Winnebago Industries Inc (WGO) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to this Winnebago Industries first-quarter 2005 earnings results conference call. Today's call is being recorded, and now at this time for opening remarks and introductions, I would like to turn the call over to Ms. Sheila Davis. Please go ahead, ma'am.

Thank you, Tracy. Good morning and welcome to the Winnebago Industries conference call to review the Company's record results for the first quarter of fiscal 2005 ended November 27, 2004. Conducting the call today are Bruce Hertzke, Winnebago Industries Chairman of the Board, Chief Executive Officer and President, and Ed Barker, Senior Vice President and Chief Financial Officer.

I trust each of you has received a copy of the news release announcing our earnings this morning. Additionally this call is being broadcast live at shareholder.com and Vcall.com and is assessable from our own website at Winnebagoind.com. A replay of the call will be available at each site at approximately 1:00 PM Eastern time today. If you have any questions about assessing any of this information, please call our Investor Relations Department at 641-585-6803 following the conference call.

Before we start, let me offer the following cautionary note. This presentation contains forward-looking statements within the meaning 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 Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or for 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 conference call this morning. I will briefly review a few highlights for the first quarter of fiscal 2005 for Winnebago Industries, and then Ed Barker, our Senior Vice President and Chief Financial Officer, will review our financials with you.

Once again, we're able to set a new record revenues and earnings for the first quarter of fiscal 2005. Strong Class A diesel motor home deliveries continue to have a very positive impact on our business. The mix of diesel products was extremely strong within the quarter. However, margins were somewhat affected by higher volumes of lower-priced products also.

During the first quarter last year, we delivered the initial order of our brand-new Winnebago Vectra and Itasca Horizon diesel products to our dealer. This year we delivered a more normalized mix of products for the first quarter. All of our diesel models, the Winnebago Journey and Vectra and the Itasca, Meridian and Horizon motorhomes continue to perform very well in the marketplace, accounting for a 13 percent increase in our Class A diesel delivery for the first quarter of fiscal 2005 compared to the same quarter last year. This has resulted in Winnebago Industries Class A diesel market share to grow to 14 percent calendar year to date through October compared to 9 percent for the same period last year. Winnebago Industries is the top-selling motorhome manufacturer in the industry with 19.3 percent of the combined Class A and C markets for the first 10 months of calendar year 2004.

Winnebago Industries continues to outperform the industry as a whole with retail sales of our Class A and C motorhomes are up 9.3 percent for the first 10 months of calendar 2004 compared to the same period last year, while the industry is up 7.9 percent for the same period.

Our sales order backlog was 2080 units at November 27, 2004 compared to a backlog of 2768 one year ago. We were successful in decreasing our backlog from last year's historic level to a more readily available to meet the dealer needs on a more timely basis. This was in part of our result of increased capacity of our new Charles City facility and due to a more appropriate level of dealer inventories.

In early December Winnebago Industries displayed several new products at the RBIA Trade Show in Louisville, Kentucky. Dealer reaction to our new products was extremely positive, especially to our brand-new 2006 Winnebago View and Navion product, a brand-new concept in motorhoming. The View and Navion are built on Dodge front chassis with a 2.7 liter Mercedes-Benz turbodiesel engine with an estimated fuel economy of 17 to 19 mpg. Winnebago Industries is the only RV manufacturer approved by Daimler-Chrysler to build on this 10,200 pound growth vehicle weight rated Class C cutaway chassis. Unlike anything else in the market, these innovative new products are scheduled to be delivered to our dealers in the latter half of fiscal 2005.

In addition to the new View and Navion, we also further enhanced our diesel line with a new 39F triple-slide in our Winnebago Journey and our Itasca Meridian line, and a new 40FD quad-slide in the Winnebago Vectra and Itasca Horizon motorhomes. Also debuting at Louisville were a new 34A Winnebago Sightseer and Itasca Sunova Class A gas model, as well as a 27L Winnebago Minnie and Itasca Spirit Class C model. We believe that the product innovations and product quality are what ultimately sells motorhomes. Our new 2005 and 2006 motorhomes are extremely innovative and very well received.

We also lead the industry in quality. During the Louisville show, we were pleased to accept the Recreational Vehicle Dealer Association Quality Circle Award. This is the ninth consecutive year that Winnebago Industries has been honored with this award based on dealer survey responses to questions on the manufacturer's quality of sales, our products, our management and service warranty and aftermarket support. We are extremely proud of the fact that Winnebago Industries is the only manufacturer to have received this award all nine years of the award existence.

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

Good morning. I am pleased to review with you the excellent revenue and earnings performance for the Company's first quarter of fiscal 2005. Revenues for the first quarter ended November 27, 2004 were a record 266.1 million, a 4.4 percent increase when compared to revenues of 254.9 million for the first quarter of fiscal 2004.

Net income for the fourth quarter was a record 19.5 million or 7.7 percent increase compared to 18.1 million for the same period last year. On a diluted per share basis the Company earned a record 57 cents for the first quarter of fiscal 2005, a 14 percent increase compared to 50 cents a share for the first quarter last year. The Company finished the quarter with 101.3 million in cash. Cash generated by operating activities was 27.9 million, and the uses of cash during the quarter were 1.5 million for capital expenditures and 2.4 million for dividends.

I will now turn the call back over to Bruce for closing remarks.

We continue to believe the long-term prospects remain very positive for our industry. While interest rates have raised moderately by the Federal Reserve, we believe they are still at a relatively low historic level. We continue to remain optimistic about the future. Our new 2005 products are well accepted in the marketplace. The demographic trends continue to be very positive for the industry and for continued long-term growth, and we continue to lead the RV industry in profitability. Winnebago Industries has a strong balance sheet with no debt and approximately 101 million in cash for future growth. Winnebago Industries is well positioned for a strong future.

Thanks again to the entire Winnebago Industries' team for making the first quarter of fiscal 2005 another record breaking quarter. We have a great team of hard-working employees who have helped Winnebago Industries achieve these results.

I will now turn the call over to the operator for the question and answer portion of the call.

(Operator Instructions). Scott Stember, Sidoti & Co.

Good morning, guys. Ed, do you have the ASPs for gas, A and diesel and also for the Cs for this year and last year?

You know I don't with me. I will try to get those to you. Why yes, I do. I guess I do have them. Excuse me, Scott. This year's Class C ASP for the first quarter was 54 million or $54,106. Class As were 107, 272. The breakdown of gas and diesel, our average ASP for Class A gas was 86,839, and Class A diesel was 152,732. I will have to get you last year's; I do not have that right with me.

Okay and as far as capacity utilization, can you talk about where you are now versus last year at this time?

We are about 80 percent capacity yet. We are continuing -- we are probably -- got our Charles City facility ramped up to about 80 percent now, and that is kind of where we are holding right now through the fall and winter period time. We anticipate for the spring market again we may have to start hiring and start going back to ramp-up, but our overall capacity is right at about 80 percent.

And last year you were at full capacity?

Well, last year we were ramping up our Charles City facility. It was not at the volume that it was now. It was probably -- our Winnebago facility was probably at 90 percent, and our Charles City facility was probably only at 30 percent or so.

Okay. But you clearly are cycling through the units quicker than you were a year ago?

Definitely and that was part of the reason why we wanted to build this new facility because our backlogs were getting too large, where they had to wait too long for products.

Okay and you made some comments about the show in Louisville. By all accounts it looks like it was a good show for everybody. Can you talk about that 53 percent increase in orders. You were saying that a substantial piece of it was for those two new products built on the Daimler-Chrysler chassis. Could you maybe comment on some of other products that were ordered at the show?

Yes, that was the largest order. Naturally whenever you show a brand-new product line, all the dealers start putting in their orders so that they can start getting the new product line, so that definitely helped orders. Other than that, we give our order position at the end of each quarter. I can tell you, though, the 53 percent, probably about 40 percent of that was -- the additional -- was the new product line, and maybe 13 percent was the other product line.

Okay and last question. You continue to build up your cash balance very rapidly every quarter. Are there any more share buybacks that you would assume from the founding family, and if not, could there be any other use for cash?

This quarter we do not have any announcements of any share buybacks. The founding family, Hanson Capital Partners, they are down to about 6 percent ownership of the Company. They still have about 2 million shares. We always as we have in the past just expressed the fact that if they ever decide that they would like to sell a block that Winnebago Industries would very much appreciate the fact that they would let us know if it is available, and that is where we currently sit.

Okay. That is all have for now. Thank you.

Craig Kennison, Robert W. Baird.

Happy holidays, everyone. A question on gross margin. It appears pretty healthy. Were you offering any incentives during the quarter?

I think you kind of know our philosophy. You cannot really say there weren't any programs whatsoever, but Winnebago Industries really does not believe and we try to stay away from programs. We may have had a discontinued product or a floor plan or something that we did a program on to move a few units out, but I can't tell you across the board we did not have any discount programs.

I assume then that you adjusted production. Can you comment on whether you took any days off in the quarter?

Yes. We did have inventories that grew a little bit, and we want to make sure that we keep our inventories under control. So we did take a couple of Fridays off during the quarter.

I don't have my numbers in front of me. What does that mean? How many days did you have production in the quarter? Do you know?

We had two Fridays that we had shut everything down, but we adjusted all the individual plants accordingly to the inventory level. So I guess as far as production days it would probably come in right at about 60 or 61.

Okay. That is helpful. And do you know when it is expected to be in Q2?

Well, we like to -- just like last year after the end of our conference call, a quarter or two last year, I think everybody was a little disappointed that our margins had dropped a little bit, and we tried to remind everybody that we do shut down the week before Christmas and we have Christmas Eve, Christmas Day, the week between Christmas and New Year's. So I think we have about 56 workdays.

Okay. That is helpful. Shifting gears into the Class C product and new diesel Class C product, could you talk about the end game for the Rialta product line and maybe just compare and contrast the price that you expect this new View to go out relative to the Rialta and what kind of volume expectations we should anticipate?

I can't tell you that the new diesel product line that we have, the new View and Navion, was a project that we took on to replace our Rialta product, the front-wheel drive, because that product is not being certified for the United States for next year. So we had to go out and look for a new product to replace it. We have found this Sprinter chassis that looks like it will give us the opportunity to do that.

Not only -- we have taken a little different approach. We also have a Winnebago Itasca where the Rialta was a separate brand. We have taken this product and built a Winnebago product and an Itasca product, so all our dealer alliances can carry this product. So as far as the unit volume, we have some estimates, and I guess we're not willing to share them right now. We have done some forecasting and looked at the market, and for competitive reasons we think it is better that we do not share them right now.

But from a volume prospective, do you believe that the View and Navion can at least match what you did in Rialta so that you are not more than cannibalizing your --?

Our expectations are definitely higher for the View and Navion than they were for the Rialta.

And just the average selling price you expect for that, it is going to be higher or lower than the Rialta?

Because it is diesel, it will be a little higher.

My final question for this time has to do with capacity. What is your current capacity in each facility in terms of the number of units you can produce in a week if you assume a 40-hour work week?

We always give our capacity in the percentage. We do not give the exact production number. We are at about 80 percent in Charles City and 80 percent in Forest City of our capacity levels.

Thank you very much.

Gregory Badishkanian, Smith Barney.

Great. Thanks. I just had two questions. One with respect just a follow-up to the Louisville show. Just to keep it in context, what percentage of your orders for the next quarter or two come from the Louisville show, and how far in advance do they actually order when they go to show the dealers?

One of the things I think it is fair to say because of Sarbanes-Oxley we only count orders out so far. We have a cutoff date, and we will not count orders that are out eight, nine months or if somebody wanted to put orders way out there. So we will back off any orders that are what we feel are not in a reasonable timeframe.

We also on the orders that we took at Louisville we will receive a major portion for December and January, but in February we anticipate receiving an awful lot of orders as they continue to be able to rate the spring market. And in January is when the show season starts, and that is when they will be able to see exactly how the marketplace is operating in the spring, and usually February is a very strong order month also, again because of show season and the start of the spring markets.

And the effective tax rate going forward, what would you estimate that at?

That is going to be right around 36 -- it might be slightly higher than 36 percent. Probably 36 to 36.2 percent is probably a great estimate, Greg.

I'm actually going to sneak one more question in. Just your thoughts on the promotional environment. I know you guys are pretty disciplined. Have you noticed any changes by your competitors?

Yes, there are some people that continue to play the discount game and different things. It would be nice to say it wasn't there, but there definitely is always somebody that is trying to move some products that they built too much inventory or have to move to the marketplace.

Is that a change, or is that just a continuation for the last few quarters?

I think it is probably more of a continuation rather than change. I do not think it has increased a lot, but there is still more than what I would like to see.

Great, thank you.

John Diffendal, BB&T Capital Markets.

Good morning. First off, going back to the Louisville show for a second, the order increases, this is units not dollars, right?

That is correct.

And just to put it in perspective, it was against a show last year -- can you maybe compare it against the show last year? I seem to remember you were up a bunch last year, and certainly you were running pretty hard to bring inventory levels up at the dealers. Anyway you can contrast? It was against a very good show a year ago?

That is true, and to tell you the truth, John, when Winnebago went to the show, we actually since dealer inventories were little higher, I have no problem telling you that we actually thought that we would not get quite so many orders because last year was so strong and dealer inventories were a little higher. But I can tell you that when we went through Louisville and we looked at not only the new product, which was the bulk of the 53 percent increase in orders, but we also look at all of our other main lines, we were up in -- we have seven lines of products, and we were up in five of the lines of products in orders. And so we were very pleased. So even our current lines that we had out there, five out of the seven we actually receive more orders in this year, and our diesel category continues to perform well for us.

And diesel was one of the ones that was up?

It definitely was.

And you mentioned that the Florida hurricanes affected you. Can you maybe give us some sort of quantification of that? Anything you can pull out of what business was lost in the quarter?

Yes, I will have Ed -- he is actually dividend analysis of the impact that Florida and actually the Southeast had for the first quarter. So Ed?

John, Florida wholesale shipments during the September/October/November timeframe, so that state we are down 20.7 percent versus the same period in fiscal '04. And then we also went and looked at the states of the Carolinas, Georgia, Alabama, Louisiana, Mississippi, Texas -- that group we are also down 18.2 percent in terms of shipments during the quarter compared to a year ago. So when we put those two numbers together, that group of states were down 19.3 percent from a year ago.

And that is an overall RV business, not just motorhome?

That is motorhomes only. That is our shipments to those states.

That was your shipments to the states?

Our shipments to those states, first quarter this year versus the first quarter last year.

Of course, have you felt that that now that we are out of the way of these hurricanes and certainly there has been some sense that after the election dealers have seen some business pick up, has that group of states started to rebound?

Pretty much so. The shipments to Florida were down fairly consistent all quarter with the October time period being maybe the strongest decline. The rest of the group of states that I mentioned were down more specifically in September/October. Actually in the month of November the other group of states were actually up three units from a year ago. So Florida was down all quarter, but the other states appeared to rebound in November.

That is helpful. Thank you. In looking at the dealer inventories, it was certainly up against last year's lower-level, but it has been in the same general area it has been the last couple quarters. Can you give us your take on the comfort level with inventories? Any particular area that where you feel like they are high or low?

We definitely have a comfort area. We're satisfied with where our dealer inventories is. One of the things we break down our dealer inventory every day, and we are -- our diesel inventory is up 38 percent, and we're very proud of that because that is doing very well in the marketplace and they are turning very good.

The other thing is we introduced, if you remember, our Aspect and Cambria were new products we introduced at our dealer days at the end of July, the first part of August, and that inventory has added some inventory to the field. Our other product lines that we look at, we feel that everything is very much in line, and it is only up 4.5 percent with our other product lines. So we think everything is definitely within line.

And the C units were weak in the quarter. I won't put words in your mouth, but that was sort of going into the introduction of the Louisville show? Maybe just give us some color on that?

Well, one of the things as the Company continued to develop products, our Class Cs have not done as well as Class A areas this last year. So that is what developed the new Aspect and Cambria, and now the new View and Navion to see if we can get some go back. Because we've always been very strong -- Winnebago Industries has been very strong in the Class C business all the time. And we wanted to make sure that these new products would help us grow back into that position.

The one thing that we think we will also see is that in the earlier part of the year there is a lot more rental products that go out to the marketplace, and Winnebago Industries a lot of times, I've no problem telling you, we will probably -- we lose some of that business to other people who are more aggressive on discounts. So we give up some of that business. And we actually think that maybe the last half of the year in November and December we can see some of the rebound in our Class C business.

And you say the Aspect and the Cambria, have they performed up to your expectations since the introduction?

We have been very pleased with both product lines, the Aspect and the Cambria, and we're very pleased with the retail rates and what they are turning. We think this was the area of the Class C business that we were missing, and there were some other people who got into it before Winnebago and that hurt our market share in the first half of the year especially.

Thanks so much.

(Operator Instructions). Barry Vogel, Barry Vogel & Associates.

I would like to hone in a little bit closer to this RV show situation. It is a little vague as to what really happened at the show based on your increase of 53 percent in units. And could you tell us, because I know you have all of the numbers, can you tell us what the unit increase in show orders were in Class Cs this year versus last year at the show, Class A gas and Class A diesel?

Barry, the only time we release the order unit status is at the end of the quarter. Other than that, we do not give any guidance on the individual units. We are going to stay with that policy and just continue to give our order backlog at the end of each quarter.

Okay. Perhaps you will change your mind next year. Because actually I want to give you credit, Ed Barker and Bruce, your press release is the best press release by far in the RV industry, by far.

Thank you. We do appreciate that. I will pass on to all the other people who helped contribute to that also.

Can you give us another shot at capital expenditures this year at DNA?

Capital expenditures for the quarter were 1.5 million. They were a little light. For the year we still believe that will come in at $11 million for fiscal 2005. In terms of depreciation and amortization, probably right around 10 million, Barry.

As far as expansion, I know you're not operating flat out, Bruce?

Nope.

And we know that Charles City has been very successful and for $10 million you got a tremendous return on your investment so far.

Thank you.

In terms of the planning of when you're going to need additional capacity, first question is where would it likely be, that is the first question, and when do you think you will have to make a decision on that?

I can tell you the planning process actually started over six months already, Barry. I can also telling you that we have not determined any location or have made any announcements. Even when we talk on a conference call like this, again in the Midwest the last time we had a conference call and we talked, we will literally get hundreds of different communities that continue to try to get us convinced to come to their location.

One of the things that we will look at is definitely available laborers. That is a prime and also a good labor pool that is competitive in wages that we can continue to keep our expenses in line. But we have been reviewing that starting over six months ago. We will have to see when the market will dictate to us to have to go through and expand again.

As far as Charles City, I think it has a good labor pool I would think, otherwise you would not have chosen it in the first place.

That is correct and we still have a good labor pool there.

Would they be one of the logical candidates for expansion?

I'm sure Charles City would like to think so.

What do you think?

We will continue to keep that open ended. It is good to have competition.

Thanks very much. Keep up the good work.

Thank you and happy holidays.

Bill Lerner, Prudential.

Thanks, guys. A few questions. One, just a follow-up and specifically on the hurricane impact. I know you talked generally down 19 year-over-year in shipments to that part of the U.S.. What do you think that translated to in EPS and I have got two follow-ups?

Well, if you will give me just a quick moment. Probably I'm going to say close to 3 cents a share.

Okay, great. And then just to follow-up, if you had the same amount -- and I do not know if you had this in front of you, but just as generally as possible -- if you had the same amount of capacity year-over-year, would you say it is fair to say that backlog would have been in the 11-week range like it was last year? I know you added -- well, you could have added up to 40 percent. It is hard to tell, but maybe you added 30 percent incremental capacity.

Well, it is fair to say that backlog would be higher, yes. Definitely.

Okay. Fine and then last on the dealer inventory question. On an apples-to-apple basis, would dealer inventory have been -- it is a much lower if you did not have the new Class A diesel product, I think that is probably a misperception out there, as well as on the backlog.

Definitely. If the diesel product wasn't doing so well and turning well for the dealers and we would not have picked up 5 percent in the diesel category this year, it is very feasible to say that dealer inventory and the total numbers in the field would definitely be lower in our diesel products.

Just to clarify or to sum it up, on the lower backlog and on the higher dealer inventory, that is not a function at all of demand falling off, it is a function of apples and oranges?

It is a function that our products are being accepted by more dealers across the United States and they are selling more of that product line.

Great, thanks.

Gil Alexander (ph). Doctoral Associates (ph).

My questions basically have been answered. I would just like to ask one thing. Due to the slight shortfall in the first quarter and better consumer confidence, would you expect a nice pickup in the second quarter versus the first?

I'm not sure consumer confidence is any higher than where it was last year. We actually anticipate that hopefully by spring we will definitely see some higher consumer confidence. Our second quarter is December, January and February, and I think that is typically a slower period for the industry, and also it is a period of time that I continue to let everybody know that this is when we shutdown for Christmas, Christmas Eve, our weak shutdown period and also New Year's. So we have considerably less manufacturing and selling days during this period of time.

Thank you very much and have a good holiday.

Michael Novak, Frontier Capital.

My question has been answered. Thank you.

Ed Aaron, RBC Capital Markets.

Thanks. I was wondering do you expect to see more of a seasonal slowdown this year than you did last year? I seem to remember that you guys were maybe on 45-hour work weeks last winter, which is probably unusual for the time of year. So trying to get an apples-to-apples comparison there?

I think that is fair to say. This is going to be a lot more of a typical year. I have no problem telling you that last year was not a typical year after the Iraq war and dealer inventories were really low. When the market took off, we not only had to keep up with the market, but we also had to replenish dealer inventories that were considerably lower than where they are this here. And so I think this is going to be a lot more of a typical year where things slow down just a little bit for the industry during the winter quarter here now. Ours is December, January and February. And then again I'm very optimistic that when consumer confidence picks up that we should be able to continue on our growth opportunities at Winnebago Industries.

If I'm remembering correctly, the margin shortfall that you were talking about in the second quarter of last year, that was more a matter of product mix than it was of a seasonal production slowdown. Is that correct?

The first quarter of last year as Ed stated we started our new Vectra and Horizon high dollar diesel motorhome line and our margins were extremely high. The second quarter we then started making more Class Cs for the spring market, which that is more their market timeframe. So we definitely had a mix in product swing at that time, and we're going to see some of that this next quarter because again I think this is a lot more of a typical year that we will be experiencing now.

Okay and then one question on your backlog. You commented that the backlog came down maybe because of the Charles City facility being ramped up, but looking at the components of the backlog, the diesel, Class A diesel is down more than the other categories, and that is made out of Forest City if I'm not mistaken. So I'm just trying to reconcile.

The good news is that product is turning.

I guess a year ago you were just coming out with those new lines, and there was probably unusually high backlog at that point, is that fair?

Yes because they were just introducing that to the marketplace.

Then one last question. Just to maybe get some clarification. I think Greg asked the question earlier about the Louisville store orders. Could you maybe give us some perspective of if you look at the total orders you get over the course of a year, what percentage roughly comes from Louisville?

I can tell you that the orders we get in Louisville again are probably a very small part of our yearly orders. It is kind of an indicator of what we can expect for in the spring in different things, and I am glad to see the optimism for our new products. But it is a long way from -- our main order in bank will start in the March/April/May timeframe.

We really try to make sure that -- we have 18 district managers across the United States. We really try to make sure we just do not go to a show and get a bunch of orders. Their job is to get orders every day.

To help clarify on that, our backlog issue, we looked at that a little bit. In terms of diesel a year ago, our backlog and what we believe our run rate is last year was 13.6 weeks of backlog on the diesel. This year it is more like eight weeks. So that is one of the issues we have here in trying to deal with our capacity is to try to be more efficient at delivering product to the marketplace. Obviously we would much rather have that product at the dealership ready for retail sales than sitting in our backlog and not available for sale.

Sure. Great. Thanks for the clarification.

Thank you.

Justin Thomas (ph), Asharni (ph) Capital.

Can you talk a little bit more about the discount levels that perhaps you saw from the competitors in the September/October timeframe, and have those changed at all or maybe what the trend is there?

Again, I do not think Winnebago is quite as familiar with a lot of the programs out there. I might be a little sensitive to a sales department once in a while when they bring in the programs in and I am not really interested in them.

There is always some discounting and promotional programs going on in the industry. I think that again I think that a lot of companies now are starting to be more receptive to controlling those inventories because they know inventory will eventually get them in trouble, and to sell that 5 percent more, you have to discount the first 95 percent of your products that you're going to sell any way to get 5 percent more, and that really helps hurts your bottom line. We found it a lot more cost-effective to just go through and continue to build what the market demands, and if you're going to buy a Winnebago product, it is going to have to be on product innovation and quality. But it does not change the fact that there will always be some people out there that continued to play the price game.

I guess I cannot answer your question because I do not have any specific product programs where I can say, this company had these programs during the quarter, and this company had that program during the quarter. But we definitely are aware that there are several different programs that were going on during the quarter.

Okay and lastly now that you have been to Louisville and get a sense of what your new product offering was like and then you got to see hopefully what the competitors were, how do you feel you stack up for, we will call it calendar '05 against what other people's new offerings are as well?

Well, we did put out a news release, which basically said that we were very pleased with our showing at Louisville. And we were very pleased with the reception that we had seen. Again, the order input, we were actually -- we did not think it would actually be quite that high. It is actually higher than what we anticipated because dealer inventories are where they are.

So we were very pleased. The reception to some of our new floor plans, our new product lines and especially our new product offerings all were very very positive, and I am optimistic that we are going to have an extremely good year.

Very good. Thank you.

Scott Stember, Sidoti & Co.

Yes, Ed. Can you just follow-up on the storm impacts in the South East? What percentage of your shipments or revenues would you say were impacted by that 19 percent drop in shipments?

Let me look here. In our shipments I guess they are down about 4.5, 5 percent in terms of total shipments because of the South East issue.

That is all I have. Thank you.

Doug McLean, Serial Capital Management.

Hi. I was wondering if the price increases you have taken over the last year are still offsetting the raw materials that have been flowing through, raw material increases that is?

Yes, we are currently trying to hold our margins in terms of by passing along increased economic costs. So for the most part, that is working pretty good. Commodity prices, pressure on margins are really having a minimal impact.

When was the last price increase you put through, was that last spring?

No, sir. We increased the price of our '05 products when we introduced them approximately in midsummer. We have had a surcharge that went into effect on September 6, and we did increase that surcharge at the beginning of the second quarter or on approximately the end of November this year. So we have been trying to pass those economic commodity pressures on through a surcharge as we have incurred those this fall.

In terms of total dollars, they are not really significant. When we look at our '05 product price increases, our Class C products are up, including the chassis, about 3 percent for economics, and our Class A products are up about 3.2 percent for '05 so far this year.

Up 3 percent and 3.2 percent as far as price?

That is the economics portion of our price increase.

Raw materials, the outlook. Are you expecting more of the same going forward? I am just wondering if you could give us some color there?

In the spring and summer we saw a fair amount of commodity pressures in steel. We have seen those somewhat flatten out during October and November. We expected winter for them to either stay flat or maybe decrease slightly, but again pick up possibly in the spring. We have seen more recently economic price pressure in oil commodity type products such as plastics and Styrofoam. So we continue to see -- we expect at least for right now there's going to continue to be more economic commodity price pressure going forward, although I do not think it's going to be at near the level we have seen over the last six to eight months.

But incremental to those?

Correct.

And did you say how big those surcharges were that went through on September 6th? I'm just trying to get a sense of magnitude.

I think on average units you're talking possibly anywhere from a range of $1000 to $1500 depending upon what particular product and the average price point of that product.

Okay. So that is the level when you ended November it is up 1000 to 1500.

Yes, sir.

Okay. I was just curious. I was wondering if you could help me out. I was looking at the orders from the Louisville show were up 53 percent, but backlogs year-over-year were down 25 percent. Can you just walk me through where the offsets are there?

The Louisville show orders happen after November 27. None of our orders for the 2080 were included in any Louisville show units.

Also another clarifying question. When you mentioned the rebound in Florida, did you say that in November you saw a pickup in all those areas? I thought you said something like three units after having been down in September and October?

These states surrounding Florida we did see a decline in shipments year to year in September and October, but they were actually up three units in total in the month of November, which would indicate to us with the exception of Florida the market kind of rebounded. Florida, the biggest month-to-month decline was actually in October, but there was still a decline in shipments even in the month of November in Florida.

Are you expecting that rebound to maybe happen in December and January? I thought it would be a bigger rebound in November postelection.

We will have to see. I don't have the specific obviously December numbers because it is not completed yet, but we're certainly thinking it will.

Just two others if I may. Could you give a capacity for the quarters and a percentage? What was the capacity for the second quarter last year, and what do you expect it will be for the second quarter this year?

Second quarter of last year was slightly higher than 80 percent, probably in that 82 percent range.

I was asking what the capacity was for this year in the second quarter. I know you say -- gave it in days.

That is a forward-looking. We don't really make projections like that. A lot of that is going to again be very dependent upon what we receive orders over the next six to eight weeks.

Then just one more. On the gross margin last year in the second quarter, it was my understanding that some of the deterioration there was the recording of a reserve. Is that correct? I was just wondering how for a recall you had?

That is correct. There was a $1.9 million expense associated with the product recall that occurred during the second quarter of fiscal 2004.

Was that about 70 to 80 basis points of that?

I would have to go back and look at the numbers.

60 to 70 basis if I remember right.

Okay. Great. And just one last. You are talking about dealer inventory levels. Should we in just looking at your backlog, would it be fair to assume that wholesale shipments and retail takeaway will be much more closely aligned and perhaps even wholesale shipments might be below retail takeaway over the next couple of quarters?

Will you give me that question again?

Sure. Just given the backlog you gave and your comments on dealer inventories being up 16 percent I guess year-over-year, should we -- would it be fair to assume that wholesale shipments going forward will more closely align with retail takeaway than it has in the past, and could it even go below retail takeaway?

I don't think so. I think it can go below because again I think what you're going to do is continue to see my belief again that i believe the industry will do quite well when consumer confidence in the right conditions get there. I believe our market will continue to grow similar to -- this year the are forecasting that the industry is going to hit a 25-year high.

Historically we see dealer inventory build at the end of the second quarter as dealers ramp-up for the spring selling season.

Great, thank you very much.

Chip Drury (ph). Cramer Rosenthal.

Most everything has been answered. I just wanted to ask about the tax rate year-over-year because I think the guidance you said was 36.2. That is down a little bit. So what is going on?

And then what causes the deferred taxes to be higher? It has been for the last three years, at least in the first quarter and it is this here, too.

First of all, in terms of the tax rate last year and we've talked about this in our 10-Q and our annual report, there were nondeductible health-care expenses last year that made the tax rate higher. This year those health-care costs are now deductible, and we have talked about that in previous SEC reports. So that is what is really driving the tax rate.

In terms of deferred tax assets, those are increased primarily because the Company has a retiree health care benefit in which while on a current period basis we accrue those expenses for the future, the actual expenses are realized until the bulk of our employees retire, and for tax purposes those aren't deductible until we actually realize the cash expense. So that what continues on a year-to-year basis to see that deferred tax asset increase. That is the primary driver there.

And that works all through the year?

Yes, they are deductible for (MULTIPLE SPEAKERS)

So it is just the one-year effect. Thank you.

Gil Alexander (ph). Doctoral Associates.

Hi. In the answer that you gave on the cost increases that you put through, am I to conclude that you basically offset all of your increased raw material costs?

That is correct, sir, for the most part. Obviously we incur inflation and we try to pass that on. It is not perfect, but for the most part yes, we have been able to pass those to the marketplace.

My congratulations and also for your efficiency.

Thank you, sir.

That is all the time we have for questions. Mr. Hertzke, I will turn it back to you for any closing comments.

Well, thank you. Once again, I would like to thank everybody for joining Winnebago Industries for the first-quarter conference call today. We look forward to talking to you again March 17 for the second-quarter conference call. I would like to wish on behalf of Winnebago Industries a happy holidays to all of you and a very prosperous New Year. Thank you.

That does conclude today's conference. Thank you, everyone, for joining.