Winnebago Industries Inc (WGO) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Winnebago earnings teleconference.

My name is Fab, and I will be your coordinator for today.

(OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to Sheila Davis, Public Relations and Investor Relations Manager.

Please proceed, ma'am.

Thank you, Fab.

Good morning and welcome to the Winnebago Industries conference call to review the Company's results for the fourth quarter and fiscal year 2007 ended August 25, 2007.

Conducting the call today are Bruce Hertzke, Winnebago Industries' Chairman of the Board and Chief Executive Officer; Bob Olson, 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 on our website at Winnebagoind.com.

A replay of the call will be available on our website at approximately 12:00 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 today.

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 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, everyone, and welcome to Winnebago Industries' conference call this morning.

We are very proud of our performance during the fourth quarter with our returns for our shareholders in spite of the current downturn in the market conditions.

A shift in mix of products during -- sold during the fourth quarter to a higher percent of Class A products resulted in both higher revenues and higher margins for the Company.

This was driven in large part by new product introduction in our 2008 model year.

At our Dealer Days event in May, we introduced 91 2008 motorhomes, of which 49% were either brand-new or totally redesigned.

A significant part of our new product introduction for the model year 2008 was an emphasis on Class A diesel products.

Class A diesels currently represent our single largest opportunity growth for Winnebago Industries.

We were very pleased with the positive reaction of our dealer partners to all of our new motorhomes, and we were able to start filling the dealer channels with these exciting new products during our fourth quarter.

Our focus as a Company has not changed.

We continued to manage the Company with a focus on profitability and returning profits to our shareholders, and we intend to maintain this goal in spite of the challenging market conditions.

As part of our long-term strategy of returning profits to our shareholders, we repurchased 1,532,000 shares of the Company's common stock during the fourth quarter for $44.1 million.

For the full fiscal year 2007, the Company repurchased 2,160,000 shares of common stock for approximately $64.7 million or 6.9% of our outstanding shares as of August 26, 2006.

As of August 25, 2007, Winnebago Industries had 17.5 million remaining under the June 20, 2007 Board of Directors repurchase authorization of $60 million.

Winnebago Industries continues to have a very strong balance sheet with no long-term debt.

And in spite of the challenging market conditions, we are very proud of our return on invested capital for the trailing 12 months ended August 25, 2007 of 26.2%.

Sarah will review the details for the fourth quarter in a few moments, but first now I will turn the call over to Bob Olson to review our fourth quarter.

Bob?

Thank you, Bruce, and good morning.

I echo Bruce's opening statement that we are proud of our performance during the fourth quarter in light of the current market conditions.

At our Dealer Days event in May, we introduced our newly redesigned Winnebago Vectra (inaudible), the Vectra [Enture] and Itasca, Horizon and Ellipse Class A diesel motorhomes on our new Maxum chassis that was well-received by our dealer partners.

That allowed us to take the opportunity to stock the dealer channels with these exciting new products during the fourth quarter.

We also began shipping our newly redesigned Winnebago Journey and Itasca Meridian Class A diesels near the end of our fourth quarter, and these products were also well-received.

In addition, we had good activity with our entry-level Class A gas products in the Winnebago Sightseer and Itasca Sunova, as well as our new Winnebago Vista and Itasca Sunstar Class A gas motorhomes during the quarter.

And our Winnebago View and Itasca Navion Class C is continuing to have strong substance from our dealer partners throughout the fourth quarter.

However, as successful as the fourth quarter was, we are concerned about some of the indicators we see that could affect us as we go forward.

At the end of the fiscal year 2007, our dealer inventory was 4471 units, a decrease of 5.5% from fiscal 2006 and a 2.9% decrease from the end of the third quarter.

We anticipate that dealers will continue to keep motorhome inventories low as they go into the slower fall and winter seasons.

We received the August report from Statistical Surveys just yesterday, and they are reporting continued softness in retail motorhomes sales.

We are concerned when you compare the 11% year-over-year decline in August to the relatively flat year-over-year comparison in July.

This news, along with reports of consumer confidence levels being at a 22-month low, concerns over interest rates, media reports of expanding weakness in the housing market, and dealers continuing to be conservative in reducing their inventories has us concerned going forward into our seasonally slowest part of the year.

Now I will turn this call over to Sarah for the financial review.

Sarah?

Thank you, Bob.

Good morning.

I'm pleased to review with you the financial performance for the Company's fourth quarter of fiscal year 2007.

Revenues for the fourth quarter of fiscal 2007 were $237.7 million, a 15.7% increase from the fourth quarter of fiscal 2006.

This is primarily a result of the increase in the average selling price of our motorhomes of 13.2% due to a higher mix of Class A motorhome deliveries.

The total Class A deliveries increased 421 units or 47.8% over the last year.

Last year in the fourth quarter our mix is heavily weighted towards Class C product due to the introduction of a new product line, the Winnebago Impulse and Itasca Access.

Our gross profit margin was 13.7% for the fourth quarter compared to 12.3% for the same quarter last year.

The 140 basis point increase in our margin was a result of a stronger mix of products sold during the quarter and to a lesser extent to higher unit volumes.

Selling expenses decreased $593,000 from the prior year same quarter.

This was due to the fact that our Dealer Days event was held in the third quarter as opposed to the fourth quarter last year, offset partially by increases in advertising expenses associated with new product offerings.

General and administrative expenses decreased by $138,000.

In the fourth quarter of 2006, we had higher product liability expense associated with a year-end actuarial adjustment.

We did not have such an adjustment in the fourth quarter of 2007.

However, this decrease in G&A expenses was offset by increases in management incentive compensation.

As we discussed on the third-quarter conference call, a portion of management's incentive compensation in fiscal 2007 is based upon return on invested capital, and the increase is compared to the same quarter last year as a result of these new objectives and also meeting a portion of the earnings per share goals.

Financial income increase $116,000 or 8% due to a higher average interest rate earned on our short-term investments and more money available to invest.

The effective tax rate was 33.4% as compared to 34.5% for the fourth quarter last year.

The decrease in the tax right was primarily due to a decrease in incentive stock option expense not deductible for tax purposes.

We anticipate that our effective tax rate for fiscal 2008 to be approximately 33%.

The Company completed the quarter with $109.5 million in cash and short-term investments, a decrease of $45.3 million from the end of fiscal 2006, primarily due to the repurchase of stock during the year.

Inventories were $101.2 million at the end of the fourth quarter of 2007 and increased $24.1 million compared to the end of fiscal 2006.

This increase in inventories is primarily due to an increase in units of finished good and chassis inventory on hand and to a lesser extent an increase in the average cost.

As I mentioned previously, the mix of products in our fourth quarter of 2006 was more heavily weighted towards Class C and as a result of product introductions, and that carried a lower average unit cost last year.

Receivables were $30.3 million at the end of the fourth quarter of 2007 and increased $9.4 million compared to the end of fiscal 2006.

The increase in receivables is a result of the increase in the average selling price of our motorhomes in these periods and also a result of the timing of deliveries between periods.

We typically collect our motorhome receivables in six to eight business days.

Thus, a receivable balance is a reflection of the deliveries made in the last week or two of the quarter.

You will note that the long-term liability line item, postretirement healthcare and deferred compensation benefits, decreased $17 million from the end of fiscal 2006.

The decrease was primarily a result of the adoption of statements of financial accounting standards number 158 on accounting for postretirement benefits.

This new accounting standard requires us to reduce our accrual for postretirement healthcare benefits provided by Winnebago Industries to retired employees as it was over-accrued.

The over-accrual resulted from plan changes made in prior years to manage this expense.

This change had no P&L impact in fiscal 2007 and will not affect our income statement on a prospective basis.

Cash provided by operating activities for the year was $27.8 million, significantly reduced from the record level in fiscal 2006, and it was primarily related to the increases in inventories and receivables that I previously discussed.

Between our stock repurchases of $64.7 million during the year of nearly 2.2 million shares and the payments of 12.5 million dividends, we have returned $87.2 million to our shareholders during the year.

As Bruce mentioned, we have approximately 17.5 million remaining on the current $60 million share repurchase authorization.

We expect capital expenditures in 2008 to be consistent with our spending of $5.2 million in 2007, and we estimate that depreciation expense to be approximately $10 million in fiscal 2008.

Also, in regards to fiscal 2008, it will be a 53-week year for us, and the first quarter of 2008 will be a 14-week quarter.

I will now turn the call back over to Bruce.

Thank you, Sarah.

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

(OPERATOR INSTRUCTIONS).

John Diffendal, BB&T Capital Markets.

If I could just get a quick housekeeping item out of the way.

Can you give us a breakdown on average prices by the different segments?

Certainly.

The average selling price in Class C for the fourth quarter was $63,139; and for Class A gas, it was $88,086, and Class A diesel was $172,590.

So overall Class A average was $109,131 and in total for all of the categories $86,259.

Great.

And then secondly, can you give us a little more color on the products that you are particularly putting in the channel recently, especially the Maxum chassis lines?

I know the destination latitude kind of went out late in the quarter, but what are you seeing in terms of early returns on how some of the new product is turning?

Right now it's a little early to tell yet.

It is going to take a few more months before we really know the total acceptance of those products out there.

But early indications are that the majority of them are being well-received by the dealers.

Right.

I will let others ask questions.

Thank you.

And great quarter, by the way.

Craig Kennison, Robert W.

Baird.

Good morning and congratulations on the margins in the quarter.

I wanted to ask a question regarding margin.

In the past you have noted that the contribution margin differential between a Class A and a Class C had narrowed a little bit.

Is it fair to say that that margin differential is now widening again given the improved margin in the quarter?

Yes, that is fair to say.

In the past you said it was about 100 basis points.

How many do you believe it is today?

It did not back over to -- well, over 100 basis points in our fourth quarter, and it is entirely dependent upon the mix of what we sell.

Okay.

Thank you.

And then as it relates to inventory at the dealer level, in five of the last six years, inventory actually increased sequentially from Q4 to Q1 by an average of about 200 units.

Last year it actually dropped by almost 200 units.

I think you are saying that you think it may be flat to down, but could you give us some color around why the trend had been to increase sequentially from Q4 to Q1 and that trend is now reversing?

Well, I think in the past our inventories increased because our Dealer Days was in the fourth quarter.

And in the past, we probably had a lot more product that we were shipping right away into the first quarter.

So we have seen our inventories go up a little bit during that period of time.

You are well aware of the fact that we moved that to May, and we think that probably helped our fourth quarter a little bit.

Now we have to see where the market goes, and if it was a strong market, we would probably tell you that it would probably increase.

But we do not see that, and that is why we are reporting that we continue to expect it to be flat or even decrease a little bit in the fall and winter months.

One final housekeeping item.

Deferred compensation benefits on the balance sheet dropped significantly.

Can you help us understand that?

First, three different components that are -- or two primary components that make up that liability, and one is deferred comp, and the other is our retiree medical obligation.

Because of adopting this new accounting standard, 158, we had to make a reclass out of retiring medical for the over-accrual portion of that liability and reclass that into equity.

So it has nothing to do with deferred comp.

It is a function of a new accounting standard that requires this reclass, and from a prospective basis, there will not be any further impact from an income statement prospective.

Ed Aaron, RBC Capital Markets.

Let me add my congratulations on a great quarter, guys.

A couple of questions for you.

First of all, I would like to just try to reconcile your comments about cautious fewer orders with just the inventory build on your balance sheet.

I know that last year your inventories were at sort of an unusually low level, but it seems like from the build you would be kind of preparing for selling some more product into the channel within the next quarter.

So I was just hoping you could help me get my head around that.

In relation to the finished goods on hand, you are very accurate from the standpoint that the end of fiscal 2006 levels were at a very historic low point for us internally basically on two fronts -- the units on hand and also the value of that inventory on hand.

We have seen the increase this year more maybe back in line not significantly as high as it was at the end of '05, but it is primarily more a function of the mix of the product that we're selling.

And we are still interested from the standpoint of maintaining inventories that reflect sold order positions, but we just are reviewing that every week, and $101 million at the end of the fiscal year, we would like to see that maybe in the $90 million range prospectively.

But it is both a function of more units on hand and the cost of what we had, and that is I guess the detail behind the increase.

Last year our inventory was basically a lot of Class C bodies.

We came out with our new Access and Impulse Class C products, which were smaller products, and that was probably a value of that product on the lot was in the $60,000 range.

In Access -- or today some of our inventory that we have on hand or some of the new Maxum chasses, the [RZS] and the new Destination and Latitude, and those dollars are considerably higher, probably three times as high as the actual cost of a C body.

So the unit churned up so much, but the dollar amounts are up higher.

Okay.

That is helpful.

Thank you.

And then I also wanted to ask your opinion of some of the changes we have seen recently in some of the macro variables.

Obviously lower interest rates from the Fed at least historically speaking is a good thing for your business.

But I guess potentially the derivative of that seems to be higher commodity prices and a weaker US dollar.

My first question is whether you would rather trade off lower interest rates for higher oil prices?

And then my second question is whether a weak dollar causes you to rethink the idea of potentially expanding into international markets?

To answer the first part of your question, the ideal thing is to have lower interest rates and very favorable high consumer confidence and very good economic conditions like we did in 2004.

You know the interest rates we will have to see where they go.

I think everybody is the same way in housing.

I think they will definitely benefit us but at what point in time.

We cannot say that we have seen any type of major improvement just since the Fed did there last .5% rate cut.

I think that will take time, and as it goes forward, I think it will definitely be a benefit for our industry.

As far as the dollar of the US, I think it is fair to say that this last year -- actually I will use Canada for an example.

Business in Canada has been very good for Winnebago Industries this last year.

And so whether we can go to Europe and other places that will have to -- we will have to see if that makes sense or we have the right product that we will be able to go over there.

Greg Badishkanian, Citigroup.

Great quarter, guys.

Just two quick questions here.

First is, just wondering what level of cannibalization from new products you are seeing versus actual share gains?

Obviously this was pretty well received by the dealers.

What do you mean by that?

I'm wondering how much of that is cannibalizing your current product versus just taking share gains in terms of your recent launches.

You are talking about is it making some of our older product age?

Yes, exactly.

So --

We actually -- we review our aged inventory at dealers' lots all the time.

And all I can tell you is that we are pleased with where it is.

In fact, it is in a better position than where we were a year ago.

We will just continue to watch that.

As far as our products, at different times we have hot products that do better than other products.

And I wish I could say all 91 of our models were the number one model, but we have some good competition out there also.

That is why we have 91 different models.

Where do you see your Class A diesel going to over the next year or two?

Well, the only thing we can say as a company is that is an opportunity point for us, and we need to see if we can improve it.

It is a big part of the market, and Winnebago is number one overall.

But we definitely have lots of room to improve in that area, and that is why we came out with our products this last year.

Good.

So moving over to just Dealer Days, it increased or actually had a decrease in your selling expenses because of the timing shift.

Did you mention the specific amount it benefited earnings this quarter?

Well, as I have talked historically or in previous conference calls, that event is typically in the $1 million range.

And so we would expect that savings to show in the fourth quarter.

It is partially offset by increases in other types of advertising costs on promoting some of our new products.

So on a net basis had a little under $600,000 improvement in that line item.

But it still was a significant part of our fourth-quarter comparison to last year.

Scott Stember, Sidoti.

Could you give the ASPs for last year's quarter as well?

Certainly.

Class C in the fourth quarter of 2006 had an average selling price of $57,970.

Our Class A gas was $91,119, and Class A diesel was $155,135 and an average Class A of the two categories was $110,033.

And overall the entire average was $76,187.

Okay.

And what was capacity utilization in the quarter, and where would you expect this to go in the first quarter of factoring in the comments you made about the uncertain retail environment?

For the fourth quarter, we were its 72% production utilization or capacity utilization.

First quarter, it is all going to depend on what the market does for us.

We really are not sure yet where this thing is going to go, and it is a day to day decision.

The promoters show we will have to see how well that goes for us.

We will have to see what the order bank fills up with, and we will adjust our capacity to whatever the market will allow us to go to.

Okay, and you talked a little bit about some of the new products being way too soon to talk about the retail demand, specifically the Maxum chassis.

You have had the Destination and Latitiude shipping.

That is I guess this is the product that is being built in the UFO chassis.

Could you talk about what the retail reception has been on those two products?

I think not up to our expectations yet.

We have had some discussions with some of our dealers.

They have had some suggestions.

We have gone in and made some changes to that product we think that are going to be for the best.

And we're still optimistic that when those changes get out there in volume, that we will see an impact and a pickup in the retail of those vehicles.

Okay.

And the backlog that you guys are showing at the end of this quarter, is it fair to assume there is still a fair amount that is from the show, the Dealer Days event?

We had some of the backlog that lingered over into the end of the quarter.

Some of the new products that we showed at the show in May were actually not available at that point in time in the fourth quarter.

So we will be building them in the first quarter.

Okay and two last questions.

You have done very well with the View and the Navion, and a few of your competitors have indicated that they have a couple of competing products coming out.

Could you maybe speak to that and where do you see the sales of the View and Navion going?

It is -- we're still very pleased with that product.

We at our Dealer Days just announced a new product also for the Itasca division.

It is that we think we're expanding that line, and we think that that will continue to help us.

We are the competition.

If they are able to eventually gets some chasses and get into this market, just like anything else we will have to compete.

We think we have got a very good product that has been -- we keep critiquing it and trying to improve it.

So we think we will be a major player without a doubt.

And chassis availability is still an issue for the (inaudible) chassis?

I think it is fair to say that a lot of our competition has, if you talk to them, I think they will all say that they have all been delayed on their introductions because of it.

We continue to have product available for all the Winnebago and Itasca dealers.

Okay.

And just a last question, just basically on the possibility of going into the global space.

I know you get asked this every quarter, but any new thoughts on it one way or the other?

No, we have nothing in that area.

Like I have said, we have been focusing trying to do better in the diesel areas and also some new products like this new Itasca product on the Sprinter chassis that we introduced at our Dealer Days.

Kathryn Thompson, Avondale Partners.

My first question is on gross margins.

You had nice year-over-year growth in that.

Obviously most of that was mix as you said earlier.

But what can we expect going forward?

Are we too soon for instance that the margin profile of your backlog is similar to that in the fourth quarter?

How should we think about that for the first half of the year, fiscal year that is?

In relation to what we saw in the fourth quarter, it was a 140 basis point improvement, and that definitely was significantly a function of our mix nearly 100 basis points and a smaller portion of that related to the volume.

So, in relation to what we're going to see perspectively, it is the same story unfortunately that we always provide to this question, or the answer is, it is a function of the mix and how much we sell.

And so we are very pleased with the margins that we saw in the fourth quarter, and if we can maintain a mix in that level, we are happy with the performance that we saw there.

And that -- it is really a function of what the market will do.

The negatives are what retail has done, and if dealers contract their inventory levels, that is a troubling set of circumstances when you look at a seasonally timeframe that we're heading into.

So --

But just looking at your backlogs, you have had a greater surge in your diesel and Class A gas products relative to Class C.

So that would imply at least on a margin, on a mix standpoint that should continue going forward.

Correct?

Yes.

You had a few comments throughout the call about dealer caution and inventories.

When we have spoken to dealers recently, the line has been we're going -- we're trying to have a little bit lower inventories going into a seasonally slower period.

Are you seeing any change in discounting since August our September?

And also, are you seeing any type of meaningful change in stocking patterns since that same period?

This is Bruce.

I think it is fair to say that there is less than what there has been in the past.

I think a lot of our competition seems to be controlling inventories better, and there is always going to be some programs just like the Pomona Show coming up and different events, but I don't think it is as widespread as what we have seen in the past couple of years.

It is a more rational competitive base you would say in terms of discounting?

Yes, that is a fair assumption.

Okay.

And no real change in terms of stocking other than the conservative stocking that we have -- that at least I have been hearing from dealers?

Yes, I think we have heard the same thing that you have reported basically.

They are at a lower inventory than what they have been in the past, and they will be a little conservative through the fall and winter months.

Okay.

At one point on inventories, I was a little confused by it.

In the previous quarter, you said inventories ended Q3 around $90 million, and you said you wanted to lower it to the mid-80s by the end of the fiscal year, even in light of a higher mix of Class As which have a higher selling point.

But you ended up about $10 million north of that of your 90 to 100 101 at the end of the quarter.

Why the increase or was this in line with what you were looking for, and what are you targeting for Q1 or the first half of '08?

Well, I would say that we're probably overly optimistic at how much of the higher price product -- there is still some on-hand at the end of the fiscal year.

And so the $80 million prediction was overly optimistic, and then we have also seen more chassis inventory buildups to some degree.

So we think the 90 to $95 million would be a reasonable level from an expectation prospectively, and we are going to work to improve that back down to that range.

Okay.

Of the mix between chassis and just being overly optimistic, what is the rough split even on a percentage basis of the differential?

Well, when you look at our inventories up, a little bit over half of the increase is related to more on-hand inventory and a little less than half is the increase in the unit cost.

Okay.

Alright.

Thank you very much.

Hakan Ipekci, Merrill Lynch.

Two questions.

First, what are you hearing from your sources regarding the availability of financing to your customers at the retail?

And the other question is, it seems that the Board of Directors did not issue a new authorization for the share repurchase.

Does that mean there is a change in your share repurchase policy going forward?

The first part was interest rates.

Yes, the availability of financing.

The availability.

We meet with Bank of America and GE Finance who are a couple of the larger financing people.

The actual financing dealers have plenty of financing flooring, and on a consumer basis, we continue to see that the FICA scores and the people who are applying for buying motorhomes continue to meet.

Now they have told us right out also that they have done just like housing, that they have tightened up some of the credit ratings, but they have not seen the issue because the people who are buying loans for motorhomes in most cases their FICA scores are still very good.

As far as on the stock repurchase authorization, the board never issues a new stock authorization until we complete the prior one.

We still have $17.5 million left on our current stock authorization repurchase, and when we complete that is when we will have a meeting with the board or a conference call to see whether we are going to reissue the next one.

I see.

So you can do it at anytime?

Yes.

Winnebago, our repurchase program, just to give you a little summary, we have now repurchased in excess of $400 million worth of our stock over the last eight years.

And so this is still a strategy that Winnebago continues to believe that will return to the shareholders.

Bob Simonson, William Blair.

When are the Dealer Days in '08?

Is it in the third quarter again, or does it shift?

No, it is in the third quarter again.

So that will not be an issue (multiple speakers) in terms of comparisons and cost or --?

Similar comparisons.

And, Sarah, can you give a little help as specific as you might want to be on the impact of the extra week in the first quarter in terms of some of the balance sheet income statement issue, that line item shift?

I think on just having an additional week, an opportunity to produce and shift, it is pretty -- there's no other dynamics that will play into our first quarter.

It is going to be a function of how much -- what happens on the retail side and what the dealers decide to do, is probably I guess a more appropriate way to look at that.

So we're going to have an incremental week year-over-year.

But if that is in a softer market, it will remain to be seen how we will perform comparatively over to the prior year.

Would you care to comment on there has been a lot of volatility and an awful lot of consumer durable purchases, discretionary purchases.

If you had to bet $1000, would you bet the industry, and motorhomes would be up, down or flat next year?

Or maybe you are not a betting man.

Well, no, I have made a few bets, but I have lost my share also.

I can tell you a year ago -- if you look at our industry's 30-year history, there has actually been only one other time that we actually had -- we are a cyclical industry and we do go up and down.

But this has actually been a little longer downturn than anything that we have really seen over the last 30 years.

If you look at most times, we never see anything even over two years, and the market starts coming back.

I definitely believe that the market will come back.

I wish I could tell you exactly when that we will have a strong year again.

But by past history, it is definitely time that our market does turn around and we start heading in the right direction.

That is certainly what I am sure Winnebago and all of the RV industry is hoping.

John Diffendal, BB&T Capital Markets.

Just one question.

I just wondered if you could follow up a little bit more on your thoughts on the Class C side?

I know there has been more product momentum of Class As which is great.

And a year ago you had a huge I guess historic record on Class C business, which sort of chews the numbers up.

But looking at the retail numbers, I mean yesterday's August Class C number you were down 21%.

What are you seeing -- what is sort of driving that?

Anything from a product standpoint or what is happening on retail for you on Class Cs, and how do you see that proceeding?

Well, the Class C market for Winnebago that is definitely where we are weak in diesel.

We're very strong in the Class Cs, and the View and Navion has definitely added to that.

With our new product that we are just introducing that I mentioned earlier, we're hoping that will further enhance that product as we go forward into this next year.

The newer versions of View and Navion?

Yes.

And that -- what is the timing on all that hitting in terms of retail for the new upgraded View and Navion?

Well, you should understand that that is just the Navion.

Just I'm sorry (multiple speakers)

(technical difficulty)-- IQ is the name, and that product we have introduced to the dealers and we are just going into production of it now.

And so that will be a product that we will be -- we showed at Hershey and we will be showing at Pomona, and we will just be taking it into the market at that point in time.

And the Access and Impulse, how is that doing?

That product has again done very well.

Winnebago, again their Class C business, has been very strong for us.

Barry Vogel, Barry Vogel & Associates.

Bruce, I wanted to go a little bit deeper into the problems in gaining market share for diesel and your product introductions.

I know that you have been fairly aggressive in the last three years in trying to increase your market share in diesel, and you have come out with some very good products.

So I'm a little perplexed as to why you have had some deterioration I believe in market share for diesel, and I was wondering what do you think you did not do enough of?

Could you give me -- can you give us some details of the new product innovations, if you will, in diesel to allow you to raise market share?

Well, the product innovation that we showed to our dealers at Dealer Days this year was the Maxum chassis for our higher line products, and then we came out with a mid to lower line product in the Destination and Latitiude.

So our diesel products this year are pretty much totally been redesigned and redeveloped through every level of our diesels.

We have four different brands of diesel product lines that we have in both Winnebago and Itasca.

And so out of those eight brands, basically all of them are new or different for this year.

And hopefully the Maxum chassis offers a lot more storage underneath, and it is a -- with the new frame design underneath that will allow us to compete better with some of the competition definitely on storage and different things.

And then hopefully the new Destination and Latitiude is a newer price point that will allow us to compete in a lower price point also.

I guess to add to that, John, late August we started reintroducing our Journey and Meridian product.

At one time it was one of the better selling diesel products on the market.

And I think -- or I'm sorry, one of the things that we're really excited about is the fact that this product does have a new facelift.

And it is now just starting to get out to the dealers, and we think that product is going to be well received as well.

Now are price points a problem in diesel where maybe you did not have low enough price points?

Well, I think that was part of the reason that we came out with the Destination and Latitiude.

We were not in that price point.

The other thing is that we're definitely trying to make sure we make some money in the units that we build.

We have talked about getting more aggressive about it, but again our philosophy is to try to make sure we maintain our profitability also.

Now, correct me if I'm wrong, at the show in Louisville last year, did you not introduce this Destination and Latitiude brand?

Yes, we showed it, but we also announced then that we would not really be into production until April of the following spring, even though we had the prototypes done, all the floor plans and different things, it actually went into production not until April of this year.

So in terms of your unit shipments in fiscal '07, how many Destinations and Latitiudes did you actually ship?

We don't -- we will not give you the individual numbers for any product line.

Alright.

You are saying it was very small?

You know, it definitely was, no -- it was only three months worth, and that was during our startup period.

Okay.

Because when I go to Louisville and I see these products and some of them are very new and different and attractive, sometimes it is hard for us to know when they are going to be starting shipping.

That is why I got confused about that because I remembered it was a good product last year at the show.

Now as far as the new Navion product, can you tell us a little bit about what is different from it than the old Navion product?

I think the biggest thing on this vehicle instead of having the big cab over sleeping area, it has more of a, I will call it a B+ configuration, kind of like our Aspect.

So you have got a vehicle that I think is probably more handy from the standpoint of getting around town.

It is more for the tailgating type thing.

It is more like a second vehicle than a camper.

Alright.

And it is diesel as well?

That is correct.

Okay.

Now as far as the supply of chassis, I know you answered that question, Sprinter chassis.

Looking at what you're expecting from Mercedes for fiscal '08, do you see any problem of you guys running short relative to their commitment to you for Sprinter chasses?

We have not had any problem, and we have no reason to anticipate why we will.

Okay.

And as far as the View and Navion combined, is that -- if we had to look at total Class C shipments last year of 4438 units, was the biggest chunk of that View and Navion?

We will not break it out, but I think you know we're doing very well with it.

Alright.

Because I talked to one of your competitors the other day, and you're absolutely right, they are not getting the chasses.

(multiple speakers)

We know that also, and we believe that we will have a corner on the market yet for several months.

Okay.

Thanks.

You continue to do a great job on behalf of your shareholders.

Ed Aaron, RBC Capital Markets.

Just a quick follow-up.

I think last year in the first quarter your G&A was a little bit higher than it is in a typical quarter.

Could you remind me what caused that and then how I should think about this first quarter compared to last year on the G&A line?

One of the dynamics we had since we started expensing stock-based compensation, the grant of any awards is typically in our first quarter when the board comes in.

And the expense is accelerated on the [pond] grant.

It is an award issued to an employee that is of retirement eligible age.

And so we typically have a large percentage of that immediately expensed in our first quarter.

Okay.

So I should look at that increase as being kind of a recurring thing for the first quarter?

Yes, that is very true.

Bob Simonson, William Blair.

I'm not sure how to ask this one, but the new products that you have been introducing both last year and this year, is there an attempt to make those products more attractive or increasingly attractive to retirees?

Is there some way of tracking your attempt to capitalize on the soon-to-be booming demographic of retiring babyboomers?

Well, to answer that, that is part of the reason why Winnebago has 91 different models and floor plans.

It goes all the way to retirees to younger people who maybe want them more for tailgating or going to football games.

And Winnebago definitely follows all the different age categories and product groups and just wants to make sure that we have product available to all of the different groups that we can sell to.

Is there a specific endeavor to switch that focus to products that indeed do cater to an older market?

Well, I think kind of our traditional motorhomes and different things have always kind of focused on the retiree and the person who may go down south for the wintertimes and different things.

I think we're probably also spending some time though also on what I call some of the new markets that we have identified.

David Cohen, Midwood Capital.

I'm a little bit new to the story, but I just want to understand how you guys are thinking about product introductions next year.

Was given the high percentage of new products and redesign this year, what does the lineup look like for next year?

Well, this is Bruce Hertzke.

Every year a major part of our planning is developing new product.

Each year it varies.

This year we had a very high percent of new products and turnover and different things.

Next year we will not say what we have, but our development department is charged with those responsibilities every year to continue to investigate different market areas and different products to make sure we are bringing fresh new product to our markets all the time, and we will continue to do that.

And so how do we gauge the degree to which your strong sales are a result of new products and dealers need to stock that and sort of the degree to which that is kind of above-average sort of tenants or acceptance rates because the dealers needed to have those new products?

Well, I'm not -- it is going to vary year to year.

One year we may do 33% of all the new products are new.

Some years it may be up close to 50% like this last year.

It all depends upon how well -- if a product is received very well and doing very well, we will probably leave that, and we may introduce whole new product lines.

And that we never announce ahead of time.

I guess just to add to that, I think you can go back in history and you can look at it from a perspective in '06, we had our main focus on new product introduction on Class C bodies.

Last year it was on diesels.

There has been years that we look at it across the board.

So it just depends on what we feel the best strategy is to take that new product needs to be introduced on.

So 2006 we focus on Class C bodies, 2007 Class A diesel, not quite -- well, you're not in a position to say what 2008 is likely to be where the focus is likely to be?

That is a correct assumption.

(OPERATOR INSTRUCTIONS).

Scott Stember, Sidoti.

I just wanted to double check I heard right.

The extra week of business this year will be in the fourth quarter?

No, it will be in the first quarter.

In the first quarter?

That is correct.

Barry Vogel, Barry Vogel & Associates.

Bruce, in talking about product innovation, I know that generally speaking you guys have been behind the curve over the last few years, and last year at Louisville several of your competitors introduced a Ram Class A product.

I think there were three of them.

And from what I understand, at least one of the competitors has had reasonable success.

Have you introduced in your new products a Ram Class A, and if not, why not?

We do not have a Ram Class A, and again because we have put our design and development resources on some of the other products such as Navion IQ and some of the other diesel products.

So we continued to review all the different market segments and different things that we can get in, and then we will allocate our design and development resources to whichever projects we think will pay us the best return, not only just on volume but on profitability also.

But I have a question for you, looking at a broader picture, and I agree with you 100% on what you just said.

If you look at the demographics, which, of course, Winnebago has told us about for years now, the question I have here is the great vaunted 50 to 64-year-olds have been continuing to increase and by Winnebago's numbers by 350,000 a month for the last few years, and you have had a 24-month plus recession in the demand for Class As, and that is in what I would consider an outstanding economic climate.

Plenty of money around.

It has been very disappointing.

So the question I have is, a Ram Class A, I would think and I thought it at Louisville, would appeal to younger people, and I think that unless the industry caters in terms of Class A now, a younger demographic, as well as the 50 to 65-year-olds, they are missing out on a potentially important market.

And that is why I thought the Ram Class A had some decent potential in that lower age category.

So can you make a comment on what I just said?

Well, the comment is, if that is definitely going to be a major part of the market, Winnebago will want to be in that.

We will have to do just like we do every year.

We will lay out all the different product categories that we feel we need to get into and then make our determinations how we can get into those product categories and do well in.

Our objective as a Company is to do very well in all of the segments of the motorized industry.

And if the Ram motorhome becomes a major percentage of that, Winnebago will definitely need to be in that segment.

There are no further questions in the queue at this time.

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

Thank you.

Once again, I would like to thank everyone for joining Winnebago Industries' conference call today.

We look forward to talking to you again in December when we will report our first quarter of fiscal year 2008 results.

Thank you and have a good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a wonderful day.