Winnebago Industries Inc (WGO) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first-quarter 2013 Winnebago earnings conference call.

My name is Lisa and I will be your operator for today.

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

Later we will conduct a question and answer session.

(Operator instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Sheila Davis, Public Relations and Investor Relations Manager.

Please proceed, ma'am.

Thank you, Lisa.

Good morning and welcome to Winnebago Industries conference call to review the Company's results for the first-quarter of fiscal 2013 ended December 1, 2012.

Conducting the call today are Randy Potts, Chairman of the Board, Chief Executive Officer and President; and Sarah Nielsen, Vice President, 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 11 o'clock a.m.

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.

Welcome, everybody, to our conference call today.

Sarah will get into the financial details in a moment, but first I will make a few general comments about our first quarter of fiscal 2013.

Needless to say, we are very pleased with the quarter.

The actions we have taken within our business, combined with improved market conditions, have created momentum.

Our motorized sales order backlog grew 243% and towables grew 50% year-over-year, but also grew sequentially by 44% for motorized and 40% for towables.

We also saw this growth across the entire product spectrum in both low and high end products.

As this backlog suggests, our products are well-received by both dealers and retail customers, and we expect continued success as we introduce new models and floor plans in the future.

We followed up on the success of our affordable new Winnebago Vista and Itasca Sunstar 26HE Class A models, with new entry-level Class C units, the Winnebago Minnie Winnie and Itasca Spirit.

We introduced the first Minnie Winnie and Spirit floor plan this fall at the dealer open house in Elkhart, Indiana.

We showed a second floor plan just a few weeks ago at the National RV Show in Louisville, Kentucky.

Production began on some of the new Minnie Winnie and Spirit models late in the first quarter and will be available for the spring selling season.

On the opposite end of the price spectrum, we continue to have tremendous success in our highline Class A diesel products, particularly the 42-foot tag-axle floor plans.

As you might sense, we have become more agile in the creation of new products and plan to keep the momentum going by continuing to bring great new products to the market.

We introduced exciting new towable products at Louisville, which were also well-received by dealers.

The brand-new Winnebago Ultralite trailer was shown for the first time and received best of show recognition from both RV PRO magazine and RV-Insight, an online RV magazine.

Weighing less than 6000 pounds, it is easily towed with most of today's smaller vehicles.

Also, a bright cherry red mini received a lot of attention as it joins the lemon, lime and white mini trailers.

We are working through the operational issues that have challenged Winnebago Industries towables, and we filled important leadership positions within that organization.

We believe towables is now on the right path, and will continue to grow going forward.

In just one of many positive signs for our business, I'm pleased to point out that our retail and wholesale sales are outpacing the industry as evidenced by our increasing market share.

With that, I'll turn the call over to Sarah.

Thank you, Randy.

Good morning everyone.

I am pleased to review would use the financial performance of the Company's first quarter of fiscal 2013.

Net revenues for the first quarter were $193.6 million, a 47% increase from the first quarter of fiscal 2012.

The growth in revenue was the result of a 47.5% increase in motor home deliveries, coupled with a 3.2% increase in average selling price.

The growth in our motorized revenues was notably due to strong demand of one of our new entry-level Class A gas offerings that Randy touched upon earlier.

Towable revenues were also up nearly 20%.

However, these sales did not contribute to operating profit as we continue to integrate and realized the management structure at the subsidiary.

The incremental motorhome revenue generated in the quarter allowed us to increase our gross margins for the third consecutive quarter.

In the first fiscal quarter of 2013, we achieved a consolidated gross margin of 10.7%, up 430 basis points as compared to a year ago.

Strong demand for our product is the key reason for the margin improvement, as it allowed us to better absorb our overhead expenses.

Other factors that assisted in the margin expansion included a strong product mix and seasonally lower spending in several overhead expenses, which include utilities and payroll taxes.

Our total operating expenses increased on a year-over-year dollar basis up 37%, but when measured as a percentage of net sales, they were down 40 basis points as compared to last year.

For the quarter we earned $9.9 million of operating income, up dramatically from last year.

This is another positive outcome from the increased sales volume, and again highlights the leverage available in our business model.

To further emphasize of the leverage of our business, I would point to our flow-through percentage.

Of the incremental $61.7 million of net revenue, 15.7% was able to drop to the operating income line.

During the quarter we continued to repurchase shares at what we consider to be attractive levels.

We repurchased 594,000 shares for a total of $7.2 million.

The strong results from our first quarter operations, coupled with reduced share count, allowed us to generate $0.26 of EPS in the quarter -- a [550%] increase versus the year ago quarter.

We also benefited from an additional week, as our first quarter of fiscal 2013 was a 14-week quarter, which equated to $0.02 per share.

As Randy previously stated, demand for our motorized product continued to grow during the fall, and in response we added production hours throughout the first quarter through overtime and adding headcount.

Unit production volume was up 60% as compared to the first quarter of fiscal 2012, and up 26% sequentially over the fourth quarter.

We plan to continue to increase our weekly production schedule in the second quarter of fiscal 2013 as well.

Similar to comments that I made in our conference call last quarter, the continued acceleration in our production schedule did notably impact our balance sheet as inventory grew by approximately $19 million in the first fiscal quarter of 2013.

Again, the largest portion of the inventory growth was within the work in process category.

We believe that once we normalize production levels at the increased rate, there is opportunity to reduce work in process inventory and increase inventory turn rates.

These potential improvements may be limited in some respects to our suppliers, as they are also working to increase their production levels to meet our needs.

We ended up order with a motorized sales order backlog of 2118 units.

We defined our backlog to represent orders to be shipped within the next six months.

Notably, there are a few key reasons that these orders will not all be delivered in our second quarter, which were highlighted in our earnings release.

As typical at this time of year, we have fewer production days in our second quarter due to the holidays and our annual physical inventory which we conduct at the end of January.

We also face Class A gas chassis constraints due to limited availability.

That's a portion of our order backlog will not be produced and sold until the third quarter.

Lastly, due to the timing of new model production for one of our new Class C products that starts in February, there is a portion of our backlog that will not be through the production process and sold until the third quarter.

Randy briefly touched upon the improved retail market in his comments earlier.

I would like to highlight that we saw our motorized retail registrations increase 35% in the first quarter of 2013, as compared to the same quarter last year.

This is stronger than the 11% year-over-year growth we experienced in the fourth quarter of 2012, and a very encouraging trend.

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

(Operator instructions).

Kathryn Thompson, Thompson Research Group.

I would like to focus first on gross margins, which were the highest -- at least we have since Q1 of 2008.

And you definitely had obviously some improvement in the last quarter.

As you did in the last conference call, could you break out in a little bit greater detail how much of this improvement is driven by pure volumes, so, in other words fixed cost leverage?

Any changes in raw materials and also a lower discounting environment?

And if there is something else that we should take into consideration in terms of the gross margin improvement and how we should think about it going forward?

Good morning, Kathryn, this is Sarah.

In regards to the gross margin improvement, when you look at the 430 basis point improvement, I first will comment that the incentive element is really not a factor on a comparative basis to last year.

It is also really not sequentially notably different.

So it really is all -- when we look at the key reasons for the improvement, primarily overhead absorption, we are seeing improvements from a fixed overhead absorption, also some of the variable costs that have a little bit of an element of fixed to some degree as well.

And when I look at 430 basis point improvement, nearly 90% would fall in that category.

We did see materials as a percentage to be slightly lower than last year as well.

And that [isn't] going to be a function of the mix of what we are producing and selling, as well as the fact that we are selling the next model year product and comparing to a prior year where there were price increases that were effective at the beginning of the model year.

And that really started in the fourth quarter and now plays out into the first quarter.

So there is a component there, but fixed overhead absorption is a significant component, and then also to some degree, some of our variable costs on that are more fixed in nature.

(technical difficulty) I will let Randy, maybe, follow-up if he has any further comments to that.

No, I think you covered it really well.

The increased volume certainly helps on the fixed overhead portion of it, and just a lot of positive things, so, going the right way.

Okay.

So, based on backlog, and understanding you have fewer projection days off, but still it would stand to say that you should continue to see good -- at least year-over-year margin growth as we look into the next quarter or two.

That is very fair.

And on the topic of discounts and promotional incentives, it will be a factor when we compare to last year in the second quarter of 2012.

And that was a time, a year ago, that was very different from a business perspective or a demand perspective for us.

We more encountered it in the first quarter through working fewer days.

So that is why the production on a year over year basis is up so dramatically.

But when we continued into the second quarter, we were more aggressive incentive-wise last year, and so in comparison, we could have some very positive comps in light of that.

Yes, assuming things stay robust.

Yes.

And we certainly in our industry checks have not seen any meaningful motorized discounting.

So you are going to get basically the tailwind of more favorable comps from a discounting standpoint, in addition to higher fixed cost absorption.

That's helpful.

In terms of maybe -- the backlog is what it is right now, but maybe could you talk a little bit more about what are the time to dealers?

And what is it typically from a seasonal standpoint?

I understand we really haven't had very many typical years in the past couple of years, but what is it typically and where do you want it to be?

Kathryn, leadtimes vary dramatically based on what the product is, what product class it is, whether it has paint or not.

That is a very big differentiator.

I think we have typically said that, on average, leadtimes are probably around four weeks from the time we would bring it in the door to the time it is shippable.

Of course it may take more or less, again depending on the product class.

That would be leadtimes as it would pertain to what it takes for us to process it.

Leadtimes as far as new orders that would go into our backlog would be another story.

Again, that would be dependent on the product class.

There's been a lot of things in the news about Ford having trouble keeping up with gas Class A chassis.

So, naturally, those orders are being pushed farther out while Ford Econoline chassis are readily available.

Freightliner leadtimes, I think, are pretty much in the norm.

So, it is a real mixed bag.

As far as our goal, our goal is to try to have our work in process be as low as practical, which would improve leadtimes for units that are in process.

As far as the goal for the entire order bank, again, even with those issues -- with the supply issues on chassis, some of those orders are placed for forward deliveries, too.

So not every -- we are in a position where some of the orders are out there simply because people sense that we are going to be busy, and they want to make sure they have their spot in our production system.

I mean, it is fair to say that the leadtime is well more than four weeks right now, just in aggregate and on average.

Yes, for a new order, is that what you are saying, if we were to get a new order today?

Yes.

Really what I am trying to do is get a better sense of not just the total number in terms of backlogs, but from a seasonally adjusted basis, if someone were to place an order today, for instance, if on a normal basis it would take 4 to 6 weeks, now it might be closer to maybe eight weeks on average.

And that's really just what I am trying to get, a sense of magnitude.

I guess, in a very general sense, that is probably a fair assumption, give or take.

Great.

And, sorry; you all typically give ASP's by product line.

Yes, on a comparison to the prior-year, as I touched upon earlier, overall our ASP grew 3.2%.

If we break out the categories, the Class A gas average selling price for us in the first quarter was $90,662 as compared to $95,466.

So we actually had a decrease in that category of 5%, and that was from entirely mix related due to the great success we have seen at that low-priced entry-level Class A offering.

On the Class A diesel side, we had the exact opposite.

The average price went up quite a ways from a year ago, also influenced by mix.

It was $204,912 versus $187,745, so up over 9%.

Our Class A average in total, then, was $131,508 as compared to $130,391.

For Class C pricing, our average sales price in the quarter was $79,121 versus $77,393.

And our Class B ASP was $76,814 versus $74,980.

And then the blended overall average selling price is $111,941 versus $108,448.

Okay, great.

Thank you so much.

Morris Ajzenman, Griffin Securities.

What -- follow-up, leadtime, other questions to that -- talking about employee headcount, and I know in the past you have always said that's easier said than done as far as getting new skilled workers.

But where are you in this stage as far as having sufficient workers and needing the workers?

And is that going to be a drag on production?

Well, we hired probably 12% more hourly employees in the first quarter, almost similar to what we hired in all of fiscal '12.

That is roughly 160 people.

And when we look at where we are, based on the schedule in front of us for the second quarter, we have increased our headcount to a sufficient level.

We are still supplementing by working overtime in many, many areas of the Company and that was -- that has been a factor for the last six months plus.

And we are going to have to continue to hire to support attrition.

But in regards to the level of our employment, we are not too far where we think we need to be, based on our schedule as we have it laid out now.

Now, that is definitely still fluid and we are evaluating that every week based on where the order position does move, but I think we are at a reasonable level at this juncture.

Thank you; a second question, unrelated.

Recent trends -- any change in demographics rather than the 55 and older?

Is there younger spending coming in, and in an incremental basis for what [it is] traditionally in the past?

And secondly, any areas of strength or weaknesses geographically in the country?

I can't say that we have seen any substantial changes in demographics.

I think it is probably in the -- five years ago, we were talking about seeing a younger buyer coming to the market.

And I think throughout the recession we saw that retract some.

And while I don't have the data, I speculate that younger buyer is probably still recovering from the housing problems, that type of thing.

The market is still -- I mean even though we are reporting really good news here, we are still looking at a market that is dramatically smaller overall than what we were looking at what we were talking about those demographic changes.

So I think until you really see some journal market expansion, I don't see -- I wouldn't expect a big change in demographics.

As far -- your other question was regionally?

Yes.

We have always talked about the West struggling, California notably, and it continues to be tougher out there than to the East, although I think it is improving with the market in general.

Thank you.

David Whiston, Morningstar.

Good morning.

First of all, Sarah, did I hear you right that the extra week added $0.02 to EPS in the quarter?

Yes.

We looked at the incremental week.

It is about an 8% lift.

So, just in simple math, that equates to about $0.02 per share.

Okay.

And on the new credit line, there is a fixed charge ratio covenant that would kick in if you guys repurchased more than [25 million] of stock in the first 12 months.

So are you willing to go over that [25 million] given that clause?

Yes, that is all going to be dependent on where we see ourselves.

We set that amount where we thought we had some reasonable room to move.

But it is more going to be a function of the opportunity we perceive to purchase more stock, and that won't be a barrier for us if we wanted to proceed in that manner.

Any updates on the auction rate security front?

Well, as you can see in that balance sheet that we released, there was a small amount of our assets listed as some short-term investments.

That represents redemption activity that happened inside of December.

So, what we have seen as of late is every six months, some periodic redemptions at par.

But nothing more notable than that has occurred.

And so we continue to hold long-term investments, as noted on the balance sheet, sheet of nearly $9 million.

And finally, probably more for Randy, but any concern about higher taxes next year in 2014, 2015 reducing spending on motorhomes?

Well, sure.

I try not to worry about what I can't control, but naturally you could rationalize that if we do see tax increases on a certain class of individual, that could affect their discretionary spending patterns.

But I'll have to wait and see.

Okay.

Thanks, guys.

(Operator instructions).

Barry Vogel, Barry Vogel & Associates.

Good morning, ladies and gentlemen.

The first question I have for you, Randy, is -- one of the most interesting statistics that came out of your press release, in my opinion, was the fact that motor home inventories are still flat at around 2000 units, which it has been for quite many, many, many quarters.

Yes.

Which means that your retail activity must be extremely strong for the inventory at your dealer level not to go up.

Is that a correct assumption?

Absolutely.

Now, having said that, could -- to Sarah, can you hone in a little bit better color on your retail registrations for A's and C's only, separately, for September and October?

Well, when we look in our retail registrations, we are looking at that in regards to -- and there is a table that we incorporate into our Q each quarter that illustrates where our retail registrations are.

And it is collectively, though.

And we are looking at retail registrations [in the sense] -- inside the quarter as compared to last year, was up 34.5% for our Company specifically, and that is going to also include the month of November as it relates to unreported stat survey information.

When you look at stat surveys at that -- as reported through the month of October, you say that we are gaining market share from a Class A gas perspective.

We are at 23.5% Class A, and that is up from 22.1% a year ago at that same time.

Class A diesel we have also moved the needle.

We are [up -- it's] 19.3% as compared to 17.5%.

And in Class C we have moved.

We are now at 17.9% as compared to 17.1%.

From a B standpoint, we have a bigger story there in light of the fact that we had very low dealer inventories and not a lot of product available to be retailed a year ago.

And so, that Class B retail market share is now 16.2% and last year it was 6.3%.

But overall, we are seeing growth in retail in every category, and it is really evident also when you look at our backlog position.

The numbers you just gave were for October, correct?

Those are all October, yes.

That is very helpful.

Now --

Well, let me clarify.

It is year-to-date through October, but --.

Those numbers you just gave us were year-to-date?

Calendar year-to-date.

Yes.

Calendar year-to-date through October.

So, that's first 10 months of the year?

Right.

Okay.

And could you give us a little color on the comment about chassis constraints?

Well, as I mentioned to Kathryn, the most notable one has to do with the Ford gas Class A, the frame rail chassis.

And that has even been in the news lately.

I think RV Business or RV PRO did a little article on that earlier this week, and they -- there is a general increase in demand for that chassis across the industry.

And naturally we're working those folks very hard to get all we can as soon as we can, because it is probably -- well, it is our biggest chassis constraint.

And as I mentioned, the Ford chopped vans, the Class C Econoline product is readily available.

Freightliner I think is holding their end of the market up very well there.

They are supplying as needed.

And of course our longer leadtime chassis, which would be the Mercedes chassis, isn't a constraint for us.

But it does require more planning than the rest, because it is built abroad.

Now is that Ford Class A gas chassis that you just mentioned, is that the most important chassis in the industry for gas product?

Well, it is the most widely used chassis in the industry for gas A bodies, absolutely.

Okay, okay.

Now, Sarah, as far as the operating rates, can you give us some idea in the quarter what the operating rate was for your motorized operation as well as your towables?

Are you looking at it from a capacity perspective or a weekly production rate?

What are you --?

Capacity.

That's -- we are completely utilizing our capacity to its full extent, and been hiring here inside the quarter.

If we wanted to talk about this physical plant capacity, if we had more employees and all the materials we needed, we use 60% of the physical capacity.

But we have been in a mode of increasing our weekly production rates all throughout the summer and into the fall, and that is also -- the plan is in place for the second quarter in light of where our demand is at.

All right, so as that continues, your percentage of your physical capacity would go up, correct?

Yes.

And where are you in your towables operating rate as a percentage of physical capacity?

They have a physical capacity to produce, as we characterize it, in the 8000 range.

They are using a pretty small percentage of their overall physical capacity.

If I look out on the rolling 12-month basis through the first quarter, we have [whole sales] about 2500 units.

So, as a percentage, they are probably more in the 30% range of actually utilizing their physical capacity.

Okay, and as far as the operating loss which you alluded to for towables, can you give us some idea of where -- because it wasn't that large quarterly last year, but you did lose money last year.

Can you give us an idea of what it was in the quarter?

Yes.

The operating loss for towables was nearly $1.4 million in the quarter.

So it was larger as compared to where we were a year ago.

A lot of the challenges experienced there were related to warranty and inventory types of adjustments.

So it was a drag for us overall.

Would you say that that is going to come down sharply to a breakeven level sometime during the year?

Yes.

Okay.

And as far as your current plans for capital expenditures and depreciation and amortization for this year?

We are looking at CAPEX for the year to be in that $6 million range.

And depreciation expense may be slightly under that in the $5 million range.

Okay, and as far as your share buyback program, you have been pretty aggressive relatively speaking to the past, and you averaged about -- a little bit more than $12 a share.

Do you have any inside price constraints that you are not going to pay more than a certain amount for shares?

Well, we have an analysis or a grid that we reevaluate on a periodic basis.

So, yes, we do set those parameters, but those are not going to stay on the same.

We use them for a period of time and then re-calibrate.

So, that is the formula that we are using.

As we commented on during our October -- fourth quarter conference call, we made purchases on the open market, and then also during our blackout period we have filed 10b5-1 agreements.

So we have the ability also to buy during a blackout, and we did fully utilize that last quarter.

And we have had a plan in place for this quarter as well.

And so we have definitely -- to your exact point -- been more active in this in the last six months, five months.

Well, when you use that plan, do you set a price ceiling?

Yes, and a floor.

Right.

Do you have -- it's a range?

Yes, we have a range and -- yes.

Well, I must admit at one point people thought you were dead.

I think that was premature.

We do, too.

So, you did a great job.

Thank you very much.

Thank you.

Thank you.

Morris Ajzenman.

Barry kind of went through the towables, which was going to be my question.

It is still a very small part of the Company, but we look at it as an area of growth.

And you spoke about last quarter and this quarter some operational issues, and now you brought up some inventory and warranty.

And then, you alluded sometime this year things get under control.

Where are we with the -- I guess the new team operating that unit?

And once that gets sorted out, I think you have always stated in the past this is an area you want to look to expand into greater.

Can you give us just where are we now with these issues?

Because [it sort of really well] a number of quarters back, and I guess the last few quarters have been very difficult.

Just rehash what has happened there and when you really believe we are going to start seeing additive results from this, from a profitability perspective, et cetera, et cetera.

Well, I am very disappointed in how things have gone with that piece of the business, obviously.

And we are not waiting for it to fix itself.

We have made a tremendous amount of changes, as we have said, brought a lot of new people on board.

It is already making a difference operationally.

We talked about the unit that we showed at Louisville, the Winnebago Ultralite, and that served to reinvigorate the enthusiasm around the business.

So, we are getting -- the good news is we still have a lot of opportunity there as shown by the way that product was received, that and some others.

But we have got to go back and get some of the details right so we make money on those sales.

And we have had a lot of sales, and that is what we were very excited about as we reported on that business earlier in the year.

It's just we didn't have some things in control that we thought we did, and those sales weren't as profitable as they needed to be, as you can tell.

So we have got to go back, cross the T's, dot the I's.

The orders are there.

The opportunity is still there.

We just have to make sure we have got all the details right this time.

And we are -- you learn from your mistakes, and we have got a lot of things in place to assure us back in Forest City that those folks in Middlebury have it right this time.

And from our perspective, I am not trying to really pin you down, but will this current second quarter still be difficult from an operating basis?

Will the third quarter starts have them back in the black?

And what sort of timetable where it will start contributing to the bottom line?

Yes, the back half of this fiscal year is when we see things align and turn it around.

Thank you.

There are no additional questions at this time.

I would like to turn the presentation back over to Mr. Randy Potts.

Thank you.

As you can tell, there is optimism in the air here at Winnebago Industries.

We are improving how we do business, becoming more agile, responsive and efficient.

We have launched new and innovative products and even more are on the way.

We also believe we are seeing positive signs in the marketplace.

Dealer inventory continues to be relatively low.

The inventory on the dealers' lots is fresh, and the RV market continues to recover.

I'd like to thank everybody for joining the Winnebago Industries conference call today, and I look forward to talking with you again on March 28 when we report our results for the second quarter of fiscal 2013.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.