Winnebago Industries Inc (WGO) 2012 Q1 法說會逐字稿

Greetings, and welcome to the Winnebago Industries first-quarter fiscal year 2012 earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sheila Davis, Public Relations and Investor Relations Manager for Winnebago Industries.

Thank you, Ms.

Davis.

You may begin.

Thank you, Kevin.

Good morning, and welcome to Winnebago Industries' conference call to review the Company's results for the first quarter of fiscal 2012, ended November 26, 2011.

Conducting the call today are Randy Potts, Chief Executive Officer and 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 o'clock noon Central Time 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, it is my duty to inform you this presentation may contain certain 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 identified in our 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 Randy Potts.

Randy?

Thanks, Sheila, and welcome, everybody, to Winnebago Industries' first-quarter fiscal '12 conference call.

I am pleased that we are able to continue showing a profit in what remains challenging times.

The motorized RV market, which is our core business, is entering its fourth year of volumes well below historic norms.

In addition, our first quarter lies within North America's fall season, so there is always potential for seasonal market pressures as well.

With that said, we are pleased that our market share continues to improve as the calendar year progresses, particularly in our Class A diesels.

We've had particular success with our 42-foot tag-axle products, as well as a fuel efficient, lower-priced Mercedes-Benz Winnebago Via and Itasca Reyo Class A diesels, which are unique to the industries.

We are also excited about the launch of the new Winnebago Journey and Itasca Meridian 42E at the National RV Show in Louisville a couple weeks ago.

This brings a 42-foot tag-axle into our lower-priced Class A pusher line, with the potential for higher volume in this market segment.

The 42E is a brand-new floor plan that focuses on storage both inside and out.

Dealer reaction to the new product has been very positive.

The Louisville show was also a great success for Winnebago Industries' Towables.

Every product in the Towables display was new and improved when compared to what SunnyBrook displayed a year ago, prior to the acquisition.

We've worked very hard to reinvigorate the SunnyBrook brand, while also creating new Winnebago-branded products.

We had great reception from all of these new products at the Show and also met with a lot of new dealer prospects about carrying these product lines.

The integration of the Towables group continues to progress as we anticipated, and we continue to believe that we will be profitable in that segment before fiscal year-end.

With that, I will turn the call over to Sarah for the financial review.

Thank you, Randy.

Net revenues for the first quarter were $131.8 million, a 6.6% increase from the first quarter of fiscal 2011.

The net increase was due to our Towable division, which contributed $10.1 million of revenues during the quarter.

Motor home deliveries were down 75 units or 6.7%, which was partially offset by a 4.7% improvement in the average selling price during the quarter.

The increase in ASP occurred in all product categories, but was most notable in the Class A diesel category.

Many of the same opportunities and challenges that we faced in the fiscal fourth quarter of 2011 remain in effect for our first quarter of fiscal 2012, and thus, our income statement is similar.

Our financial performance is consistent sequentially, as our units delivered, revenues, gross profit and selling expenses are nearly identical.

As we noted in our last conference call, we reduced self-insurance reserves by $1.1 million during the fourth quarter of fiscal 2011.

This is the primary difference in our pretax profit when comparing the consecutive quarters.

As expected, our tax expense is near zero due to the continued generation of taxable income, which allows us to reestablish a portion of our deferred tax assets that were fully reserved at the end of fiscal 2009.

Notably, the tax benefit recorded in the quarter is a result of a change in uncertain tax positions.

Cash generated from operations during the quarter was $1.2 million, which increased our cash balance to $71.3 million.

For the second consecutive quarter, we were able to decrease our capital investment in inventory.

Inventory balances decreased by $3.6 million, and a reduction of Accounts Receivable provided an additional $4.5 million.

These working capital improvements were essentially offset by the reduction of accounts payable and accrued expenses.

Additional liquidity was provided by a $500,000 partial redemption of one auction-rate security.

As illustrated on our balance sheet, we reclassified $250,000 of auction-rate investments to short-term as we collected the proceeds in December subsequent to quarter end.

Both redemptions were at par.

Also, we had proceeds from Company-owned life insurance of nearly $650,000 that will help to fund our deferred compensation liabilities prospectively.

One cost reduction approved and communicated during the first quarter that will begin in January 2012 relates to our retiree healthcare liabilities.

In light of continued economic challenges and reduced RV market size, we reduced the amount of prospective employer-subsidized retiree healthcare benefits by 10%, which is currently estimated will reduce our related unfunded $42 million liability by $4.6 million.

As a result, our future cash outflows will decrease, and per accounting standards, we will amortize this liability reduction over time into income.

As I previously mentioned, net revenues for our Towable division in the quarter were $10.1 million, a 30% increase on a consecutive-quarter basis, and sales order backlog on a unit basis was up 57%.

As we continue to expand our distribution network in conjunction with the ongoing introduction of the Winnebago-branded towable product, we expect the increased volume to flow through to the operating line at an accelerated rate.

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

(Operator Instructions) Kathryn Thompson, Thompson Research Group.

Good morning, everyone.

This is Jamie Baskin on the line for Kathryn.

Could you tell me how much was margin weakness driven by lower utilization versus raw material inflation?

In the quarter, as we touched upon in our press release, we did have shortened work weeks.

And so when you look at the margin pressure, you could attribute about 75% of that pressure to be a combination of the reduced work weeks and inflationary pressures.

And of that 75%, about 40% related to the downtime, and the related component of that would be a function of pressures in relation to wages, materials, a variety of cost pressures.

Okay.

And what was your take on the Louisville show regarding dealer sentiment and order trends, particularly compared to last year?

Well, I think from an order perspective, I think it was pretty similar for most of us to last year.

We were more focused on dealer attendance, what would we expect to see as far as representation from our dealer body.

And I think our takeaway was that on the motorized side, it was really pretty close to normal.

On the towable side, it exceeded our expectations.

We are in a growth mode on the Towables side, so it was really good to see a lot of dealer interest in that.

When I say growth mode, I mean expanding our dealer base on the towable side.

I didn't mean to imply from a product perspective.

Naturally, from a product perspective, we are in a growth mode on both sides.

Okay.

All right.

That's all I had.

Thank you.

Scott Stember, Sidoti & Company.

Sorry about that.

Good morning.

I had the phone on mute.

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

Thank you.

Certainly.

So for the first quarter of 2012, Class A gas, $95,466 as compared to $89,630.

Class A diesel, $187,745 as compared to $170,352.

So total Class A is $130,391 as compared to $122,703.

Class C was $77,393 as compared to $75,916.

So total A and C was $111,199 versus $103,593.

And Class B was $74,980 versus $69,171.

So all-in motorized, $108,448 versus $103,562.

And then on the Towables side, Travel Trailer was $18,739, Fifth Wheel was $28,520, for an average of $22,516.

Okay, and could you talk about the current state of discounting that is going on, particularly with the October numbers that came out, which the [fiscal] survey showed a pretty sharp decline in motorized retail sales.

Could you talk about what you're seeing right now at the dealer level?

Well, when I look at the quarter we just reported, on a year-over-year basis, it is up, but sequentially, it is down.

So it was a pressure for us when you compare it to the prior year; not significant, but it was a piece of it.

But on a sequential basis, it wasn't actually deteriorating.

So I guess that is the commentary I would add.

I don't know, Randy, if you would like to say more.

I think from just a market environment, I don't think we are seeing any unusual pressures given the seasonality of everything.

Okay, and on previous calls, you talked about some possible adjacent opportunities that you could move into.

Could you talk about whether you have anything to announce now?

No, at this point -- we were hoping we would at this point, but we are still working out some details on things.

And I guess all I can say is please stay tuned.

Okay.

And what was your capacity to utilization in the quarter?

Approximately 34%.

34%?

And last year, we were in the 40%, 45% range, if I'm not mistaken, correct?

Yes, we were about 40% in the fourth quarter.

And yes, you're right, in that same range a year ago in the same quarter.

Okay.

And last question, as far as the tax rate going forward, should we assume for the rest of the year that they will be minimal if -- no tax rate being recorded on the income statement?

That's a fair assumption.

Okay.

That's all I have.

Thank you.

(Operator Instructions) Bret Jordan, Avondale Partners.

Good morning.

A question around the show order flow.

You said that for -- the dealer participation was similar to last year.

Are you seeing any timing of demand change, given that Elkhart was a bigger deal this year?

You guys participated in it and we saw some very strong October wholesale numbers.

But are you saying that you are seeing just as strong demand out of Louisville as you saw prior year?

Is there great demand at the dealer level for incremental inventory, or are we seeing a timing -- seasonally change?

Well, Bret, we visited about this at Louisville, and naturally, both at the open house and during the RVDA convention in October and at the show in Louisville, this whole thing gets a lot of discussion.

And I am sure those discussions aren't over.

There is a lot of speculation about the timing of the shows and the pressures that one puts on the other.

The jury is still out.

I have to say it is hard for us to really put those things into perspective because we aren't a player at the open house events that our competitors are, by any means.

This year was the first year we participated, and that was certainly not at the level our competitors do.

So it has obviously turned into a major order event for them.

Whether or not that moves their order input dynamic, I don't know.

I guess going forward for us, if we choose to have a bigger presence at the open house, that is certainly a possibility.

But for now, we are really just comparing it to what our history is, and our strong presence has been at Louisville.

Okay, because I was just trying to get an understanding given what was very solid wholesale growth from a shipment standpoint in October, are you seeing strong dealer demand for incremental inventory going into what was not typically an inventory build season?

I mean, have you seen incremental demand or a change of timing of demand?

I wouldn't say on the motorized standpoint there is a noticeably different dynamic than what we would've seen a year ago.

Things really -- and if you look at all the statistics, things are kind of playing out as they normally would.

Okay, great.

Thanks.

David Whiston, Morningstar.

Thanks.

Good morning.

I'll start with a consumer confidence question, I guess for Randy.

Normally, as you know, fiscal Q2 is generally the weakest quarter for the Company.

But this year's fiscal Q1 was -- we had some extraordinarily negative things going on due to Greece and Italy.

So are you perhaps a bit more optimistic about fiscal Q2 this year than normal?

Well, you know, I think we remain cautiously optimistic every quarter.

But you can't help but be apprehensive because of all these things that are going on.

We have for some time questioned or speculated on the relationship of the motorized RV business and housing starts.

And as we look at that closer, I think there is a curious relationship there, possibly.

But as far as direct correlations to any particular economic indicators, like consumer confidence and oil prices is always one that we are asked, we don't -- we have a hard time really tying our business directly to any of those kinds of indicators.

Bob used to always say, though, that really the volatility in oil prices was more of an impact on consumer motor home spending area.

Do you agree with that?

Yes, and I -- well, I would agree, but I think in Bob's context, it was when there were wild swings in oil prices.

I mean, we went through periods where oil would change in price dramatically.

And consequently, it was always in the wrong direction.

And yes, that had consumers edgy.

But right now it is in pretty normal trading range, so I don't think we really see that as a major event.

Okay.

And is there a point where -- what would have to happen for the Board to decide to suspend M&A activity?

Would it have to be some sort of very severe macroeconomic shock?

Well, that is a tough one, because that is a very general question.

I'm not sure I can even answer that really, because our strategy to M&A has been so far one of really pretty small acquisitions with small risks.

And I've said all along that that is likely to be the type of perspective we are comfortable with.

So when you look at our Towables acquisition, that is a pretty small bet in the scheme of things.

And I really hesitate to think that things could get to the point that they are so bad we wouldn't have interest in something like that.

Is that fair?

Yes, that's helpful.

And then Sarah, real quick on the financials, do you still expect to be free cash flow positive this year?

Well, on the positive movement in inventories -- and that was a use of free cash flow in 2011 notably -- we look at an opportunity to be free cash flow positive in 2012.

Okay.

And on the auction-rate securities, I know obviously this market is very uncertain and very illiquid right now.

But are your bankers still advising you to really expect a small amount of money and under $10 million to really have to be frozen for up to 30 years?

There is a lot of accounting guidance that we are following in regards to disclosures on that front.

We have seen since 2008, I think at February at that point, we were sitting with approximately $60 million of auction-rate securities, and a lot of that has been redeemed at this juncture and all at par.

There is one particular security that every six months we've seen very, I guess, consistent redemption.

And then notably, we had that incremental redemption inside of this fiscal quarter.

So it hasn't played out as dramatic as that, as it will take that long.

But if you look at the underlying maturity on the rate and the auction securities that we hold, it lays out that far.

But we've had much more positive, I guess, liquidity experience on that, so I would expect that to continue.

And if you had the opportunity to liquidate all of it at once at par, would you do it?

At par?

Certainly.

Okay.

Last question, do you still expect to do a full valuation allowance reversal by the end of the fiscal year?

That's an ongoing evaluation, and it is dependent -- one critical factor we've used to evaluate that is our cumulative three-year operating income or loss position.

And so as the results play out for this fiscal year, that will be an important factor.

Secondly, though, we have to also look at our outlook as well.

But we have a pretty -- a neutral tax outlook until that does happen, because we have the ability now that we are a taxpayer once again, and more in fiscal '11, that if things deteriorate and we see taxable losses again, we can carry back.

And that is going to really dictate all of the evaluation we do on this.

Okay.

Thank you very much.

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

Good morning, ladies and gentlemen.

Randy, I have a question for you in regards to your prospects for doing something relatively significant in Towables.

First of all, can you tell us approximately what your outlook is for revenues in Towables this year, conservatively?

Well, I really can't speak to any kind of forward projections, Barry.

I'm sorry.

Okay.

And how much money did you lose in the first quarter in Towables?

About $0.01.

Okay.

And as far as the Winnebago brand prospects versus the SunnyBrook, have you shipped any Winnebago brand product?

Yes, we have.

Shipments of the travel trailers started in September, and we got off to a very careful start.

We are very focused on making that product right for the market.

It is a brand that we need to be proud of and protect.

But we do have two different floor plans of travel trailers shipping at this point.

And then in October, we started shipping the first fifth-wheel floor plan, and we currently have two brands of fifth wheel shipping, with more in development, naturally.

Okay.

Because it seems to be very difficult for you strategically given the fact, in my opinion, that the motorized industry is just really laying here like a pancake.

And it makes rational sense that people in this environment are very loathe to buy motor homes relative to towables.

And so I don't know what you can do if this plays out for the next few years to earn some reasonable money in motor homes under that kind of circumstance.

Is there anything else you can do on costs, assuming that the business is soft in motor homes?

Well, yes, there is always more we can do, Barry, and we are constantly looking at those.

I think our track record shows that we've made fantastic strides in lowering our breakeven point on motorized.

I mean, if you looked at what kind of breakeven points we spoke to four years ago versus where we are performing today, we have made tremendous changes and will continue to.

Okay.

And Sarah, I've just got a couple of easy questions for you.

What is your current expectation for capital expenditures this year and depreciation and amortization?

Certainly on a fiscal-year basis, we are looking at -- for depreciation, it has been running in the $5 million range in recent years, and I think that is a fair expectation for fiscal 2012.

And from purchase of property, we are also looking to spend maybe slightly under what we are going to be depreciating in 2012.

So about $4 million?

Yes, that is a fair estimate.

Thank you very much.

You're welcome.

[Andrew Winick], [Winick & Associates]

I just have a couple questions, and you can answer them if you have time or not -- all of them, that is.

First question is the inventory numbers were sort of a highlight of the financials, since you were able to bring them down a little bit quarter-over-quarter.

Could you give us -- that seems like a good sign, and it's a direction you've been wanting to go.

Could you just give a little color on that?

Have you been able to bring the chassis down?

When you look at the inventory movements inside of the quarter, most notably it was actually a function of finished good inventory reduction.

That was the most significant decrease.

And then secondly, from a work-in-process perspective.

That was the major categories of reduction.

Okay.

Well, that's terrific, and that is probably what you are aiming for.

Second, just quick question, the previous caller asked about the Towables.

So it sounds like from what you are saying that most of the Towable revenues at this point is primarily SunnyBrook, and the Winnebago line is not a big contributor yet.

Is that fair to say?

I think that's fair, but naturally, we have really big plans for that Winnebago brand going forward.

Absolutely.

So that's all upside going for 2012, the next few quarters.

We would like to think so.

Okay, good.

Last question is -- and I'm sure you are asked this quite often, but I will -- you have mentioned your M&A potential prospects, and that is a potential use of cash, at least on a small basis.

SunnyBrook was obviously a small purchase, given your cash hoard.

Once again, given these very attractive prices for a company that is the brand name for the industry, would you again reconsider doing some buybacks at this point, even on a small basis?

Well, cash has gotten a lot of discussion recently, and rightfully so.

It has really made us have heightened levels of discussion internally about that.

And where we are at right now is really, as we've said all along, our use of cash, number one, will focus on sustaining our business.

We are evaluating what level of cash do we feel is required just to really sustain our business through tough times if it were to happen again, which hopefully it doesn't.

So we look at that as far as what kind of fixed costs do we have on an annual basis and what are we comfortable needing to cover going forward.

That is the primary use of that cash reserve.

Secondary would be the mergers and acquisitions discussion.

As we proceed with additional opportunities in the future, we would prefer to have them be on a cash basis, as we did with SunnyBrook.

And then the third priority would be using cash to affect the stock price or share with shareholders.

Thank you very much.

Thank you.

There are no more questions at this time.

I would like to turn the floor back over to Mr.

Potts for any further or closing comments.

Okay.

Well, thank you, and thanks again, everybody, for joining on the call.

Like everybody, we are hopeful the recovery of the United States economy is just around the corner.

But until we see that happen, we will continue to look for ways to profitably grow our business within the current environment.

I would like to thank everybody for joining the Winnebago Industries' conference call today, and I'll look forward to talking with you again in March when we report our results for the second quarter of fiscal '12.

Have a safe and joyous holiday season.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for participation, and have a wonderful day.