Winnebago Industries Inc (WGO) 2007 Q2 法說會逐字稿

Good morning. My name is Eileen, and I will be your conference operator today. At this time I would like to welcome everyone to the Winnebago Industries Inc. second-quarter fiscal 2007 conference call. (OPERATOR INSTRUCTIONS). Thank you. Ms. Davis, you may begin your conference.

Thank you. Good morning and welcome to the Winnebago Industries conference call to review the Company's results for the second quarter of fiscal 2007 ended February 24, 2007. Conducting the call today 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. The call is being broadcast live on our website at www.winnebagoind.com. A replay of the call will also be available on our website at approximately 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 notes. 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 the 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 will now turn the call over to Bruce Hertzke. Bruce?

Thank you, Sheila. Good morning and welcome to Winnebago Industries' conference call this morning. We were pleased with the Company's earnings for the second quarter of fiscal 2007. We believe the Company strategy to focus on profitability continues to serve our shareholders effectively. As an example, while not at a record level, our return on invested capital for the trailing 12 months ending February 24, 2007 was 23%. We believe that it is very important that a good company will make money even in downturns in their business, and Winnebago continues to make reasonable returns for the Company and its shareholders even in the current downturn market conditions. We look forward to a stronger market returning to the RV industry and believe Winnebago Industries is well-positioned with facilities and products.

The launch of several new products at the National RV Trade Show in Louisville, Kentucky last year should provide improvements in our business going forward. We have begun production on our new Winnebago destination in Itasca Latitude motorhomes and will begin filling the dealer channels with this product during our third quarter. We continue to believe in the long-term growth of the industry and Winnebago Industries. Winnebago Industries is positioned well with a very strong cash position, a strong balance sheet and no long-term debt. We intend to maintain our focus on profitability -- profitable growth in spite of challenging market conditions that we currently face.

At this time I will turn the call over to Ed Barker. Ed?

Good morning. During the second quarter, we introduced the new value-priced Winnebago Vista and Itasca Sunstar Class A gas motorhomes at the National RV Trade Show in Louisville, Kentucky and began stocking the dealer channel with these products during the quarter. The Vista and the Sunstar are offered at a popular price point we have not previously had a presence in.

Also making their debut in Louisville were the all-new 2008 Class A Winnebago Destination and Itasca Latitude motorhomes. The Destination and Latitude are unique in the fact that they can be purchased with either a rear gas or diesel engine, providing less engine noise in the front end a more residential look and feel. We are producing these products and will began stocking the dealer channel with these products during the third quarter of this fiscal year. These additional new Class A products will assist Winnebago industries in the Class A market segments as they began to enter their retail market in the coming months. They have already had a positive impact on our sales order backlog.

As of February 24, 2007, the sales order backlog showed an increase of 40% on the Class A gas segment and a 60% increase in the Class A diesel segment. In the second quarter, our total inventory decreased $3 million from the first quarter of the fiscal year. In the first quarter, our inventory was up $18 million due to an imbalance in chassis inventory. As planned, chassis inventory has been reduced by $14 million during the quarter, and the remaining $4 million will be utilized in the third quarter of this fiscal year. However, I also indicated on the last conference call that the Company would increase finished goods inventory in an attempt to balance winter and spring factory schedules with anticipated spring market demand. And while that did occur and finished goods inventory increased by $12 million during the quarter, we plan to reduce finished goods inventory during the third quarter of this fiscal year.

Now I will turn the call over to Sarah for a finance review. Sarah?

Thanks, Ed. Good morning. I'm pleased to review with you the financial performance for the Company's second quarter of fiscal year 2007. Revenues for the second quarter of fiscal 2007 were $199 million, a decrease of 33.6% from the second quarter of fiscal 2006. The decrease was primarily a result of reduced volume as unit deliveries for the second quarter were down 7.3% compared to the second quarter of last year. Somewhat offsetting the lower volume was a 3.8% increase in the average selling price of our motorhomes as compared to the same quarter last year. The Class A and C products sold during the quarter shifted back to a more traditional mix, 63% Class A and 37% Class C. However, with the introduction of the low-priced Winnebago Vista and Itasca Sunstar during the second quarter, the mix of Class A gas is more heavily weighted to the lower price point. This was evidenced by a 6.6 decrease in our average selling price for Class A gas compared to the second quarter last year.

Our gross profit margin was 9.5% compared to 9.8% for the same quarter last year. The 30 basis point decline in our margins was primarily a result of a unit volume decrease in the quarter. The mix of the products sold, even though a higher percentage of Class A gas did not have a noticeable impact on our margins.

Financial income increased $288,000 or 22% due to a higher average interest rate earned on our short-term investments. The effective tax rate was 31.3% as compared to 35% for the second quarter last year. The decrease in the tax rate was primarily due to an increase in tax free and dividend income as a percentage of our total net income. We anticipate that our effective tax rate for the remainder of the year to be between 32 and 33%.

The Company completed the quarter with $167 million in cash and short-term investments. Net cash provided by operating activities was $13 million through the second quarter year-to-date. As Ed previously mentioned, finished good inventory is up from the beginning of the fiscal year due to the balancing of our winter and spring factory schedules which we expect will be reduced by the end of the third quarter.

In the first six months of this fiscal year, we had paid out $6.3 million in dividends and spent $2.8 million in capital expenditures. We continue to expect capital expenditures in total for 2007 to be approximately $4 million to $6 million consistent with our spending in 2006.

I will now turn the call back over to Bruce.

Thank you, Sarah. At this time I will turn the call back to the operator for the question-and-answer portion of the call today.

(OPERATOR INSTRUCTIONS). Haken Ipekci, Merrill Lynch.

A couple of quick questions. One is, given the soft January retail data and looking at your strong increase in the backlog, is it purely driven by the stocking requirements for the new products, or has there been a shift in the sentiment at the dealerships and when they have gotten more optimistic with respect to the sales season?

What we're seeing -- this is Bruce Hertzke -- what we're seeing in the market today is, without a doubt when we introduce some new products that have increased our backlog, with the overall industry we continue to see it as kind of flat yet. We do not have any announcements of any big increase. But we have seen some increase in some of our products, new introductory products that we have offered.

And given the recent requirements in the subprime market, I realize you don't provide the financing, but looking at your customer base, what sort of exposure do you think you have to that segment of the consumer?

We don't believe we have really any exposure. It was just this week I talked to Bank of America, one of our stronger players in providing retail financing for the industry, and in terms of credit quality for the customer, in terms of any delinquency activity, there has absolutely been none. There has been no degradation in motorhome retail applications in the terms of the quality of the customer, and they have not seen any change in delinquencies and they don't anticipate any.

If you remember, our consumer is typically 50 to 75 years of age, and they typically have higher incomes, and certainly the partners we talk to that provide the financing in the industry do not anticipate that we're going to see any fall-off from the subprime market issues that have been plaguing the market lately.

And finally, can you give us an idea on the margins on the new products kind of relative on the destination and that are relative to other Class A's and potentially Class C's given their pricing points?

The margin on the Class A products in terms of the Destination and Latitude are very much like our conventional Class A products. The margin on the new Vista and Sunstar, when you take a look at what the average sales price is, it is just slightly higher than a normal Class C. Those tend to be margins more close to our Class C products simply because of where they enter the price point in the marketplace.

Ed Aaron, RBC Capital Markets.

I wanted to ask a question about the sales sensitivity to the backlog number. Obviously they are correlated to some extent, but when you're coming from -- when you're at extreme levels, the correlation probably weakens in terms of the backlog's proration to sales. I look at the rate change in your backlog and I am trying to figure out how excited to get about what that is going to translate into sales. I know you don't give specific guidance, but I was just looking for a little direction.

Well, there is two things that I think you need to keep in perspective about the backlog. First of all, dealer channel inventory one year ago we all recognized was heavy. And obviously the amount of inventory in the dealer channel a year ago I think had a negative effect obviously on our backlog one year ago. We recognized certainly over the last 12 months that dealers, and you can see it in our news release, our dealer inventory is down, substantially reduced from where it was last year. So I think that in itself is going to potentially help our backlog.

The second thing that is again the key to this whole strategy Winnebago is trying to execute is new product and high-quality product. During the spring of 2005, we brought out the new View and Navion. Last spring we brought out the new Access and Impulse. Those are two lines of Class C products. Our focus now is really on Class A products. As we introduced like we did in Louisville like we talked in the opening remarks, we need to shift that focus and do better job in the Class A market, and we are focused in regards to that strategy, and these new products as they enter the market should really have a good effect, not only on the back log certainly initially when we introduce them, but certainly at the retail market share level too. So that is kind of our strategy. But I think those are the two things that are really playing in terms of the backlog and the outlook going forward. We still believe that the best strategy to win in this business is having the best product and new fresh product for the consumer.

Okay. That is helpful. And could you comment on what your capacity utilization was for the quarter?

We were approximately 65% in the second quarter.

I'm sorry, 65%?

65%.

Okay. I think you had said last quarter you expected to be I think in the low 50s. Did the environment change for the better relative to what you were expecting when we had the Q1 call?

One of the things on capacity that you will see is it is also kind of determines our mix because naturally you have a lot more hours in a big Class A than you will a Class C. As you have seen, our backlog has increased in Class A's. Considerably more last year we had a lot more Class C's in backlog, and so that also helped with our capacity utilization.

Okay. The last question I just wanted to ask about was in terms of mix. I would have thought that mix would have gone a little bit against you on a year-over-year basis mainly because I don't know exactly what the difference is between a Vista product versus a View product, but the product that you were really shipping into the channel more heavily this quarter was the Vista this quarter versus the View last year. I would have thought the View would be a higher margin product than the Vista. Could you maybe just help clarify that?

This is Ed Barker. It is. Your observations are correct. Simply because there is relatively little competition in our View and Navion Class C diesel segment, our margins are very strong in that particular product line. The Vista and the Sunstar that we introduced here and shipped into the second quarter are very low or value priced Class A markets that have very aggressive margins to effectively compete in the marketplace. And the second quarter of this year was impacted by the weaker margins in that low price Class A Vista and Sunstar product.

Great. Very nice job on the execution, guys.

Kathryn Thompson, Avondale Partners.

Great quarter, guys. Just to follow-on on the capacity utilization, could you remind us what capacity utilization was in the previous quarter and in the year ago quarter?

In the previous quarter, we were in that 52 to 53% range. A year ago I don't have that in front of me in regards to what that capacity utilization was a year ago.

You also have to keep in mind (multiple speakers) that during the second quarter, which is our quarter we take one week of vacation over Christmas and New Year's. So every second quarter we have less available production days than we do say in the first quarter or the third quarter. We take -- it is two quarters we take by vacation in the fourth quarter and in the second quarter (multiple speakers). Therefore, there is less capacity available. That in itself will lift your capacity utilization if you look at sequential quarters.

Yes, I was actually going to follow-up on that and make sure that there were no additional days off that would affect the capacity utilization number this quarter?

There were no additional days other than we had a snowstorm out here that we had to shutdown for a day.

Yes, I heard about that. Also, in terms of circling back with your inventories, nice job with reducing it sequentially. Is at current levels kind of where you want it to be going to a coming quarter?

No, our inventories in total are still a little high. We have about -- we've put some, as I said, about $12 million worth of finished goods inventory on the ground in anticipation of our spring season, as well as to try to balance our factory schedules. We anticipate that to come down. I would suggest that somewhere in the $80 million range is probably where we would like our total inventory. We had I think about $77 million at the end of August. That might have been a little bit lean, but certainly in that $82 million to $88 million is probably an adequate number.

Do you think (multiple speakers)

Certainly less than what it is right now.

Okay. But maybe on the upper end of the 82 to 88?

Yes, anywhere in that range is probably where it needs to be. A lot of it is going to obviously depend upon the sell-through.

Okay, great. Also, could you clarify a little bit more about the increase in the financial income and how we should think about that in modeling going forward? Because if you look at it on an annual basis, it has increased by a fair amount over the past several fiscal years. What can we expect going forward?

The increase on second quarter this year compared to last year was entirely a function of just an average higher rate that we had earned on the available short-term investments at that comparable period were fairly flat. But prospectively it is really dependent upon how much stock we repurchase. So it is hard to I guess forecast what that will be not knowing what the future holds on that front. But we have $22 million remaining on the authorization, and our strategy has not changed. We plan to utilize that and to buy back stock, so.

Okay. In the past -- a few of your previous calls, you have been willing to give a gross margin range for upcoming quarters. Would you be willing to do that for this quarter?

In regards to what we see for the back half of this year, it is so entirely dependent upon the mix of product that we sell and the volume levels. So we are not interested in providing a range just because it is hard to predict what that will be in the future. So we are going to just resume I guess the standard protocol of not providing a prospective guidance.

Okay. And last question. What are you hearing out there in terms of dealer sentiment? Our channel checks indicate that you are seeing a little bit better trends not through the roof, but definitely seeing better trends building on itself really starting in January.

You know, we have gone to a lot of shows that have started since the Tampa Super Show, and I can give you some examples of where show business was up substantially, and I can tell you some that had snowstorms in weather and were complete shutouts. So we are seeing some mixed signals yet. We don't have anything to announce about any big increase of any thing in our industry anyway.

Well, any excluding just kind of unpredictable weather which obviously have an impact on the show, but in general what has been your feedback? Because I'm not at all suggesting a huge search and demand, but there does seem to be incrementally better traffic and a little bit better sales trends.

Well, first of all, if you just think a bit, our next quarter we are going into a lot stronger season for the RV industry. Without a doubt, it is going to pick up some just because of the seasonality. And I think that yes, I have heard some good reports and we have heard some optimistic things, but again I cannot say it is totally across the board.

Great. Thank you so much. Great quarter.

Scott Stember, Sidoti.

Sarah, could you give the ASPs by category for this year and last year?

Certainly. Our Class A gas, our average selling price is $81,933. Class A diesel was $155,574, and Class C was $59,504. Last year, at this same time, our average selling price for the Class A gas was $87,746, and as I commented, that is down 6.6%. Class A diesel was $145,864, and Class C was $58,931.

Okay. And as far as any discounting within the industry right now, is it fair to assume that that kind of has stopped altogether what you are seeing at least?

Well, I don't think you can say it has done altogether. We still have some people out there who are actually struggling in some of their profitability, and they are trying to get some business. So I wish I could tell you it is a real easy market, but there is still some -- there's still some tough competition out there for certain product lines.

Okay. And just circling back to some of the industry numbers that came out for January where the fiscal survey showed an 18% drop for Class C, that sounds far harsher than based on some of the comments that maybe you are making about lavish trends. Is it safe to assume that maybe February picked up a little bit, or is there maybe some missing data that we need to see?

We don't give any type of forecasting. Again, we tell everybody to refer to last month's retail stats and different things. Again, we are going into a stronger market just for the spring market. So I think it is fair to say that the whole industry will see some uptick like it does every other year.

The other thing is, is that we still have RVIA road signs that continue to forecast the motorized sector of the RV industry to grow a little over between 2 and 3% this year, not a big growth but it is forecasting that it does go up. And so those are the numbers that have been forecasted for right now that I can share with you.

Okay. Fair enough. And as far as capacity utilization, could you just give us a directional trend probably for the back half of the year. Is it fair to assume that given the mix of these new wave products going into the market that we could see that uptick toward 70% probably?

This is Ed. Obviously utilization of our factory is going to be very, very dependent upon what retail demand. We don't look for dealer increase -- the dealer inventories to go up substantially from here. It is going to be very dependent upon retail pull-through. We do this year obviously I think have a lot better chance to see better numbers simply because, as I mentioned a year ago, we believe dealers were not replacing on a one-to-one basis on the retail level because inventories at the dealerships were too high. Certainly this coming selling season we do believe that the industry and certainly Winnebago has a much better opportunity to replace retail on a one-to-one basis. So there is certainly some upside in utilization when you look at comparison against maybe past periods right now, simply based on what channel inventory is.

Okay. And just last question. Maybe it is in the press release and I missed it, but the amount that you have remaining onto your buyback authorization?

Approximately $22 million.

Craig Kennison, Robert W. Baird.

In the past you have talked about approximately a 300 basis point spread between a Class C motorhome and a Class A motorhome with the A gas and diesel being about the same. How do you look at that going forward given the new products that you have introduced?

With the changing mix of the products that we are selling and the introduction of some of these newer lower-priced products and the great success of the View and Navion products, we have had a dynamic where there has been a compression between our average Class C and our average Class A. So we are talking about less than 100 basis points differential on average when we look at recent results. But depending on the success of the future new products with the Destination and the Latitude, you know you are introducing another new element to the mix, and that has a margin similar to our historical Class A diesel. So that is going to change things perspectively. But there has been compression between the two in the last five quarters.

That is helpful. Thanks. With respect to dealer inventories, it is a bit redundant. But if you look at past years between Q2 and Q3, there has been about a 200 to 500 unit drop in dealer inventory based on just seasonal trends. Would you expect that to continue, or is your channel sales strong enough whereby you could have about a flat inventory Q3 to Q2?

Q2 to Q3 is what you're asking?

Right.

Okay. We typically historically when we look at it will see dealer inventory peak mid-April. We probably are still going to see that. But I think there is potentially some room for it to maybe grow slightly. A lot of it is going to depend upon the dealer sentiment, but I don't think there's a lot of upside really from here.

Considering the financing rates are probably 1 or 1.25 under prime for the dealers, I think our understanding of their attitude is to maybe more effectively manage inventory to prove their inventory turn rate going forward, which is probably going to develop a center of going forward at the end of the third quarter that dealer inventory is going to be maybe less than it has been in the past couple of years at the end of the third quarter.

And if you look at other successful product introductions like the View, Navion and apply that to the rear engine products that you're introducing next quarter, what is a normal channel fill? Is it one per dealer on average or two per dealer?

Probably closer on that particular product line one per dealer would be probably closer than two per dealer. We would like to see it at two per dealer. It is going to obviously have a lot to do with the acceptance at the retail market level and how much competitive product is out there on this new UFO-type gas pusher chassis. So we were pleased at Louisville that we were one of the first in the industry to embrace that new chassis technology and put product available for it in the marketplace to the dealer, so we think we certainly from a timing standpoint have an advantage there.

And as it relates to the product, there is still I think it is an EPA regulation regarding diesel emissions, and that could contribute to the success of that platform. Are you seeing any behavioral changes among your dealers as it relates to diesel product as they try to adjust for what is essentially a higher priced unit?

We really have not. I think we certainly, as you can see on the backlog, there's a fair amount of excitement about our new Destination and Latitude product, both in the gas as well as in the diesel configuration. The new interiors of that coach are a little less traditional. We went with some radiused or curved cabinetry, and I think we have given it a new look and I think are excited about that.

In terms of the EPA emission issue, my guess is that the increase in the price in the diesel segment for the new EPA-compliant engines will probably give a little bit of sticker shock initially maybe in the first couple of months. But what is interesting when you look at the environment in the Class A market, last year for the first time Class A diesel registrations exceeded Class A gas registrations. To me that indicates that the consumer in general, the RV consumer in the Class A market is certainly more than willing to spend extra money for product features. So I don't really think overall we're going to see much of a significant change in terms of the demand for diesel products simply because we have a new EPA compliant engine. I think it is going to go relatively unnoticed.

Okay. And then finally, just with respect to your cash balance and your share repurchase activity, you seem to be extremely sensitive on price. You've got $167 million, and your authorization, even if you used it, would only use up $22 million of that. What are your plans for cash, and at what point do you consider a more aggressive buyback or entering some other market through acquisition or capital expenditures? Thanks.

I can tell you that during this last quarter, actually we were pretty pleased that our stock has held up as well as it has during the first half of this year. We think that -- we just said we're in a blackout period right now, and we have a Board of Directors meeting next week, and this will definitely be a topic of our discussion at our board meeting.

(OPERATOR INSTRUCTIONS). John Diffendal, BB&T Capital Markets.

Most of my questions have been asked, but you mentioned that the demand on both the gas and the diesel side for the Destination and Latitude has been strong. But can you give us a sense on -- has it -- I assume with the diesel backlog stronger that it is still quite a bit more toward the diesel side, or I am wrong in that (multiple speakers) that product line?

Right now, if we look at the mix in that product, it does slightly favor the diesel side of the business. That may change once we get the gas product out into the market and our consumers start to ride and drive that product. There is a lot of Winnebago Class A gas customers out there that will take a look at this new gas pusher product, but I think this is still a story that is emerging at the retail consumer level. We need to do a good job, as well as the dealers, as well as certainly Workhorse in providing a communication platform to bring our consumers back into the markets that are currently in Class A gas front engine products and show them the product. So I think it's too early to tell exactly how that is going to eventually balance out, but we're certainly excited about the fact that finally the RV industry has got an alternate gas pusher platform.

So were your expectations going in that it would be fairly equal or that -- given that like you say you don't have really options on a gas pusher, that it might be more toward the gas side there?

I think when we went in with the product, we had just anticipations to make sure that we were doing an offering that would allow both. And probably over the next year, year and a half, we will see which way the market really takes you. It could go either way. I can tell you it's not a big -- we're getting a lot of gas orders. Even though we have a few more diesels, the gas orders are still -- I mean it's not like an 80/20 mix. It is closer to a 45/55 mix.

Got it. And update us -- your C numbers I guess in the retail have fallen off. Tell us a little bit how you sort of view the View and the Navion right now in terms of how it is selling, what you are hearing in terms of new chassis coming online and other players getting that chassis later this year?

On the View and Navion, we continue to see that last year the reason the numbers were way up, we just received a lot of chassis last fall, and we were doing a lot of pipe fill. Now it is more the normal retail sell-through that we are selling to the industry. And as far as any of the competitors, we know of no other competitors that have been certified to build on this chassis yet other than Winnebago Industries. Now we know that there is plenty that are working on it, and we don't know at what point in time they will receive certification and chassis availability. But --

And how -- that retail sell-through, as it has been out there, has it varied that much? As you say you do have the ups and downs of the pipeline fill. Is it still selling as well as it was six months ago?

Absolutely. Yes, we are very pleased with this product.

Barry Vogel, Barry Vogel & Associates.

I will ask you this question. Could you be a little bit more specific on the gas backlog at 650 units, how much of that was the Vista and Sunstar?

The gas backlog at the end of our quarter?

Yes, it was 650 units in the backlog.

Actually it was not as strong as you might think simply because a lot of the initial -- we took a fair amount of orders for the Vista and Sunstar at Louisville, and we ramped up production on the introduction of that product, and our current backlog is not significantly weighted with Vista and Sunstar. Those products were delivered during the second quarter.

Now we're just now -- obviously we got that low-priced market. It is going to be I think a good market for the entry-level buyer which is a spring market buyer. So we're going to obviously anticipate hopefully a reorder on the sell-through in the spring market. But the percentage of our gas backlog is not significantly weighted to the Vista and Sunstar I think is kind of where you are going to.

All right, but let's talk about the shipments. 886 units were shipped to gas in the second quarter. Could you give us the percentage that was Vista and Sunstar?

For competitive reasons we are going to decline that.

All right. Let's go back to the Destination and Latitude in your backlog. You had 394 units in your backlog at the end of February. What percentage was Destination and Latitude?

Well, certainly because we are going to start production -- if we started production on that essentially around the first of March, the percentage of our Class A backlog is certainly much greater in the Destination and Latitude simply because the production is really right in front of us here.

Could you give me some idea of a range of percentage of your backlog?

For competitive reasons we are going to decline again.

I see. That does not help us.

No, it helps our shareholder in keeping our competitive edge.

I see, I see. As far as any change in strategy for your Company, over the years people have asked you different questions about acquisitions. We have not seen any. They ask you about towables. We have not seen any. Basically you are going to continue what you're doing, trying to get new innovative product and do the best job possible, and should we just close the door on the towables issue and the acquisition issue?

This is Bruce. You know, I don't know if you ever -- we would never tell you to close the door. But, without a doubt, we feel we have a lot better profitability opportunities in the motorized category. The diesel category, you know we have always said that we are under 10% of that business. We need to get better into that area, and that is a very profitable area that we feel that we can get into, and we're focusing on that right now. And we need to continue to see how we can continue to grow our market share a little more like we did last year with some new products again. And the towable area we feel is going to be very, very competitive, especially with a lot of family units coming back to the marketplace. That is going to be a pretty hard struggle to make very good money in. So we are going to continue to focus where we feel we have the best opportunity, and right now that is still in the motorized area.

Let me ask you a question on the comment you just made about FEMA units coming back into the market. Where do you get that sense and on what rationale, what rationale basis did you make that comment?

Well, we just came back from RVIA meeting, and at RVIA this was a topic of discussion. I think it is no secret -- in fact, there is a lot of public auctions going on right now with a lot of towable products that is going to be coming back to the market over the next 18 months.

Yes, but those units were used for living, and they really are not supposed to be used for day to day living. So I would think the condition of these units is pretty poor. Now I am just speculating now relative to buying a new towable product.

There is some of everything. There is an awful lot of product that had never even been utilized, even some of the stuff that they bought right directly from the dealers. There is some that I think we would even classify as chunk and need to be scrapped out to some that have been lived in to some that are brand-new. And there is going to be a variety of product that continues to stress the market for awhile.

That is just a short-term situation. When you talk about the towables, you have got to look at it long-term strategically. So I would not -- that is not what I was getting at. I was getting at the long-term strategy.

Well, again we still think that our biggest profitable opportunity for our shareholders is to try to get some more of this diesel business, and that is where we are going to focus.

Now let me ask you a question. Why has it been so difficult to get much above 10% market share despite the fact you have come out with some very good upgraded diesel product over the last few years?

Well, part of the problem is that we want to make money at it. Some of the competition has been very aggressive on pricing and really have made it tough for us to get into that market. And even though it is slower than even what I would like, there is two things. You have got to have the right product, and hopefully you have it at the right price point that you can make some money, and we are going to continue to focus on that and see if we can gain that.

All right. Because one of your problems has been the loss of market share in gas.

So that is why last year, as Ed said, we focused a lot of our product lines in the Class C market. This year we're focusing a lot more in the Class A and Class A gas, Class A diesel markets. So hopefully we can gain back -- we gained a lot of market share in Class C's last year. Hopefully we can do the same in Class A's this year, both gas and diesel.

That is great. Thanks very much.

(OPERATOR INSTRUCTIONS). Kathryn Thompson, Avondale Partners.

I just wanted to clarify, it has been my experience in the past that when you have introduced a brand-new product to the market, it generally takes about four to six months before you see any meaningful change in market share. Do you think that assumption is safe going forward with your new Destination and Latitude product introductions?

Yes, I think that is fair because by the time you get it to the dealers, the dealers display it, take it to some shows and actually get -- we get the entire dealer body of Winnebago with the product lines and selling that, it will take all of four to six months.

Ed Aaron, RBC Capital Markets.

A couple of follow-up questions. First, last year I think when towables were still selling well and motorhomes were soft, you had some dealers that probably shifted their inventory exposure away from motorhomes and into towables. To what extent do you think we might see the reverse of that just given the pressure on towables more recently? And I have one more question after that.

I guess I don't have any data that I can support anything that -- could that happen. Yes. But I have nothing that will give you any type of data or reasons why it will.

The dealers are going to -- I think Ed said in his talk actually the dealers are actually starting a little less in hopes of improving their turn rates. And so whether they will increase their motorized inventory, I guess I'm not -- I don't necessarily see that happening, other than between now and when we hit our high, which is about the third week in April.

I do think that it is important to recognize that any time you have new product that sometimes dealers will displace maybe a competitor's existing product with a fresh new product. We are hoping that that scenario plays out with some of our new Class A products like our Vista and Sunstar and our Destination and Latitude. Obviously that is new product, and we're hoping that that process can benefit Winnebago. To some degree that they may choose to decrease towable and maybe increase their flooring or dedicate that towards maybe a new Destination or Latitude, I think that is possible certainly going forward as we ship these new products. At least, that is our hope.

That is helpful. Thanks. Then I also wanted to ask about your dealer days events have moved up to I guess the middle of May. Presumably you are going to have some new product introduced there, which I guess would be also coming to market sooner than ordinarily it would. Can we expect any changes in the timing of shipments of new products beyond this upcoming quarter when your shipping the Destination and Latitude?

I don't think so. One of the problems we struggled with a little bit last year, as we started to build our 2006 product in May and yet we did not have our product rollout to our dealers until the end of June. And I for one was somewhat internally critical of our Company saying, guys, if we are going to start to build product, we have got to be able to time the shipment of product into the dealer channel with the introduction at our formal dealer day presentation. So we have not changed it so much at the factory as much as we simply changed the rollout to the dealer. We think, felt that that would be a more effective way to present our product to the dealer body. So that is really what is going on. I don't think we have any plans to move into any -- to start building or introducing it any earlier than we currently are.

At this time there are no further questions. I would like to turn the conference back over to Mr. Hertzke for any closing remarks.

Thank you. Once again, I would like to thank everyone for joining us today for Winnebago Industries' conference call. We look forward to talking to you again in June when we will report our third-quarter fiscal 2007. Have a good week. Thank you.

Ladies and gentlemen, this concludes today's Winnebago Industries Inc. second-quarter fiscal 2007 conference call. You may now disconnect.