Winnebago Industries Inc (WGO) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Winnebago Q4 2015 earnings conference call.

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

(Operator Instructions).

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Scott Folkers, Vice President of General Counsel and Secretary.

Sir, you may begin.

Thank you.

Good morning and welcome to Winnebago Industries' conference call to review the Company's results for the fourth quarter and fiscal 2015 periods which ended on August 29, 2015.

Conducting the call today is Sarah Nielsen, Vice President and Chief Financial Officer.

This call is being broadcast live on our website at investor.

WGO.net and a replay of the call will be available on our website at approximately 1 p.m.

central time today.

The news release with our fourth-quarter earnings results was posted on our website earlier this morning.

If you have questions about accessing any of this information, please call our Investor Relations department at 641-585-6160 following the call today.

Certain statements made in today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under the securities law and involve a number of risks and uncertainties.

As a result, the Company cautions you that forward-looking statements are inherently uncertain and a number of factors, many of which are beyond the Company's control, 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 Sarah Nielsen.

Sarah?

Thanks Scott and thank you all for joining our call today.

Before I cover the financial details of our 2015 fiscal fourth quarter, I want to provide an update on the CEO search that the board is conducting, as we just had our quarterly board meeting yesterday.

First, the firm that the board engaged early on to help with this process is Spencer Stuart, a global executive search and leadership consulting firm who is providing assistance to the board search committee.

Second, the board is still considering both internal and external candidates and has conducted multiple first and second interviews thus far.

Lastly, as it relates to timing, the board appreciates how important filling this role is, which is why they are conducting such a thorough process.

As noted in our press release, yesterday the board approved an 11% increase of our quarterly dividend to $0.10 per quarter.

Next, I'd like to share with you more background on two key initiatives that we carefully evaluated and decided upon during the fourth quarter of fiscal 2015 which we believe will help to reduce our labor constraints and renew our focus on our higher margin motorized business going forward.

First, we made the decision to exit the bus business, as announced earlier this week, and have sold the related inventory and tooling to our distributor partner at cost.

In light of the labor constraints that we've experienced this past year, we determined that our resources were better used to focus on the design and manufacturing of our motor homes.

Also, we have not achieved profitability within this operation since inception.

We recorded $1 million in operating losses in fiscal 2015.

Second, we made the decision to cease our aluminum extrusion operation.

Historically, this operation supplied extrusions, both internally for our motorized production and externally to outside customers.

The external portion accounted for approximately $25 million in annual revenues, but its margins were well below our core RV business.

The exit of this operation will take some time as we are under contract to outside customers through the first quarter of fiscal 2016.

In addition, we need to ensure that we have adequate supply of extrusions externally to fill our motorized requirements.

We anticipate that this transition process will be completed by the end of our second quarter.

As a result of these two initiatives, we hope to better utilize our labor capacity from the bus and extrusion operations for motor home production and to improve the Company's overall margin.

Combined, exiting these operations will add approximately 70 employees for motor home production.

In addition to these key decisions, we are evaluating our approach in other facets of the business, all with the aim of improving our ability to grow revenues, margins and profitability so that we can keep up with the retail demand of our product.

We are very encouraged by the continued robust consumer demand for both our motorized and towable products, as noted in our earnings release this morning.

This strong performance is a testimony to the consumers' appeal to our product line, many of the new innovative models that we've introduced throughout the past few years.

Moving back to the financials, fiscal 2015 fourth-quarter revenues were up just over 2%, mainly driven by strong performance within our towable group where revenues grew nearly 37%.

We are very excited with our performance and believe there is significant runway for additional growth given that our towable market share is just under 1%.

On the motorized side, fourth-quarter revenues were down nominally year-over-year with growth in the class B and C product categories being offset by lower class A revenues.

To note, we had an interesting dynamic within the motorized ASP comparison this quarter.

Our low overall ASPs decreased; inside every product class we saw an increase.

Overall ASP was down just under 1% to $91,301 from $91,924 due to higher sales of our class B and C product.

Specifically looking at our fourth quarter ASPs year-over-year, here are the key changes.

Class A gas ASP was $97,199, up nearly 4%.

Class A diesel ASP was $189,342, up 9.5%.

Class C ASP was $75,636, up nearly 8%.

And class B ASP was $71,523, up 0.5 percentage point.

On the towable side, travel trailer ASP was $23,501, up just over 23%, the result of the introduction of Spider, a toy hauler product.

Our fifth wheel ASP was $52,086, an increase of nearly 27% due to increased sales of the destination and the introduction of the Scorpion and other toy hauler products.

In aggregate, total ASP was $29,461, up over 26%.

Fourth-quarter motor home dealer inventory increased 2% compared to last year and stood at 4,072 units at the end of the quarter.

However, sequentially, motorized dealer inventory declined 9.5% compared to the end of the third quarter, which we believe reflects the seasonal pattern related to the selling season.

Throughout most of fiscal 2015, our dealer inventory levels and order trends reflect many dealers taking stock of our new products as well as dealers undergoing greater restocking of inventory.

At this point in the cycle, we believe we may be at equilibrium or we should receive one wholesale order for each unit retailed.

Year-over-year, dealer inventory of our class B and C motor homes increased significantly due to the strong retail demand of these products.

Our retail market share for class B and C products increased approximately 46% and 4% respectfully on a trailing 12-month basis through July.

Given the solid consumer appeal for these products, we anticipate they will continue to generate increased retail demand in fiscal 2016.

Moving to backlog, motorized bookings grew approximately 22% on a rolling 12-month basis compared to last year, which is in line with the retail registration growth that we've seen over the same period.

Fourth-quarter profitability was a bit lower than last year, a result of several factors.

Starting with gross margin, we saw sequential improvement in the fourth quarter over the third quarter, partially the result of improved manufacturing efficiencies within the motorized group.

However, we know we still have work to do in this area as motorized manufacturing inefficiencies impacted the fourth-quarter gross margin approximately 20 basis points year-over-year.

To this end, we have been making investments and training within our organization, refocusing our on-boarding programs for new employees as well as implementing safety oriented programs.

Also impacting the fourth-quarter gross margin comparison were unfavorable trends in warranty expense and the establishment of a warranty recall reserve, each of which impacts us approximately 40 basis points.

Gross margin was favorably impacted by the reinstatement of tariff rebates on certain imported materials by approximately 25 basis points, the realization of cost savings benefits related to our strategic sourcing initiative by approximate a 17 basis points, as well as lower commodity related expenses and greater absorption of fixed costs.

Compared to last year, fourth-quarter operating expenses increased $1.5 million due to incremental costs associated with our ERP implementation and strat sourcing project.

Additionally, we incurred cost of $1 million related to a separation agreement due to the retirement of our former CEO.

Partially offsetting these increases was lower executive compensation.

Both of our strategic initiatives are progressing well.

During the fourth quarter, as I mentioned earlier, we realized benefits from our strategic sourcing project.

We are optimistic this project will continue to identify future cost saving opportunities and believe it will benefit our gross margin up to 50 basis points in the back half of fiscal 2016.

During fiscal 2015, we invested $5.8 million into ERP, of which $2.2 million was incremental expense.

We are excited to announce the project met its first milestone as our finance department successfully transitions to the new system at the start of fiscal 2016.

Operating cash flow for the fourth quarter doubled to $26.6 million, which contributed to our strong balance sheet consisting of $70 million of cash and no debt at the end of August.

We are pleased with the generation of $45 million of operating cash flow for the year and with the state of our balance sheet.

Notably, this was accomplished during a period where we are making substantial investments for our future.

Capital expenditures for the full year of fiscal 2015 was $16.6 million, an increase of 58% over last year and in line with the guidance we provided a year ago.

We anticipate CapEx in fiscal 2016 to be $20 million to $30 million.

In addition to the normal $8 million to $10 million of maintenance spend for our current facilities, we will continue to invest in our ERP system and are also seriously evaluating incremental capacity expansion investments.

We hope to have more information on that front soon.

Fiscal 2016 is a year where we expect to continue investing and rebuilding for Winnebago's future.

We anticipate flat to modest motorized deliveries growth, which is in line with RBA's projections of 3% growth for the industry.

We've taken steps to improve motorized labor efficiency and expect to see modest improvements in fiscal 2016.

In towables, we anticipate building on our fiscal 2015 results with continued penetration of our new products and further expansion of our distribution base.

We believe we can again achieve growth in excess of overall towables market projections for fiscal 2016.

Also please keep in mind that the exit of the aluminum extrusion operation will further reduce revenues, as noted earlier.

Additionally, we are optimistic that profitability will improve in fiscal 2016 over fiscal 2015 through margin improvement, even on modest revenue growth.

Gross margins should be positively impacted due to our strategic sourcing project, continued planned improvement in our manufacturing efficiency, as well as the exit from the Boston aluminum extrusion operation.

We expect fiscal 2016 operating expense as a percentage of sales to increase slightly year-over-year, given the further investments we are making to support growth within the towables and greater spending related to our strategic initiative.

We are anticipating a fiscal 2016 tax rate in the range of 32% to 33% compared to 30.8% for fiscal 2015.

In conclusion, in fiscal 2015, we generated strong cash flow while maintaining profitability and a strong balance sheet during a year of investing for our long-term success.

We also saw a nice contribution from our towables group as it generated revenue growth of 23% while doubling operating income.

In fiscal 2016, we are taking additional measures to position Winnebago for growth and improve margins and profitability in the future.

With motorized industry delivery volume still well below peak, along with expanded population of our key demographic market and the positive trajectory of our towables operation, we believe we have a bright future.

With that, I would like to open up the line for questions.

(Operator Instructions).

Craig Kennison, Baird.

Thank you for taking my question.

The first question is on your distribution strategy.

Could you provide an update on your strategy to expand what you're doing with dealers, and give us an idea of how many dealer locations you have?

Certainly.

First, from a motorized standpoint, when we look at our distribution points at the end of the fiscal year, we are now at 2,626 motorized points of distribution.

That includes 202 physical locations.

From a towables standpoint, we now are looking at that in a very similar fashion.

And at the end of August, we had 774 towable product line points of distribution at 136 towable physical dealer locations.

And we share, between the two product categories, about 120 of these that are carrying both of our products.

So the opportunities from the standpoint of the continued expansion of distribution points is still underway.

For towables, it's probably a more significant story from a percentage growth going into 2016, both from the standpoint of representation of the product and also with new products that have been introduced and will continue to be introduced.

On the motorized side, in light of the fact that we are looking at a much larger base and we have made quite a bit of expansion of the points over time, there still is an objective when you look at our sales group to grow that to 3,000.

But that's a long-term multi-year strategy still in the works.

So the pace of growth is much more slower on that front as we sit today.

Thanks.

With respect to your comment that you would expect the replenishment rate of inventory to be close to 1 to 1, is that on essentially a per-dealer basis such that, if you actually expand the number of dealer distribution points, you could grow inventory faster than that?

Yes, yes, very much so.

And then with respect to the CEO transition, I'm sure you have limitations on what you can say.

But have you seen it have an impact at all on the dealer relationship?

Are they holding back in any way as they wait for better clarity?

We worked hard I would say in all areas of our business to be transparent and consistent in our commentary.

So from the standpoint of our dealers and our suppliers and our investors, here's where we are.

We are executing and operating very effectively on a day-to-day basis, and so it's business as usual.

And we are all very interested in having that resolved as well as we understand the outside world.

But that hasn't been a negative dynamic, I would say, with either some of our suppliers or dealers at this point.

Got it.

Thanks.

I'll get back in the queue.

Gerrick Johnson, BMO Capital.

Thank you.

Good morning.

Could you just expand upon the warranty expense in the quarter and specifically what's driving that higher?

As I touched upon in my opening remarks, there's really two components of that.

And so a piece of that is increased warranty spend, and so when we evaluate on that in consideration of our reserves, that had a pressure of nearly 40 basis points in the quarter.

The second component was a recall reserve, so that is one time in nature.

They come up over the period of time, but this was significant enough that we wanted to quantify it and talk about it.

As it relates to further details on that, we filed the recall with NHTSA, which is still in process, and so we don't have any further information to share on that until they finish the process.

But that's a little bit added color on the two pieces there.

Okay, great.

And then in terms of retail, can you talk about what you are seeing in the quarter retail?

Are you seeing any lift in the high end, perhaps class A diesel, fifth wheel, things like that?

We continue to have great success from the standpoint of the B and the C product, and so we highlighted where the most significant growth has been.

A lot of that has been a reflection too the new product offerings that we've brought to the marketplace over the past while.

But that is where we are seeing probably the biggest strength from a motorized standpoint.

For towables, we are also seeing some positives when we just look at the Winnebago brand specifically in regards to where we are seeing success.

We introduced a toy hauler product in the fifth wheel category here at our Dealer Days in April.

And we had introduced a toy hauler product last December.

And both of those we are pretty excited about what they will do from a retail standpoint going forward.

But when we just look at the first six months of the calendar year for travel trailers with the Winnebago branded product, we've seen our retail registrations move 43%, and on the fifth wheel side it's about 52%.

As I mentioned, it's a great opportunity for us overall.

We still in aggregate are a very, very small player.

But from a profitability standpoint, it was as a nice help for us inside the quarter as well as revenue growth.

Okay, great.

I had a few more, but I too will get back in queue.

Thank you.

Mike Swartz, SunTrust.

Good morning everyone.

Sarah, thanks for some of the color on your thoughts for fiscal year 2016.

But just kind of digging into that a little bit, just in terms of gross margin, you called out some of the things in the fourth quarter that were nonrecurring, kind of one-time, and then some of the things that I would at least assume will pressure you for the next couple of quarters.

And with getting out of some of these businesses, extrusion and all, there's a lot of moving parts.

But just kind of as you think about it holistically, should you be able to grow gross margin year-over-year in 2016?

When you go back to what we reported a year ago, the first quarter of 2015, we highlighted had our -- its own unique challenges.

Notably workers comp was a pretty big talking point for us a year ago, as well as some challenges with production and some of the component parts and supply of some of our source parts.

We reported a year ago at 10.9% margins, so I think there is opportunity that we continue the trend of what we've seen this past few quarters.

And we have grown our margin from Q2 to Q3 to Q4, and our objective is to continue on that path.

So, that's where we are focused.

Okay.

Then just the commentary on the flat to modest motorized deliveries growth for 2016, I believe that's the way you phrased it, and given some of the commentary around B and C obviously doing very well, you guys are taking a lot of share there, would that imply that your class A shipments would be down in 2016?

Well, we've been facing capacity constraints over a year now in regards to we have to decide what to build and where to use that capacity.

And we've made some intentional choices based on the demand and the margin profile of the product.

So inside of fiscal 2016, we still have that same parameter.

We are working in a lot of ways to free up labor capacity that can allow us incremental unit growth.

Or more probably fair is we are looking at our labor hours and how can we most effectively use the labor hours.

Because when we reviewed 2015 to 2014, we had fewer labor hours in light of just the constraints in the area.

So, for 2016, maybe I'll go back to units for a second because that's easier to follow.

We finished a year this past year where we produced in that 9,000, 9,100 unit range, and what can we do this next year?

We think we have an opportunity with the efforts we are making with Waverley and now the bus and CAPCO or the aluminum extrusion commentary that I already provided, that that can help in that regard.

But we also have to successfully retain our employees, which we have for the past few months, had a positive track record in that regard.

But that's a key too, because if we don't have all of those elements come together, we won't be able to produce the amount of units we are looking to.

But we do think we have an opportunity to grow on a modest basis in 2016.

And as I also shared, we are seriously looking at other ways to enhance our capacity, and that's why, from a CapEx standpoint, we are sharing some larger numbers.

And as soon as we have more information on that front, we will be sharing that as well.

Okay.

That's helpful.

Just following up on your last comments there, it seems like CapEx includes potential capacity expansion investments.

But does the flat to modest motorized delivery growth also assume that you have greater capacity or is that just with the capacity you have today?

That's just with the capacity we have today.

Okay.

Wonderful.

Thank you.

Seth Woolf, Northcoast Research.

Good morning guys.

Thanks for taking my question.

So I just wanted to touch on a couple of things you said.

First of all, you talked about you exiting the aluminum extrusion business and exiting the bus business.

I was just wondering, number one, what that does to working capital?

And then number two, I think you said 75 jobs are freed to focus on the assembly of motor homes.

Can you just talk about the production that that is going to provide?

Sure.

First, on a working capital standpoint, it's really a nominal impact.

There was a small amount of inventory that we've filled now related to bus.

That was very small in the grand scheme.

And from the standpoint of the extrusion, we are going to have to source the products that we are making for ourselves.

And so that is a different flow-through of inventory that we don't really look at to be materially different.

As I mentioned, we anticipate there's maybe 70 resources that we can move collectively between those two over to motor home production.

And a way to think about that from a capacity perspective is this is always mix-dependent.

But simplistically, if we look at every individual is the equivalent of five units, that gives you a mechanism maybe to calculate what that incremental potential could be for production.

And I highlighted that we anticipate exiting the aluminum extrusion side in our second fiscal quarter.

So that's a transition over time, so we don't have those people available on day one.

But that is how we are evaluating and looking at it from kind of a big picture standpoint as to what it can accomplish for us for capacity.

Okay.

That's very helpful.

And then just speaking about your commentary on additional capacity, so is it safe to think that, if you open up a new facility for production, that we could see additional non-core job elements removed, such as this?

And if so, is there any color or clarity you can provide on that?

If you're looking at the vertical integration, if that's kind of the piece of your question there, we are going to continue to evaluate where those opportunities lie for us.

From the standpoint of expansion, we are really needing location and people to grow from a production perspective.

And so it's evaluating where does that make sense for us.

Now, that also I guess does connect from a vertical standpoint.

If it's close or far away, does it make sense to continue to do all the things we do?

Or if it's very targeted to a certain product category, it may be more outsourcing just related to that product itself.

Does that answer your question?

Yes.

That's kind of where I was headed with that is I'm just trying to determine if you're going to start using more outside vendors, wouldn't it make sense to just leverage your size across the organization.

I think you answered that.

So I'll jump in the queue.

Thank you.

Kathryn Thompson, Thompson Research.

This is Wenjun sitting in for Kathryn.

Could you give more color on what drove improved class A gas backlogs this quarter, if any?

You're looking at the growth in the backlog as we reported in our press release on class A gas?

Yes, class A.

I guess, from the backlog standpoint, that's an order position at a point in time which really can move around at any point in time.

And it's influenced in regards to how well the product is flowing and the dealers' inventory stocking position.

And so it was an 18% growth on our class A gas year-over-year.

It 62 units.

It's hard to say specifically any one reason that was the catalyst for that.

We had movement in all categories, not in a huge range per se.

So I wouldn't have anything I guess specific to comment on on that one category of movement.

Okay.

Great.

What are the mid to long-term implications of product recalls?

Have you had a similar product recall in the past?

And how did the Company and the consumers respond to past recalls?

That's a part of, I guess, the manufacturing process.

Sometimes recalls happen with the supply -- the components that we are putting into the product, or sometimes we are the catalyst for the recall.

And we diligently follow the process to take care of our consumer and we work hard to improve, and lesson learned from what was the root cause so we don't repeat that.

It's pretty typical in the industry, so it's not a unique or different process that we are following here.

It's just an item that we wanted to share from an impact of the margin so everyone understands what happened this quarter as compared to last quarter.

Great.

And lastly, can you comment on the costs related to ERP implementation this quarter?

What are the costs more precisely?

Sure.

As I mentioned in my prepared remarks, we -- inside our quarter -- let me maybe start with total investment for ERP was a little over $3 million inside the quarter.

And we capitalized almost $1.9 million.

And from the standpoint of incremental expense that we incurred specifically to ERP, we had about $1.5 million -- excuse me, $1.1 million -- of expensed amounts for that.

It's definitely been an elevated level if you look at Quarter 2 to Quarter 3 to Quarter 4 as our efforts become more significant and more and more of the Company is being impacted in part of the process, the spend is increasing.

And we've shared in the past it's a multi-year project and we are looking at the total cost will be in that $12 million $16 million range.

So the fourth quarter was our largest spend yet to date just in light of the pace of the project really picking up.

Okay, great.

Thank you so much.

Morris Ajzenman, Griffin Securities.

Good morning.

Just to follow up a previous question, we talked about -- and we know the past years you've been facing capacity constraints and you had to make choices and you basically said you had to kind of choose which products to produce.

Let's take that back to class A gas and class A diesel.

Clearly, we've had some very difficult years there in deliveries.

How much of that disappointment is due to cal it market share loss and having the right products, and how much is due to making a decision to reduce class B and class C if that's what happened over class A gas and diesel?

It would be -- I guess it's conjecture on my part to break apart the two reasons.

It is I think fair to say that it's both.

We've made a conscious effort to produce more of the B and the C product this past year, and that took production away from producing class A gas and diesel.

These units are much more labor-intensive as well, and so for every -- it has a compounding effect in regards to how that impacts the production schedule.

We have great opportunity to move the needle in class A gas and class A diesel on a prospective basis.

And that's -- also looking at where can we most effectively produce these products has been a significant topic of conversation as we plan for our future.

But it's hard to say the split between the two reasons, but it is very much a function of both.

And looking to this current fiscal year, you will be having some employees you're shifting over, i.e.

from aluminum extrusion, and trying to get better throughput.

Will that help class A gas and class A diesel for this coming year from that perspective?

It potentially could.

We are going to have to monitor quarter-by-quarter what makes the most sense from a production plan.

When we plan in an aggregate for the year, we are looking a lot at the labor resources we have to allocate, and assuming a certain mix.

But it's a market where we want to be very reactive to what the dealers want and what the consumers want.

So we want to be able to change as needed.

So it potentially could, but it's hard to predict how all of that will play out as we sit today for the whole fiscal year 2016.

And again, class A gas and class A diesel, are you more confident looking to this year versus last year as far as the trends?

Again, I guess I would look at that.

We have great opportunity.

We're going to be bringing product at the key events coming up in this calendar year yet and showing new offerings.

So we are not stopping on the product innovation and development side.

Last question and I'll get back in queue.

Any numbers, any help you can give us on your rental business with Apollo, how it played out this quarter versus last year?

In the fourth quarter, we did have the last delivery of Apollo occur, which is a little bit different than the previous year because all that business had been finalized by the end of the third quarter.

So we delivered 175 units to Apollo inside this fourth quarter.

It's I think been a great partnership between us and them and they've had a successful rental season, and so we are excited about long-term opportunities working with this rental partner.

Thank you.

David Whiston, Morningstar.

Thanks.

Good morning.

In your answer to I think Morris's first question, you mentioned the B and C units are much more labor intensive.

Could you talk about why that is?

No.

I apologize if that's what it sounded like.

My point was that it was, on the class A in both gas and diesel, a much more labor intensive product.

So from the standpoint of allocating resources and determining what we're going to do, it just is part of the planning process.

Bs and Cs are less labor involved than the class A product.

Okay.

Sorry, maybe I misheard.

It sounds like both more space and more people is a constraint right now.

Is one drastically bigger than the other though?

Can you repeat that?

Both people and what?

More space in terms of capacity constraint you keep talking about?

I'm just trying to gauge do you need more space or do you need more people or both, or is one really more prevalent than the other?

It's not a space issue.

We can run the lines that we have today faster.

It is primarily a people issue.

I would say some product can be challenging for us depending on the size of the product with our current facility, but we have the opportunity to produce more units in our existing factories for most of the product.

The really, really big class A diesels are probably the biggest challenge we have space-wise, but not for gas Cs and Bs.

Okay.

Just shifting over to the bus business, a few years ago, you guys were really excited about the potential there, and it obviously hasn't worked out.

Was it that demand didn't materialize or were you just really bogged down with the labor issue?

I think it was a multitude of factors.

From the standpoint of labor, you hit a good point there.

Trying to split efforts and priorities, attention, etc., with that product and our growing product on the motorized side, because in the same time frame we've really doubled the amount of deliveries that we've produced out of this factory.

So that was a piece of it.

But we think that it's in our best interest to just focus on the motorized side, and it's important to know and kind of move on, and that's what we've done.

Okay, thanks very much.

Matthew Paige, Gabelli and Company.

Good morning.

Thanks for taking my call.

I guess my first question, just to take it back towards the class A for a second, is how are you thinking about the class A market?

Where do you see the market going given your diesel backlog was down pretty sharply in the quarter?

From a class A standpoint, it remains strong and it's continuing to move towards a lower price point from a retail standpoint.

It's a great opportunity we want to better capitalize going forward.

As mentioned, some of our long-term thought process for planning looks at the way we manufacture class A diesel and how it fits in this factory.

So that's something we are working on and will be addressing.

Also, it's focusing on all of the product.

Right now, we've made a conscious effort for production allocation on Bs and Cs, so addressing our capacity constraints is a piece of it.

But we are still going to be sharing new floor plans and new product on a prospective basis in each category, and that's the key for growth is we have to have the right product.

Great.

I guess my other question is what is your philosophy when you're looking for your CEO?

Are you looking for someone who's going to fit into your plan for the Company as it stands now, or would your ideal candidate be somewhat more independently minded and come in and have their own thoughts?

I think, from a board standpoint, they are most focused on looking for a candidate that has both strategic and operational acumen.

They want somebody who has growth-oriented leadership skills and M&A experience.

So that's the quality that they have highlighted, and which they are looking for.

And as I mentioned, they are both looking at internal and external candidates.

So, they are considering is it a good internal candidate that already knows and fits within the culture, or is it somebody from the outside.

So I think they are open to either.

Great.

Thanks for the time and I'll pass it on.

Gerrick Johnson, BMO Capital.

One more question on the buses.

I think you mentioned it was operating at a -- was it a $1 million loss?

Did you comment on the revenue that the bus business is doing?

No, I did not mention that.

That's part of why we haven't seen profitability in that operation is that we just haven't had a strong amount of revenues this year or in the past few years.

So it's not a material amount of revenue.

Okay, that's all I had.

Thank you.

(Operator Instructions).

Seth Woolf, Northcoast research.

I just had a big picture question on the towables business.

You talked a lot about motorized.

You gave a lot of clarity and talked about kind of what you're seeing, especially with the dealers.

I was wondering if you could comment on if you still see the same dynamic in the towables business being -- sell-in and sell-out equaling each other.

And then secondarily, I know you said you expect to outpace the growth of the towables market with your business, but I was curious if you could provide any additional color given that, with the dealer ramp and all of the new products, it seems like that should be a given.

Thank you.

From a towables standpoint, I guess maybe, first, to address dealer inventory we think there is an opportunity there that's different than the motorized side just because of our very small piece of the market at this juncture.

So as we expand distribution points and physical locations, there's an opportunity to grow our dealer inventory.

And it has to obviously be turning at the right pace.

But so there is an opportunity on that front.

From the standpoint of our opportunity in 2016 overall, as I mentioned on prepared remarks, we think we can continue the path that we saw play out in 2015.

We had 23% revenue growth in 2015, and we are hoping to see a similar level of growth or more in 2016 because of the expanded distribution and new product offerings, both creating that growth for that piece of the business.

So, pretty excited about what that opportunity is for us in this next year.

Okay.

Thank you and good luck.

I am showing no further questions in queue.

I would like to turn the conference over to Miss Sarah Nielsen.

Thank you.

Thank you all for the great questions and your continued interest in Winnebago Industries.

We would like to extend the same gratitude to everyone listening in this morning.

We look forward to reviewing our fiscal 2016 first-quarter results with you on Thursday, December 17, at 9 a.m.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program.

You may all disconnect.

Everyone have a great day.