Winnebago Industries Inc (WGO) 2006 Q4 法說會逐字稿

Good morning.

My name is Cynthia and I will be your conference operator today.

At this time I would like to welcome everyone to the Winnebago Industries fourth quarter and fiscal year 2006 earnings results conference call. [OPERATOR INSTRUCTIONS]

I would now like to turn today's call over to Sheila Davis, Investor Relations Manager for Winnebago Industries.

Please go ahead, mam.

Thank you, Cynthia.

Good morning and welcome to Winnebago Industries conference call to review the Company's results for the fourth quarter and fiscal year 2006, ended August 26, 2006.

Conducting the call are Bruce Hertzke, Winnebago Industries Chairman of the Board and Chief Executive Officer, Ed Barker, President, and Sarah Nielsen, Vice President and Chief Financial Officer.

I trust each of you have received a copy of the news release with our earnings results this morning.

This call is being broadcast live or on our website at winnebagoind.com or on vcall.com.

A replay of the call will be available on each site at approximately 12:00 p.m. noon today.

If you have any questions about accessing 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 from the Company upon request.

I'll now turn the call over the Bruce Hertzke.

Bruce?

Thank you, Sheila.

Good morning and welcome to our conference call this morning.

First I will review the current motor home climate, Ed Barker will provide a few of the highlights of our fourth quarter and the fiscal year 2006, and Sarah Nielsen will review our financials with you.

While negative factors, such as rising interest rates, record fuel prices and declining consumer confidence created a very difficult motor home market that favored especially lower-priced products, we at Winnebago Industries remained solidly profitable.

The shift to lower-priced products has actually favored Winnebago Industries as a leading Class C motor home manufacturer.

The innovation of the fuel-efficient Winnebago View and Itasca Navion diesel Class C were a definite home run for us during 2006.

These motor homes were market-timely, with fuel efficiency of 17 to 19 miles per gallon.

After one full year on the market, the Winnebago View and the Itasca Navion continued to sell extremely well, contributing to a significant increase in our Class C market share.

Calendar year-to-date through August our Class C retail market share has grown to 25.1% compared to 19.3% for the same period last year, according to SAT Surveys, an independent retail reporting service.

In total retail sales, we are pleased to continue to lead the industry with combined Class A and C motor home market share of 18.9% year-to-date through August, up from 17.3% for the same period last year

At this time I'll turn the call over the Ed Barker.

Ed?

Good morning.

As Bruce mentioned, while the current market environment continues to be challenging, we remain solidly profitable.

Fourth quarter and fiscal 2006 results were impacted by a significant shift in mix to lower-priced products, particularly Class C motor homes.

An analysis of the 2,515 motor homes sold during the fourth quarter of fiscal 2006 shows how dramatic the shift of mix was, with 35% Class A's and 65% Class C's, compared to a more typical mix of 57% Class A's and 43% Class C's for the same quarter last year.

Contributing to the shift in product mix during the fourth quarter was the continued strength of our View and Navion, as Bruce previously mentioned.

We also mentioned in the third quarter conference call that we had introduced a new value-priced Winnebago Access and Itasca Impulse Class C motor homes.

During the fourth quarter, we supplied our dealers with initial shipments of these new products.

We anticipate further growth in our Class C market share, as these exciting new products begin to retail at our dealers.

We have also aggressively managed our inventory and receivable levels during fiscal 2006, providing a record level of operating cash flow of $113 million during fiscal 2006.

Our shareholders' return on invested capital was 24.9% for the trailing 12 months ended August 26, 2006, admirably -- admirable for any manufacturing company.

Now I'll turn the call over to Sarah for a financial review.

Sarah?

Good morning.

I'm pleased to review with you the financial performance for the Company's fourth quarter and fiscal year 2006.

Revenues for the fourth quarter of fiscal 2006 were $205.4 million, a decrease of 11.3% compared to revenues of $231.5 million for the fourth quarter of last year.

Although unit volumes were very similar to what was delivered a year ago, the decrease in revenues for the quarter was a direct result of the mix shift in the types of units sold and the corresponding decrease in the average selling price of our motor homes, which was 11.5% from the fourth quarter of 2005.

Our gross profit margin was 12.3% for the fourth quarter, compared to 14% for the same quarter last year.

The 170 basis-point decrease in our margins was primarily a result of this product mix shift towards the lower-priced products.

The margin decline was, however, partially offset by the liquidation of last-in, first-out inventory values, as a result of our significant reduction of inventory levels during the year.

Net income for the firs -- fourth quarter was $9.3 million compared to $15.4 million for the same period last year.

On a diluted-per-share basis the Company earned $0.30 for the fourth quarter, compared to $0.46 a share for the same quarter last year.

There were two items negatively impacting net income in the quarter.

Product liability expense increased as a result of increased claims payment experience and the number of claims filed, resulting in a decrease of net income of $924,000 or $0.04 per diluted share.

Also, option expense in the fourth quarter reduced net income by an additional $717,000 or $0.02 per diluted share.

The Company completed the quarter with $154.9 million in cash and short term investments.

As Ed mentioned, net cash generated by operating activities during the year was a record $113.3 million, an increase of 48 -- 43.8% compared to last year.

Between our stock repurchases of $57.8 million during the year of nearly two million shares and the payment of $11.7 million of dividends, we have returned $69.5 million for our shareholders during the year.

Looking forward now into our fiscal year 2007, we have approximately $22.2 million remaining on the current $50 million share repurchase authorization.

We expect capital expenditures in 2007 to be consistent with our spending in 2006 and we also estimate depreciation expense to be approximately $10.8 million in fiscal 2007.

I'll now turn the call back over to Bruce.

Thank you, Sarah.

It continues to be a challenging environment for motor home sales, with decreased volumes as well as the shift to lower-priced products.

Winnebago Industries fortunately has a terrific Class C lineup and has developed many new Cass A floor plans that have been well received by our dealers for our 2007 model year.

We are encouraged by the recent decline in fuel prices and the pause in interest rates by the Federal Reserve.

At this time, however, we see no clear signs of a change in the motor home buying patterns and expect continued softness throughout the first and second of our fi -- quarters of our fiscal year.

We also continue to believe in the long-term growth of the industry and the opportunity that Winnebago Industries has.

Winnebago Industries has tremendous cash flow, a strong balance sheet and no long-term debt, and we intend to maintain our primary focus on continued strong profitability, in spite of this challenging market.

I'll now turn the call over to the operator for the question and answer portion of this call.

[OPERATOR INSTRUCTIONS] Your first question comes from Ed Aaron with RBC Capital Markets.

Hi.

Good morning, everybody.

Morning, Ed.

A couple of quick questions for you.

First is that you -- Bruce your last comment there about you're not really seeing any type of change in the environment.

Is that true both at the wholesale and retail level?

You know, I'm sure you guys have access to the SAT Surveys.

You know, in the retail level from last August, which is the last reporting structure, you'll see that the industry was still reporting down trends.

In fact, it was down 14.4% in the month of August.

And we believe that, as I said, the gas prices and interest rates are very favorable for us, but we cannot say that we've actually seen a major swing in it, as the retail stats reflect.

So the markets continue to be about the same.

Okay.

Fair enough.

Do you -- when you kind of take a step back and look at the last couple years, do you think that to some level the motor home industry has become less correlated with consumer confidence?

I mean, I know consumer confidence hasn't been great, but it hasn't been that bad and we've kind of had two pretty tough years in the motor home side.

I'm wondering if you think that the correlation there is weakening somewhat and what you really think is behind that, if you do agree with it?

Well, consumer confidence has always been a factor.

But, you know, you people ask us about fuel prices and different things and I think all those things kind of roll up into the consumer confidence aspect of it.

And the good part is is that, you know, we used to be affected a lot narrower age group of people, but I think since the demographics, our age group is expanding, I don't know, maybe the consumer confidence isn't as big a factor today as it was for a tighter narrowed band group of consumers who were buying our product.

But I still think it is -- interest rates and consumer confidence are two of the major factors that our industry still pays a lot of attention to.

Okay.

And when -- you know, if you kind of look out -- and who knows when recovery will happen, certainly it will at some point -- do you -- based on what you know today about what has happened with oil prices and interest rates, maybe having paused and who knows, maybe could be going down at some point within the next year, do you expect at some -- do you see on the horizon that the Class A category that has been so weak will swing back into favor and maybe even outperform the Class C category?

Yes, I do believe that.

You know, if you actually even take a look at our backlog that we released, you'll actually see that some of our Class A's have picked up a little bit there.

And I continue to believe that -- over the last 10-year trends, we have always sold more Class A's than we have Class C's.

This last year was the first time that we actually had quarters where we actually sold more Class C's in the quarter than Class A's.

I do believe part of that is because we developed a lot of product in that area, so we created part of the issue, and the other part of the issue was that the market switched to lower-priced product in the same -- at the same time, so that created us to sell more.

But I think in the long run, I think it will go back to Class A's outperforming Class C's.

Okay.

You know, over the last ten years there's been a lot of ASP growth in the industry, particularly on the Class A side, which is certainly indicative of a lot of trade-up activity.

What do you think needs to happen for trade-up sales to increase from these levels?

There's been a lot of content added to the motor homes over the past decade.

Do you see something out there that you think can induce a new wave of trade-up activity?

Well, it goes back to product.

Innovative products and different floor plans or features.

You know, our View and Navion is a good example of that, that it's a new, unique product that offers a little something different that the market hasn't had before, and I think those are the things that will continue to drive our products in the future.

Great.

Thank you.

Thank you.

Your next question comes from John Diffendal with BB&T Capital Markets

Good morning.

Morning, John.

The claims number you mentioned in the release, you said $1.2 million after tax,, so I assume there'd be about $1.8 million pretax.

I want to make sure I know exactly where that is in the income statement?

It's all included within general and administrative expenses.

All G&A?

Okay.

And what do you think was going on there in terms of the claims pick-up, either Bruce or Ed?

Is there anything in particular that was an issue or is it -- what created that swing?

Well, what we've seen is that we had a period of time in the last few years where our product liability expense and associated reserve levels were very abnormally low in relation to our history, and we just had fewer claims and dollars spent on those claims in that time frame.

In 2006 our experience really kind of returned to what we had seen from an historical level standpoint, so that's what we're attributing to it.

And you're right, $1.8 million is exactly what we're looking at from a pretax standpoint.

So, is it, in effect, a catch-up for the years?

I mean, is a fourth quarter sort of adjustment, it was a catch up?

It wasn't something that occurred in the quarter, but more of a reflection of the full year?

That's correct.

We have an actuarial analysis performed annually.

So this is always a fourth-quarter entry that we're making to insure that we're appropriately reserved, and we consider the most recent experience and look at that historically in that actuarial analysis.

Right.

And the selling num -- the selling expense number was a bit higher, certainly relative to the first three quarters is a little close to $6 million.

What was going on there?

Well, we have our dealer day events in the fourth quarter of every year, and we did move it up a month this year, but it still fell on the fourth quarter.

So that's the traditional reason and the reason for this year's increase, when you're looking sequentially at our selling expense.

Right.

Okay, so it's just a dealer day.

I mean, it was down versus a year ago, but I see what you're saying.

Was there anything else that in the fourth quarter that was worth noting in terms of any adjustment?

I mean, I remember last year the bonus number was taken down the second half and you had kind of a reversal in the fourth quarter.

What was going on bonus-wise in the fourth quarter?

We had no bonus expense accrued -- or there was no expense in the fourth quarter because we didn't meet the bonus plan.

So comparatively, you have that dynamic where a quarter -- the fourth quarter of last year there was a reversal, but there was no such adjustment in this current quarter, but there was no expense because we didn't meet the plan.

Okay.

And the LIFO adjustment numbers you cut into your layers of LIFO, that is entirely a gross margin, effect, right?

That's correct.

Okay.

And then lastly, talking about -- when you look at the first half, as you mentioned, not knowing whether the lower fuel price was going to have an effect -- and it seems like you're just kind of making that assumption going forward -- one thing that when you look at your numbers for last year, I mean, the first quarter is a tough comparison.

But in the second quarter you had -- you might remember the utilization rate was at -- very low and then your gross margin was below 10% in the quarter.

Talk about that quarter, if you will.

I mean, is it something -- do you expect that that number will be better than where we were last year or make adjustments to try to bring that number higher?

That's your easiest comparison.

Yes, John, this is Ed Barker.

You know, it's hard to look out beyond the first quarter right now.

We're still seeing continued weakness in the motor home market in the first quarter.

We anticipate that from a capacity utilization standpoint we're going to continue to be relatively weak what we -- until we can see more of an upturn in the business.

Mix-wise, we're still seeing significant softness from a mix perspective.

We have, certainly in the last 40 days or so, become a little more promotional, in terms of trying to create a little excitement out there and generate some order business.

But dealers are pretty well bound on lowering their inventory because of their interest costs are higher, obviously, this year than they were a year ago.

So between a general volume weakness as a result of dealers lowering their inventory, mix of products to lower priced products -- both in the Class A and C arena -- and increased promotional expense, we continue to see that we're going to see pressure on our gross profit numbers, certainly in the first quarter of fiscal '07.

What it's going to hold beyond that is going to, obviously, have an impact on how the economy and, I think, the reduction in fuel prices both, but certainly, as Bruce indicated in the news release, we don't see any sign of a recovery, at least in the first two quarters.

This is my last question.

You actually crushed your inventory.

I guess it came down another, maybe, $11 million from the third quarter.

Do you expect that number to -- that you've taken it down about as much as you will, or where do you see that going?

You know, we really --

-- your shipment --

That was the strategy we pushed hard on all year.

Any time -- at least my belief -- you have a weakening market like we had, and we could see the dealer inventories were bulging, the last thing we want to do is have a situation where we've got too much inventory in the factory.

We've worked pretty hard on getting really lean in that environment, and we probably got it scrubbed absolutely as clean as we can be.

Wouldn't even surprise me if it went up slightly, but it's still going to -- it's still a situation where we work very hard on that to make sure that we have an effective utilization of ca -- shareholder capital.

So I would expect we're going to stay in -- kind of in this range.

Thanks so much.

Thank you, John.

Your next question comes from Scott Stember with Sidoti.

Good morning.

Morning, Scott.

Good morning.

Just give the ASP's by segment maybe this year and last year for the fourth quarter?

Oh, certainly.

For the fourth quarter this year our overall average ASP was $76,187.

Class C alone, $57, 970, Class A in total, $110, 033, Class A gas was $91,119, and Class A diesel was $155,135.

The fourth quarter of 2005, we were at an overall ASP of $86,062.

And as I commented before, it's approximately 11.5% down from the previous quarter of last year.

The Class C is $58,470, Class A is $106,483, Class A gas, $84,863, and Class A diesel, $156, 898.

Okay, and can you just talk about the inventories a little bit more.

When you look at the wholesale numbers in detail, looks like, at least on the A's, that we're pretty much at equilibrium.

If you can talk about the dealers being tight heading to Louisville.

Do you see any chance as we approach the show or as we get out of the show with gas prices falling and rates kind of flattening out and possibly coming down, at some point an increased optimism?

This is Bruce, Scott.

I can tell you that, as Ed stated, we have really taken our inventories down dramatically and we have definitely seen dealers' inventories come down and as you said, especially in Class A, I think our industry now is just waiting for the market to see a turn and for retail to continue to pick up, because I think then we'll have the opportunity to increase stocking level at the dealers and increase sales with that, so that's kind of how we view it.

And just circling back to a few of the recent retail shows, like Hershey and a few other guys, could you talk maybe about what you've seen in your products and the general traffic?

Well, at the -- you know, the Pomona show starts this next -- in the next few days, and the Hershey show, it was an okay show.

It was nothing great, but there was actually pretty good sales there at the show.

And -- but there's nothing -- I mean, it wasn't up a lot but it definitely wasn't down, so -- and I think if you talk to a lot of the people in the industry, that overall that they were pretty pleased with the show.

I know attendance and different things were down but the people that were there, I guess, were buyers.

And did you give the capacity utilization numbers for this quarter versus last year?

Scott, this is Ed.

Capacity utilization in the fourth quarter was in the low 60% range.

Again, it's mix sensitive, but in that 61% to 63% range is kind of how we calculate it.

And we're anticipating staying in this vicinity for the first couple of quarters at least?

That's kind of where we see the market, Scott.

Again, keep in mind that, as we go into the November, December time frame, that's typically seasonally a weaker period than the fourth quarter, so just the way it is.

What was it last year, capacity utilization?

It was in the mid-60s in the fourth quarter a year ago.

Again, primarily the volume didn't change, Scott, a whole lot but what changed is the mix.

Last year we had a healthier mix of Class A's versus Class C's.

This year, while the volume number was similar, the mix was a lost -- more skewed toward C bodies and, obviously, our capacity to build C bodies is fair -- quite a bit greater than Class A's.

So that's why the number didn't change, but when you look at utilization, the utilization is a little weaker this year.

My last question is involving those share repurchases and maybe some other strategies, in general.

Just looking out with your great franchise and free cash flow generation, if we do not see a pick-up in business, let's say for the better part of '07 if not at all in '07, is it fair to assume that you guys will become even more aggressive than you've been in the past with share repurchases or some other form of returning cash to the shareholders, whether it be a special dividend or something like that along those lines?

Scott, this is Bruce.

As Sarah went through, we distributed $69.5 million to our shareholders. $57.8 million through our Company's buy-back program and then $11.7 million in dividends.

You know, we're going to continue to -- our number one philosophy is if we could utilize it for developing product or facility growth or something like that, but as you can see right now, we definitely have some excess capacity.

That's probably not a high priority, so we will continue to look at ways that we can return it to the shareholder.

We feel that almost 69.5 million to the shareholders last year was a very good return, as far as number of dollars and as we continue to go forward, we will continue to use that same philosophy.

We feel that almost $69.5 million to the shareholders last year was a very good return, as far as number of dollars and as we continue to go forward, we will continue to use that same philosophy.

Again, I think this philosophy that we're been utilizing this -- or not this but a quarter or two quarters or a year or so, we've continued to do this pretty steadily, I would say, for seven consecutive years, and I'm sure we will continue to do the same thing.

Fair enough.

I guess my question was just in general looking out, assuming that we get to this point next year and we're in the same position, is it fair to say that maybe -- I know you guys have been fairly aggressive, but is it possible you could be more aggressive with your share repurchase?

Without a doubt.

You've seen our cash balance of -- basically it's $154 million, so we're in a very, very strong cash position in which we will continue to look at ways to return it to the shareholders or grow, one of the two.

Good enough.

Thank you.

Thank you, Scott.

Your next question comes from Craig Kennison with Robert W. Baird.

Good morning, everyone.

Good morning, Craig.

My first question has to do with your dealer inventory.

If I look in the past several years from the August to the November quarter, dealers generally added a few hundred units.

Would you expect that pattern to repeat itself again, or are dealers that much more concerned about stocking inventory?

Craig, this is Ed.

I do not think that we'll see that pattern this year, primarily as you indicated because of higher floor planning costs.

I think our dealers in general have been all calendar year than looking at to improve their inventory turns, for one.

And two, also, because of pressure on interest flooring costs, I think they're certainly more cognizant of the fact that that metric has to improve on their perspective.

Certainly during the third and fourth quarter, we've seen the dealers sell off Class A inventory and not replace it to the same level that they have retailed it.

I believe they've replaced it, obviously, with our -- some of our exciting new Class C products.

We see inventory on a year-to-year basis up pretty substantially in the Class C market segment, simply because of new product introductions.

But also, I think the market in general has been a little bit more robust towards class -- or low priced and more value orientated class products.

But overall we're not looking for dealers to substantially increase dealer inventory going into the winter right now.

Is flat a fair assumption on a sequential basis?

That's how I would see it, Craig.

Okay.

Thank you.

And then, in the past you've commented on gross margin outlook for the upcoming quarter, typically providing a range within 100 basis-points, Ed.

What would you think Q1 looks like on that basis?

Well, back on last March we looked at -- our guidance for the second half of the year was 11% to 13%.

Of course, in the third quarter and the fourth quarters, typically stronger periods, particularly in the third quarter, we did come in within that range.

However, because of the weaknesses that we talked about here a few minutes ago in terms of dealers trying to lower inventories, we're also probably a little more promotional.

As you have indicated in, I think, your dealer survey, Winnebago has tried to put some programs into the marketplace recently to maybe stimulate retail.

That will also probably put a little pressure on margins, so -- and the mix of products, of course, continues to be heavily weighted toward lower priced products.

Considering those factors, probably in the first quarter we're probably going to have to look at that 10% to 12% range.

And with respect to the promotional activity, just want to make sure I'm clear that those costs appear in costs of goods sold?

That's correct, Craig.

Shifting gears into the View Navion then, could you remind me of the timing and when that shipment really began last year in full and when do we sort of reach the anniversary of that channel filling exercise where dealers were just beginning to stock that new product?

The View and Navion?

Right.

We started production in April of 2005.

We probably reached what I would call for reasonable equilibrium of dealer inventory in February of '06.

And from February through now, we really are in a mode to simply replace retail.

I think generally speaking, there certainly during the prime selling season of April through August has been an adequate supply of that View and Navion product in the dealer channel from a retail perspective.

I might add, however, though, if you talk to our dealers, certainly this summer and even continues into the fall here, they believe that there is opportunity for more inventory on their lots of that product, simply because it's been such a strong retailing product.

So, while I think levels are adequate at the retail level, I think the dealers are still hungry for that product and, unfortunately, there has been a limited supply of chassis during the fall quarter here.

We expect that to change once we get into January.

We do believe there'll be more availability of the new 2007 Sprinter platform from DaimlerChrysler and certainly for the second and third quarter next year of our fiscal year, we don't anticipate to have any shortage of that platform, so we should see availability improve a little bit then.

So regarding the chassis platform which has been so successful, has that really -- has your availability or the availability of your access to that platform limited your ability to grow?

In other words, if you had access to more chassis, could you have sold more?

Yes, I think that's true.

We were pretty aggressive during late winter and early spring at buying that platform.

We actually bought more chassis than our sales forecast called for.

Keep in mind, though, that this is the first prime selling season that we've had adequate dealer stocks, so we were a little bit in the dark as to just how strong a product that was going to be.

As we got into mid-July, we tried to order more chassis for late summer and fall production and were not able to do so because of worldwide demand on that chassis was strong, plus Daimler was transitioning between '06 and '07 model years.

So we have been probably in the last 90 days, short of a few chassis there, but again, as I indicated, I think they've assured us that come January they're going to rectify that.

That platform has obviously been a huge success for you, and I think you've enjoyed great growth and good average selling price for that product.

Do you expect more competition now that that chassis may be available to other manufacturers?

Well, this is Bruce.

We have -- we do know one thing is that the chassis for 2007 next year is going to change, so probably for the next six months to nine months we know that we will really probably will not have any competition because they'll have to develop on the next model year because there's no more chassis available for this.

Down the road we could have some competition.

I know there's people that are interested in it.

But again, for the next six to nine months I think we're going to be in pretty good shape.

Great.

Thank you very much.

Thank you.

Your next question comes from Kathryn Thompson with Avondale Partners.

Great, thank you very much.

First question of your gross margin pressure this quarter, what percentage was just mix as you mentioned earlier versus the volume?

Is it more like a two-thirds was mix versus -- and the remainder volume?

Actually it is -- it was 100% mix this quarter, with only 36 units differential between the last quarter, and that was partially, to a very small extent, offset by the LIFO on liquidation.

Okay.

I know you talked a little bit about Q1 gross margin target range, would it be reasonable to think in fiscal '07 of a 11 to 13 range?

Really, it's premature to talk.

I wish we were that smart, Kathryn.

We don't know what the spring market's going to be.

It's very difficult to forecast really beyond the first quarter, so I do -- really couldn't weigh in on that.

Okay.

Your dealer inventories were down just 1.3%.

What is the decline on a dollars basis?

I don't specifically have that, Kathryn.

I don't know whether Sarah does.

I can tell you that there is a shift in mix in dealer inventory, and as I mentioned here previously, we saw dealers lighten up on Class A inventory, particularly diesel, as well as some gas products.

But certainly, our dealer inventory in terms of Class C is up pretty significantly because of the new View and Navion, as well as our new introduction of our low-priced Access and Impulse product.

So it's definitely -- on a dollar basis it's down, I just don't have the dollars.

Okay.

And in talking to dealers, there's several and pretty geographically disbursed that are targeting a 10% to 15% decline in overall inventories by the end of calendar 2006.

Is that -- with that as a framework, is that a reasonable way we can think about looking at your -- at least your first quarter on the top line?

You know, I think your perspective from a dealer inventory perspective is really where they look at their overall inventory.

New product introductions that we may make, our ability to retail and continue to supply our new Access and Impulse product into the dealer channel, probably is going to end up with a different percentage than what their overall inventory strategy is, Kathryn, so I really think from our perspective it's hard to link the two.

Okay, great.

And finally, [inaudible] of your Access and Impulse, has that channel been filled completely?

You indicated it would be in your fourth quarter.

For the most part that did occur in the first quarter -- for the fourth quarter, you're correct, and I think that's reflected in our backlog.

If you take a look at our backlog for the first quarter or at the end of the fourth quarter, it returned to a more normal Class A, Class C look, which is reflective of Winnebago finally kind of getting the dealer channel filled with our new Class C product offerings.

Okay.

And finally, circling back on the diesel chassis, I know you had an exclusive on the chassis, is that exclusive deal -- is it open for new -- other manufacturers in the spring, I assume?

If you can just -- any clarity as to -- other than people could have availability come April or so, any clarity in terms of any other competitor having access to chassis would be helpful.

Kathryn, this is Bruce.

All we know is that DaimlerChrysler has come in and certified Winnebago Industries and approved us to build on this chassis.

You know, I can honestly say as of today, I don't know that they've done that for anyone else.

I don't know -- they will not say that they will not allow the chassis to be sold to someone else, but on the same hand, they have not told us anybody else that has been certified to build on this, also.

Okay.

Great.

Well, thank you very much.

Thank you.

Your next question comes from [Al Consession] with Citigroup.

Just a question on the promotions.

Are you seeing the promotional environment become more aggressive for the rest of the industry or or is it just limited to what you guys are doing?

I think all the manufacturers, Al -- this is Ed -- are out there in some form.

I think one of the things we're seeing is the -- different than we saw a year ago, a year ago the manufacturers were trying to unload inventory.

I think this year the manufacturers have pretty well got their production schedules paired back.

What the manufacturers are dealing with is helping the dealers down size, or right size maybe I should say, their inventory.

So I think from a promotional activity we have promotions in the industry geared towards helping the dealer move out his existing inventories so that they can make room for new '07 product.

I think the promotional activity is probably more geared along those lines this year.

And then you talked about gross margins, you know, sort of a range that you were thinking in the first quarter, what kind of retail sales does that sort of assume?

You know, I think the retail sales pattern that we saw in probably the fourth quarter is going to -- it's our expectation is that will continue, obviously adjusted seasonally down.

We are try -- we are watching the Pomona show pretty carefully.

Certainly the data we have at retail pretty much reflects the summer period.

Certainly the last 30 to 40 days we've seen a rather dramatic decline in gasoline prices, and we're particularly interested because we have no real current data to see what kind of impact that's going to have on consumer sentiment and whether or not this decline in gasoline prices will have a stimulative effec -- affect at the retail level.

I think the first indication of that will be the -- I think tomorrow the Pomona show in California starts.

It's one of the bigger retail shows around the country and we're watching that very closely.

Hopefully in the next 15 days we'll get a little insight there on if the consumer is reacting to lower energy prices or not, and I think that's the [closest] thing we can kind of take a look at in terms of is the environment changing now.

Okay, thanks.

Your next question comes from Barry Vogel with Barry Vogel and Associates.

Morning, Barry.

Hi.

First I have a question -- first I want to talk to Bruce about competition and strategy going forward in terms of what Winnebago should be producing as an entity.

Bruce, has there been any change in the competitive landscape in Class A's over the last year that you can talk about in terms of your competition?

Yes, there's been a couple companies that have had some success in lower entry-level Class A gas products that have done well in the marketplace, and Winnebago definitely is looking at saying that's an area that we need to target also.

And then also, even though diesels are often down, that's still an area that Winnebago can continue to do better in, even with whatever market that there is, so there're a couple areas.

You know, as we said in our reports here and the comments that Ed made, we feel very good about our Class C market and we feel that's very strong.

We have a few things in the lower end of the Class A gas that we think we could target and, of course, the diesel also, yet, that we can continue to target.

Has there been any competitive change in diesel that's important in your view in Class A diesel?

No, I don't know of anything that -- a few years ago the diesels, when they were going really hot and heavy, there was a lot of different product innovations, slides, different things.

I'm not sure that that landscape has changed that much.

Now as far as going forward, you're currently a motor home company.

Yes.

Your largest competitor is a motor home company as well as towable [company].

I know I've asked you this before.

The towables market has gone to new record highs historically in terms of unit shipments as a segment, while Class A gas has really been very, very weak off of its [peak].

Have you given any further thought towards changing your strategy as an RV Company?

You know, with our cash position, Barry, we have looked at some different things and we've even talked to some other companies about opportunities and different things.

But we have nothing that -- again, we also believe that we have just as big of opportunity to continue to look at opportunities to develop some more and more product in the motorized.

You know, if there is such a thing as a View and Navion project maybe we could look at something in a Class A or even an entry-level diesel, you know, with smaller -- We haven't given up that [inaudible].

There's still good opportunity for growth, even in the motorized segment.

But we haven't written off that trailers would be something.

It's just that I'm not sure exactly how many good viable companies that there are out there available.

You know, Thor's done a good job expanding and growing, and they've been pretty aggressive finding a lot of good companies.

I'm not sure exactly how many more really good ones that -- we get into it, we want to be a player in the industry and not 0.05% of the market or something like that.

Okay.

I have a couple of questions of Sarah.

Sarah, if you took out the View and Navion products that are in your dealer inventory numbers, what would the dealer inventories be down at the end of fiscal '06 versus fiscal '05?

Would you have that number?

Sarah?

Yes, we have that number, Barry.

We'll give you -- you know, we really don't want to disclose that as far as -- but it's significant.

Our dealer inventory on the other Class A's and C's are definitely down -- would be down significantly if you did take our View and Navion inventory out of there.

Because if you look, our inventory is about flat with that in this year and we didn't have that -- if you would take that product out, so our A and C inventory dealers already have that down, so if that market comes back in A's and C's, hopefully that will allow us to do a lot better job in the future.

Put it another way, can you give us an idea of roughly how many unit shipments of View's and Navion's you shipped in fiscal '06?

For competitive reasons, Barry, we just soon not disclose that number.

Obviously it was significant.

Excuse me?

It was obviously significant, but we just as soon not disclose that number for competitive reasons.

And Sarah, what tax rate are you using for this year?

We're looking at 2007 tax rate to be 34%.

And do you expect the option expense to continue to be $0.12 a year?

I would anticipate that it's going to be slightly lower, because we had the adoption of 123(R) in 2006 and we had the challenge of having to expense the options granted prior to the beginning of fiscal 2006 differently than how we treated the options granted in 2006.

We had to straight line everything that historically and then perspectively treat the new option grants differently, so there's a slight decrease comparatively with that but it's only going to be maybe a $0.02 difference from that standpoint.

Okay.

Thank you very much.

Thank you, Barry.

Your next question comes from John Diffendal with BB&T Capital Markets.

Well, I thought I'd backed off that question but I still -- the point I guess people looking at the dealer inventory issue, you mentioned a big part is View and Navion, but it's also reflecting the Access and Impulse, as well, that they're incrementally, and certainly wasn't there at all last year.

I mean, it does seem to me that your A numbers, your A inventory at the dealer level must be just way down, given --

It is, John.

You are -- you are reading that correctly.

Our inventory of conventional Class C's and of View and Navion is up on a year-to-year basis and sequentially.

Our inventory of Class A motor homes are down.

Right.

Okay.

I appreciate.

That pretty much answered that question.

Thanks so much.

Your next question is a follow-up question from Al Consession with Citigroup.

Al, your line is open.

Your next question comes from Craig Kennison with with Robert W. Baird.

Thank you.

A quick follow up on your warranty expense.

Given that you may have under-accrued for warranty expense in the first three quarters of last year, are you accruing at a higher rate for the first three quarters of 2007?

In relation to our warranty expense, that traditionally has been in -- it's a function of the units that we sell, and as we have shifted towards selling the lower-priced products, our warranty expense is falling along with that.

So we're expecting 2007 to trend in relation to the units that we're selling.

Craig, this is Ed.

Is your question related to our product liability adjustment in the fourth quarter?

Yes.

Okay, in relation to product liability, we expect that 2007 expense will be higher than what it was and not have a significant adjustment in the fourth quarter of '07.

Got it.

Thank you very much.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers today.

Management, are there any closing remarks?

Yes, I'd just like to thank everyone once again for joining us on Winnebago's conference call today.

We look forward to talking to you again in December, when Winnebago will report it's first quarter fiscal 2007 results.

Thank you and have a good day.

Ladies and gentlemen, this concludes today's conference.

You may now disconnect.