which I think was 4102, dealer inventories and for the quarter that just ended at 4944?

Are you talking about what's out in the field or -

Just break it down by As and Cs?

Ed's grabbing the reports.

I don't have that, Barry, I'm sorry.

How about the backlog figure, which you gave us a gross number of 1890, could you break that down in As and Cs?

Yeah, 1890, I think it is pretty fair, we have always --even in our road shows, we have always said use 6040, that is pretty close. The spring season though, we do have a few more rental C bodies (ph) that are available this next quarter, but that percentage is holding pretty true.

Okay. And, Ed, as far as your -- for the fiscal year that began on September 1st, can you tell us how many shares since the year started that you purchased and for how much dollars?

Ed's looking at the report. I think basically this last stock repurchase 450,200 was pretty much after September 1st. There may have been a few shares purchased before that, but just about the entire amount, in fact, was just purchased recently.

Okay. That is fine. Thank you very much. You guys just -- industrially just doing the best job in the industry.

Thank you, Barry.

Thank you, Bruce -- Barry.

We'll now go to Jeff Tryka, he's with Delafield Hambrecht.

Couple quick questions for you. Could you give us depreciation amortization for the quarter?

I can, just a second here. Two million 056 for the quarter.

Okay. And in terms of discussing the buyback, is there also any discussion of increasing the dividend?

We have had that discussion, you know, we would like to see whether they will ever tax exempt them for our investors. We really don't like the fact that we both have to pay taxes on it. If that changes, we may give it more consideration. Right now, we think we give more benefits to our shareholders repurchasing stock.

Okay. And last question, going back to -- you gave us the ASPs for the quarter, could you give us the unit volumes too? I didn't see that today.

I believe it is listed on the press release. The unit volumes -

Fifteen hundred and 23 -

A bodies.

A bodies and 736 class Cs.

Right.

Okay.

That was -

Great. Very good. Thanks very much, guys.

Thank you.

We will now go to Katherine Thompson (ph) at BB and T Capital Markets.

Hi. Listen, I have a quick question about dealer inventory levels. Are you comfortable at these levels now and where do you see these going into the second half of '03?

Yes, we are very comfortable with our dealer inventory levels. As I mentioned before, Winnebago introduced last year at this time our dealer inventories were extremely low and we couldn't keep up with the market. This year, they are higher, but we have also introduced four new product lines and we definitely feel that our dealer inventory needed to grow from where it was. The second part of your question, where do we think it will go, we think that it will taper back slightly while they sell off their 2003 model year stuff and then it will start to pick up in June and July as we offer our 2004 models again.

Okay, great, thank you.

Thank you.

Gentlemen, we have time for one more question and that will be a follow up from Scott Stember at Sidoti and Company.

One more question. Maybe just touch on the issue with the dealers and you guys talking about how the inventory or the scheduled production decreases is more a function of your in-house inventory -- at, you know, what point do we say that this is the dealers really just pulling back, versus what you guys have internally? Is there like a mix issue here as far as what is really - just you guys not wanting to process more and how much they just don't want to take any more?

I think the dealers are just being kind of hesitant. You know, they are trying to figure out where the economy is going. They have seen, you know, gas prices jump around a little bit. I feel that they are just trying to search their way through to find out what the proper level is. As soon as they see the economy, you know, get a little more consumer confidence, I really believe that they are going to go back and continue to increase their dealer inventory. We feel that things will take off at that time.

Okay. That is all I have. Thanks.

Thank you, Scott.

Gentlemen that does conclude our question and answer session.

Mr. Hertzke, I will turn it back to you for any closing comments, sir.

Thank you. Once again I would like to thank you for joining Winnebago Industries' second quarter conference call.

In closing, I would like to highlight our optimism for the future of Winnebago Industries. With a strong balance sheet, growing demographics in both age and the number of potential owners, the increasing utilization of motor homes, our number one market share position, our strong name and our quality reputation, we feel we positioned our company for a strong future. Thank you.

Thank you. That does conclude our conference call. We do appreciate your participation. At this time, you may disconnect.