Winnebago Industries Inc (WGO) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2019 Winnebago Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Steve Stuber, Director, Financial Planning, Analysis and Investor Relations.

Please go ahead, sir.

Thank you, and good morning, everyone.

Thank you for joining us today to discuss our second quarter earnings results.

I'm joined on the call today by Michael Happe, President and Chief Executive Officer; and Bryan Hughes, Vice President and Chief Financial Officer.

This call is being broadcast live on our website at investor.wgo.net, and the replay of the call will be available on our website later today.

The news release with our second quarter results was issued and posted to our website earlier this morning.

Before we start, I'd like to remind you that certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws.

The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain in 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 SEC filings, which I encourage you to read.

With that, I would now like to turn the call over to our President and CEO, Michael Happe.

Mike?

Thank you, Steve, and thank you all for joining us this morning.

We appreciate your time and, as always, your interest in Winnebago Industries.

We would like to begin today's call in a place where we usually end it, and that is by thanking the more than 4,500 team members of Winnebago Industries who work extremely hard every day to create lifetime advocacy for our end customers.

They accomplish this through the delivery of high-quality, innovative, differentiated products and by working in collaboration with our hundreds of RV and marine channel partners to provide superior customer service and aftermarket support.

Bryan, Steve, and I have the privilege of being the messengers on calls like these as we describe the team's tremendous progress on our journey to be truly a leader in outdoor lifestyle solutions around the globe.

It is our people that make all the difference as we grow.

And to those channel partners just mentioned, thank you for your support of our Winnebago, Grand Design and Chris-Craft brands.

In many ways, you are the foot soldiers for our brands daily in the market, and it is your commitment to our mutual end customers that ensures an extraordinary experience as they travel, live, work and play in the outdoors.

Thank you to our employees and to our dealer partners.

Now this morning, we would like to begin the call with an overview of our second quarter results and our perspective on the balance of fiscal year 2019.

I will then turn the call over to Bryan Hughes, our Chief Financial Officer, who will provide more detail on the related second quarter financial results.

Then I will return to offer some closing comments before concluding the call with Q&A.

Overall, we are pleased with the strong start in the first 6 months of fiscal 2019.

Wholesale market conditions, especially in our RV segments, are even tougher than we had originally planned, but we are gaining material consolidated retail and shipment market share as a company.

As we move into the second half of the year, we will look to build on the momentum we created through all of our business segments.

We are committed to driving higher levels of profitability and asset utilization, delivering sales results that continue to outpace the industries we serve and pursuing new growth opportunities that position Winnebago Industries and its brands for future success.

We are both simultaneously investing in the ability to grow, whether it is talent, expertise or through business development work, and creating a more efficient organization operationally.

We remain committed to meaningful, consistent market and financial progress in the short term, but we are truly focused on creating a long-term business model with a high-performance engine for profitable growth in the years ahead.

And as a more diversified company focused on quality, innovation and service, we will continue to make solid progress towards our goal of transforming Winnebago Industries into a premier outdoor lifestyle company.

While the North American RV industry is experiencing some challenging wholesale headwinds, the unique strength of our 2 RV brands, Winnebago and Grand Design, and their positions in the market has allowed us to dramatically outpace the industry.

And we are seeing small but strategically important benefits from our new marine play in Chris-Craft.

Consolidated second quarter net revenues were down 7.6% for the quarter driven by dealer inventory rationalization in the RV space and comparing against strong shipments in the prior year.

What I am most pleased with is our growing RV retail market share.

SSI retail in the standalone month of January 2019 showed our company with a market share position of 10% in RVs.

This is significant progress, in fact 3x greater from a position of under 3% just 3 years ago.

Although we saw a decrease in our organic revenue growth, we made further progress increasing our gross profitability.

Consolidated gross profit margin increased 100 basis points in the quarter driven by revenue mix, operational improvements within our Motorized segment and the continued success of our cost mitigation efforts to more than offset rising input costs and heightened dealer incentives due to market conditions.

Thanks to our discipline in managing our portfolio by controlling production pace and overall output and our team's efforts to safely navigate the challenging weather during the second quarter from which we lost many production and shipment days across our various businesses, year-to-date operating cash flow increased over 200% versus last year.

Now turning to the segments in more detail.

In our Towables segment, unit shipments for the quarter were down 10.4%.

While the decline is certainly a reflection of broader industry dealer destocking and a strong comparable period a year ago, this result far exceeded the broader towable market, which has been declining nearly 2 to 3x that amount during the comparable period, and demonstrates our success in continuing to gain dealer lot share.

Our brands, though, have not been immune -- have certainly not been immune to the inventory corrective behavior.

For the quarter, Towables revenues decreased 5.9% from the fiscal 2018 period driven by the unit shipment declines mentioned previously but partially offset by pricing taken during the second half of fiscal 2018, and again, in the early part of calendar year 2019.

Adjusted EBITDA margins decreased by 20 basis points, largely reflecting a competitive pricing environment and increased cost input pressures.

Towable backlog for the quarter declined 5.7% in dollars over the prior year, reflecting the positive impact of utilizing additional capacity added during calendar 2018 and dealers continuing to rightsize their inventory levels.

Our dual-branded towable RV lineup continues to outperform the market due to the strength of our products and their increasing appeal with customers.

New towable products were once again on full display at the recent RVX show in March in Salt Lake City, including the new Grand Design Transcend XPlor and new floor plans for the Winnebago-branded SPYDER toy hauler and Micro Minnie Fifth Wheel.

Given our strong showing at the RVX event and positive dealer feedback, we continue to expect our retail prospects to remain strong and for Towable segment sales to outpace the industry.

Turning to the Motorized segment.

We remain focused on revitalizing our Motorized business and are taking steps to improve our ability to supply dealers and our end customers with a stronger lineup of high-quality innovative products.

Revenues for the segment were down 17.3% versus the prior year, and adjusted EBITDA margins were down 30 basis points.

The current industry environment has certainly weighed on our ability to grow the top line, but we continue to focus on managing costs, product mix, implementing operational improvements to improve overall manufacturing efficiency and offsetting higher input costs, all of which have led to stabilizing margins and even an increase on the gross profitability line.

What I am most pleased with regarding our recent Motorhome performance is that standalone retail results for Winnebago-branded Motorhomes in both December and January were positive on a year-over-year basis.

This is a sign of good progress.

As you've heard me say before, energizing our Motorized business remains a top priority for us as we have dedicated a considerable amount of energy and resources to this effort.

This includes our recent, difficult decision to shift our Winnebago branded Class A diesel motorhome manufacturing from our Junction City, Oregon plant to our manufacturing campus in Ford City, Iowa.

This strategic transition consolidates and centralizes product development, supply chain and assembly operations for the company's diesel and Motorhome business back to a single location, improving our overall efficiency in the future.

We have ample space, access to labor and full intent to begin a market share recovery and profitability as set in this business.

In terms of our Motorized backlog, we did see a 38.6% decline from the prior year, which reflects dealers continuing to rightsize inventory levels and prior year Class B new product backlog timing.

The RVX event in Salt Lake City also unveiled several new motorhome models for Winnebago not currently included in the second quarter backlog numbers.

The new Class B Boldt, the select edition National Park Foundation Class B Travato and the refresh Class C View and Navion series were just several of many positive product upgrades that dealers had the opportunity to review several weeks ago.

Turning to our Other segment, we saw another full quarter of Chris-Craft boat sales in our earnings results.

We continue to see strong traffic and demand for our marine products as demonstrated by the turnout we saw at the Miami boat show in mid-February which exceeded our expectations.

Consumers are showing tremendous interest in the Chris-Craft brand and its recent new products, specifically the 28 and 35 GT Launch and the Catalina 27 pilothouse, and it is translating into positive sales and shipment trends for that brand.

Lastly, our Specialty Vehicles segment is being overhauled strategically to grow profitably as well in the future.

We have shared our intentions in prior calls to focus on several segments: Accessibility Enhanced, electric vehicles and mobile specialty medical.

We are investing in new talent, new capacity and new technology.

Our all-electric commercial vehicle platform recently received a top award at the RVX trade show in the sustainability category.

With that overview, I will now turn the call over to Bryan Hughes to review our fiscal 2019 second quarter financials in more detail.

Bryan?

Thanks, Mike, and good morning, everyone.

Second quarter consolidated revenues were $432.7 million, a decrease of 7.6% compared to $468.4 million for the fiscal 2018 period, driven by a decrease in RV unit sales and partially offset by the addition of Chris-Craft and pricing actions taken during the last 12 months across all of the RV business units.

Gross profit was $66.4 million, a decrease of 1.8% compared to $67.7 million for the fiscal 2018 period.

Gross profit margin increased 100 basis points in the quarter, driven by favorable revenue mix, pricing and Motorized operational improvements, which more than offset inflationary cost pressures and heightened dealer incentives.

Second quarter operating income was $28.9 million, a decrease of 18% compared to $35.3 million in the second quarter of last year, driven primarily by the decline in RV unit sales.

Growth in SG&A during the quarter, partially driven by ongoing and onetime investments we are making in the business, also contributed to the decline at operating income.

Some of the onetime investments referred to is a continuation of the strategic project that was discussed as a driver of the SG&A increase in our first quarter.

This, combined with the Chris-Craft acquisition and associated amortization, contributed 12 percentage points of the 16% increase in SG&A in the quarter.

Net income of $21.6 million, a decrease of 2.2% compared to last year, was favorably impacted by discrete tax items totaling $2.5 million or $0.08 earnings per share.

Earnings per diluted share were $0.68, a decrease of 1.4% versus the same period last year.

We have provided non-GAAP EBITDA and adjusted EBITDA performance measures in our press release as a comparable measure to clearly illustrate our performance.

The schedules accompanying the press release show a reconciliation between net income and adjusted EBITDA.

Consolidated adjusted EBITDA was $34.5 million for the quarter compared to $39.4 million last year or a decrease of 12.4%.

Now turning to the individual segments and starting with the Towable segment.

Revenues for the second quarter were $250.7 million, down 5.9% year-over-year.

This decrease was primarily driven by continued dealer network efforts to reduce inventory levels.

We are also comparing against extremely strong shipments in the second quarter of last year.

Segment-adjusted EBITDA for the second quarter was $33.6 million, down 7.3% from the prior year.

And adjusted EBITDA margins decreased 20 basis points, reflecting enhanced price advances over the past year that did not fully offset inflationary input cost, most notably materials.

Turning now to Motorized segment.

Motorized revenues were $164.7 million for the quarter, down 17.3% versus last year, driven by a decrease in Class A and Class C unit sales, partially offset by strong shipments of our Class B products.

Pricing also impacted sales, but some of the benefit of the pricing actions we have taken over the past 12 months were offset by higher dealer incentives in the quarter.

Segment adjusted EBITDA was $4.4 million for the second quarter, down 23.4% year-over-year.

Adjusted EBITDA margin decreased 30 basis points driven primarily by the decline in sales and further impacted by investments in SG&A, partially offset by favorable product mix related to the strength of Class B relative to Class A and Class C.

Turning to our balance sheet.

As of the end of the second quarter, the company had outstanding debt of $276.9 million, net of debt issuance costs of $6.4 million.

Working capital was $175.3 million.

Our current net debt-to-adjusted EBITDA ratio was 1.6x, just above our targeted leverage ratio range of 0.9 to 1.5x.

Cash flow from operations was $51.9 million year-to-date, up $36.9 million or approximately 250% from the same period last year.

As we continued to execute our transformation initiatives, we are confident that the combined strength of our balance sheet and cash flow provides us flexibility to strategically invest in the business, and investing in the growth of our business remains our top capital allocation priority.

The effective income tax rate for the second quarter was 12.8% compared to 27.2% for the same period in fiscal 2018.

The favorable rate in the quarter versus last year was driven partially by the Tax Cuts and Jobs Act, which drove a reduction in the federal corporate tax rate to 21%, recall last year we used the blended rate, and also by identifying favorable discrete R&D-related tax credits.

This was made possible by our decision to invest in new talent in our tax function.

And in doing so, we identified that we had an additional opportunity to capture further credits as endorsed by the tax code associated with our extensive R&D activities.

Total discrete tax items contributed $0.08 to our earnings per share for the quarter.

Including the 12.8% tax rate for our fiscal second quarter, we now anticipate our full fiscal year tax rate will approximate 22%.

We currently anticipate under the current tax code that our ongoing rate for our fiscal year 2020 and beyond will be approximately 23% to 24%.

Finally, our Board of Directors approved a quarterly cash dividend of $0.11 per share payable on April 17, 2019, to common stockholders of record at the close of business on April 3, 2019.

That concludes my review of our quarterly financials.

And with that, I will now turn the call back to Mike to provide some closing comments.

Mike?

Thanks, Bryan.

As you've heard us mention this morning, we are pleased with the progress we've made in our fiscal year 2019, but we also recognize that there remains significant potential within our business for the future.

Each quarterly report is not the final grade but a quiz on the way to hopefully a successful attainment of an advanced degree.

At Winnebago industries, we remain steadfast in the pursuit of our vision around becoming a trusted outdoor lifestyle

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our internal transformation efforts around talent, process, portfolio and capital allocation have not only advanced our competitive position in the industry, but they have also made our company more resilient, hopefully more consistent and able to better navigate the headwinds affecting the RV industry without surprising or dire consequences.

It is always 2 steps forward and 1 step back during these early stages, and we aspire to much more in the future.

This resiliency is due, in large part, to our new enterprise platform approach, which is more diversified than ever before with active, full-line RV, luxury marine and specialty vehicle operations.

Just 3 short years ago, we were largely a one-division organization with Motorhomes representing 93% of our overall sales.

We are confident that over the next 5 to 10 years, there will be significant opportunities for organic share expansion and inorganic investment in each of those global markets.

And as we said last quarter, we continue to search for premium companies with strong brands, great talent, value channel partnerships that deliver on the product and service promises they make to further leverage our strengths and expand our business.

Next, I'd like to share with you my thoughts on some of the market challenges facing both the RV industry and its retail prospects for the remainder of 2019.

Although a sentiment in the broader RV market has maintained its bearish trajectory, we remain optimistic about the long-term retail prospects for the RV industry.

Secular demand for camping, being outdoors and generally collecting experiences versus possessions is continuing to grow across multiple lifestyle and demographic segments.

The versatility and breadth of what is called a recreational vehicle continues to expand and brings more and more interest to the space.

In the short term, there remains a good deal of macroeconomic noise as it relates to the RV industry.

Recent industry reports clearly show a decline in RV shipments in the first part of 2019 due to dealer inventory rationalization, following unusually high seasonal orders in the previous year and retail that has slowed from years of double-digit compound growth.

Retail has likely been impacted by a variety of pressures: higher product prices as a result of increased tariff and material costs, higher interest rates due to increased fed fund costs from increases in the back half of calendar year 2018, volatility in the equities market, uncertainty about 2018 tax returns for the middle class and a general sense of anxiety by end customers as they try to determine where the economy is truly headed in the next year.

As dealers are seeking to balance purchases with demand, they are selling through existing inventories and carefully managing the quantity of new orders for new product.

They also recognize that most RV OEMs can now currently respond to new orders in a more timely manner.

These developments impacted our overall sales during the second quarter, but it also served to validate the uniquely strong position our brands have in the market, which provides us some insulation from macro headwinds and definite opportunity for the future.

We believe that we are poised to capture incremental growth as we enter the 2019 retail season.

Despite the inventory-related headwinds challenging the industry, there are several tailwinds serving as positive indicators regarding future sales and growth opportunities.

Consumer confidence has remained relatively stable, and we are continuing to see our customers choose to invest their valuable discretionary resources on creating lasting outdoor experiences with family and friends.

Reasonable fuel and oil prices continue to be a strong positive for our businesses.

Lastly, customers' access to capital and financing remains strong as financing companies have, for the most part, avoided abnormally constraining credit availability.

The recent data from retail shows and certain sales data over the last several weeks has also been positive.

We're seeing retail show traffic and sales come in ahead of expectations as both were expected to be down during the first part of the year.

This further demonstrates our resiliency and our ability to gain share and outperform our peers in a moderated market.

We are cognizant of the RV industry's wholesale shipment forecast for calendar year 2019 and support the association's forecast.

We also continue to believe that flat retail for the whole of calendar year 2019 is a good aspirational target for the industry as we said during our last call.

However, we believe retail will more likely be down low to mid-single digits for the calendar year.

Over the last 12 months, Winnebago Industries consolidated RV retail growth, our brand has consistently outperformed the industry by 15 to 20 basis points, and we are confident in our ability to retain a double-digit spread as we compete forward this calendar year.

One comment on the marine industry as we continue to learn quickly about this market through the tremendous team at Chris-Craft.

The marine industry has been on a much steadier recovery trajectory for the last 8 to 9 years since the financial crisis.

Certain categories have incurred momentum versus others.

Chris-Craft is fortunate right now to be growing for multiple reasons: channel commitment and expansion, product line expansion and competitive shifts.

We are confident that Chris-Craft will continue to meet and/or exceed our M&A model projections for their first full year and for the foreseeable future.

The integration continues to go well, and best practices and chemistry due to the Chris-Craft addition to our portfolio are building across the company.

We remain interested in the marine space as an opportunity to grow selectively and profitably.

As we look ahead to the second half of fiscal 2019, we are poised to maintain our track record of outpacing both the RV and the marine industry as it relates to top line sales, profitability and share expansion.

We will continue to execute against our strategic priorities and work to be a high-quality, well-managed company that investors can place their trust in.

Finally, I'll close with a comment regarding the recent Board of Director announcement.

Over the past several years, we have made changes to our business model, leadership and strategies.

During this transformational period, Bob Chiusano has played a key role as Chair of the Winnebago Industries Board of Directors by leading with passion, courage and sharing his significant operating expertise.

On behalf of all Winnebago Industries employees, I'd like to personally thank Bob for his service as Chair and for his ongoing service as a board member.

he and the board, many of which are also new to Winnebago Industries in the last 3.5 years, have been both diligent but also supportive of the strategic journey that management has recommended.

Bob was especially instrumental in the CEO leadership change process which occurred in the fall of 2015, and he will continue to be a valued director within our organization.

At the same time, we look forward to having David Miles step up as our new Chair.

The board has valued Dave's financial expertise, strategic insight and overall governance instincts over the past several years, and now we're pleased to have him serve in his new role in the exciting years to come.

I look forward to working personally with Dave to collectively drive this company to greater heights.

With that, we will wrap up our formal comments for this morning.

Thanks very much for your time today, and I will now turn the line back over to the operator for the Q&A session.

(Operator Instructions) Our first question comes from the line of Craig Kennison with Robert W. Baird.

The first one had to do with the Class B market.

As you know, there has been some disruption in that Class B market that frankly may create an opportunity for Winnebago.

How would you frame that opportunity?

And what are you doing to get after it?

Yes.

This is Mike, and I'll answer that question.

We are certainly aware of some of the developments specific to the Roadtrek business in Canada.

We are fortunate that Winnebago Industries and our Motorhome business have a significant share position currently in Class Bs.

Depending on the share reports on a monthly basis, you look at it somewhere in the neighborhood of 40%.

Roadtrek, I believe, has been consistently #2 in those same share reports.

So certainly, the disruption to their business, at least in the short term and the unknown long-term future of their business, certainly has many end customers and dealers asking questions in our industry.

And we believe our brand, Winnebago, and our current line of Class B products and some new products that we have in our pipeline are well positioned to compete for any shifts in share organically that could happen in the future as well.

So our motorhome team is very intentionally focused on that part of our business.

They're engaged with our dealers about the opportunities for potential market share increases there, and we will continue to be very focused on trying to serve the market with what we believe is the best line in the business, that being the Winnebago Class B line.

And second question has to do with the 2020 plan that you outlined, I think, in November of 2017.

Based on your market share trend recently, it appears you've achieved one of those goals.

How do you feel about your plans to also achieve 10% operating margin and 10% of revenue from outside key RV segments?

Yes.

Thanks, Craig.

As many of you probably recall in November of 2017 at our Investor Day in New York City, we did share 4 goals.

Craig, as you mentioned, one of the goals was hoping to attain 10% North American RV market share by the end of 2020.

We seem to be on good track to doing that.

And as my comments alluded, we've even seen Winnebago Industries achieve that mark on a standalone monthly basis here just recently, so we hope to maintain that position and candidly exceed that in the future.

The operating income goal is definitely a little bit tougher than we had anticipated in November of 2017.

If you remember, that was before most of the -- or many of the tariffs were formally put in place and some of the other material cost inflation had begun to impact our business.

And so I would say the 10% operating income goal is still one we will strive to achieve.

We hope to make good progress on that in the back half of our calendar year, fiscal year 2019, but that is definitely a tougher goal.

So I would call that more of a stretch goal for the end of our fiscal 2020, but I can assure you it's one that we're still talking about on a daily basis.

The 10% new business goal had to do with achieving 10% of our net sales by the end of F 2020 on either new businesses that we were not in at the end of our fiscal '17 year or new product categories within our organic businesses that we were not in.

And that we've made good progress against that goal with the acquisition of Chris-Craft but also the introduction of some new products in the new RV categories, such as the stick and tin business and Grand Design's entry into that.

So we're not at this point going to share any thoughts on specifics around further inorganic business development opportunities, but we have, I guess, 18 months here to try to achieve that goal as well.

So stay tuned.

We appreciate you reminding us of those, and we will do everything we can to make a very good progress, if not, attain both of those going forward.

Our next question comes from the line of Scott Stember with CL King.

Mike, in the press release, you guys talked about, I guess, in your third quarter, you would expect the industry would be, I guess in more of a state of equilibrium when weighing retail and wholesale.

But maybe just -- if you could just give us a little bit more granular expectations there on a monthly basis, when you would expect that to actually hit a bottom.

And that would be my first question.

Yes.

I think the words we used in the press release were approaching an equilibrium in our quarter 3. We've been, I guess, over the last 6 months relatively consistent that we had been hopeful that the shipment in retail levels would achieve some sort of new normal and equilibrium in the late spring, early summer of 2019.

I think specifically we have talked about April, May.

Candidly, it's really anybody's guess.

I know different public companies in our sector have offered their own thoughts on this, but we're still hopeful that, especially for our business but increasingly so for the industry, that you'll start to see that equilibrium happen again in late in our Q3.

Could it spill over into June of -- into our early Q4?

It probably could as well.

I am personally pleased with the way spring is starting to break weather-wise in certain parts of the country.

We have seen some seasonally good retail in some of the warmer weather states, and we're waiting for that retail season to truly kick off in the northern part of the country.

And I think that last comment there will be probably the factor that will drive some of this timing a bit more when the dealers north of, let's say, the Mason-Dixon Line start to experience some hopefully good retail here.

So again, we're sticking to late spring, early summer, and we hope that's the case.

If that's not the case, our business is still well positioned to take retail market share at a minimum and hopefully outperform the industry.

That's great.

And as far as discounting goes, I know you guys talked about that in the release as one of the reasons for -- or one of the headwinds you had to go up against in the quarter from a gross margin perspective.

But I know that you've talked about Grand Design -- has been steadfast about discounting or not discounting.

I just wanted to make sure that we're still talking about that factor and that you guys are still holding your ground as we go into the selling season.

Yes.

We are very pleased with the performance of our Grand Design business.

They continue to do very positive things.

And as we've stated since we've owned them, that we remain committed to the business model that made them successful in their early years and attractive as an acquisition target to us more than 2 years ago.

And we are pleased to report today that, that business model is still in its entirety in place as they operate, and that includes the discipline of not discounting on a quarterly basis as some other companies in the industry do and in fact some of our own Winnebago-branded products still have to do.

So the strength of the Grand Design product line and their relationships with the dealers allow them to run a good, clean, pure business there.

And we are working very intently to move our Winnebago-branded Motorhome and Winnebago branded Towable businesses there in the future as well.

And that will take some time, but we should be able to do that over time as our product lines get stronger there and as our positions on those dealer lots improve as well.

Got it.

And just one last question on the Motorized profitability side.

With the closing of the Oregon facility, I know there's going to be some transitory costs in the next quarter.

Could you just remind us of, I guess, what we should be modeling and also what some of the low-hanging fruit will be a couple of quarters out once some of those cost savings come in?

Yes.

This is Bryan.

I'll take that one.

So in Q3, the costs incurred were immaterial, so we didn't really speak to those -- sorry, in Q2, they were immaterial, so we didn't really speak to those as being a driver for the quarter.

For Q3 and Q4, we expect them to be of the magnitude of $0.02 EPS for each of those 2 quarters.

In 2020, we expect the savings and the cost to roughly offset each other.

And then in fiscal '21 and forward, we expect about $4 million of savings in every year going forward.

So those are the metrics that we've disclosed previously.

Our next question comes from the line of Steve O'Hara with Sidoti & Company.

Yes.

Can you just talk about the -- your expectations?

You gave kind of your retail expectations, and I think you said that you thought you could continue to materially outperform.

I think that's on the Towable side, but if you could just go into that a little more.

Obviously, I think as you grow, maybe that gap begins to narrow just from a size standpoint.

But if you could just talk about maybe how you expect that Motorhome to play out as well as you kind of continue to improve the results there.

Yes, Steve.

Our market share growth for most of the last several years has definitely been ignited by the Towable segment growth in our business, both the acquisition of a fast-growing business in Grand Design but also the acceleration of our Winnebago Towables business as well, which we're pleased to report over the last several years the size of the business has more than doubled, and the profitability of that business, dollar-wise, on the bottom line has tripled.

So both our Towables businesses have been contributing to the market share growth.

But I think that's where you'll continue to see our industry outperformance happen, led by Grand Design, supported by Winnebago Towables, as both of those companies continue to expand their product lines, introduce new products, strengthen their dealer relationships, and even in some markets, upgrade and/or find their way into new dealer relationships that position us better in those particular markets.

I did mention in my comments this morning that we are extremely pleased that our Winnebago Motorhome business has had 2 consecutive standalone months of small but meaningful market share gain improvements at retail through the SSI resource.

And we need to see a much longer streak to feel better about that business, but we are pleased to start to see some of the momentum there.

And as the earlier question alluded to, a lot of that comes from the strength of our Class B business.

The move or the shift to smaller motorhomes here in the last probably 12 to 18 months in terms of retail demand certainly positions Winnebago in a positive fashion, especially around Class B products.

But we've even spent a lot of time on improving our Class C lineup here recently with the introduction of the Outlook a year ago and the new version of that being shown here recently at RVX but also the new Mercedes Sprinter chassis product on our View and Navion series being unveiled in Salt Lake as well.

So we do intend and are optimistic that we can gain market share for some time in the future.

I won't put an end date on it.

We'll work very hard to make sure that lasts as long as possible, but it will be driven mostly by Towables, but now we're starting to see Motorhome contribute to that as well, which is great.

Okay.

And then maybe just a follow-up to that.

I think in the past, you had talked about not having the right product in the market on the Motorized side for a number of years prior to maybe the new management team coming on.

And I'm just wondering where you think that process is in terms of having the right product at the right price point and where that stands.

And then relative to the dealer base, has that helped maybe improve the -- your reception from the dealers?

And I think there have been a number of dealers that had kind of dropped Winnebago brand at some point and I'm wondering if you're seeing them come back to you and maybe where that stands as well.

Yes.

The Winnebago Motorhome turnaround continues to be a work in progress, and it starts with having a product line that end customers have strong appeal for and dealers that view those products favorably as well, and we'll advocate for them on their lots against the other brands that they carry.

Our Class B lineup, I think, is market-leading, and we will continue to work very hard to make that even stronger.

The new Boldt and Travato product we showed at RVX are examples of us not resting on our laurels there.

As I've mentioned, we've been working on the Class C line as well with the Outlook but also now the refreshed and now relaunched View and Navion.

And our Class A gas line on the Winnebago Motorhome side has been repositioned with the Intent, the Vista and the Adventurer now positioned well in that line.

So we're better than where we were several years ago.

We do have models that are still tired and still need both a refresh.

We have some new products in the pipeline that we'll unveil in the coming years that we can't speak about right now.

I would say our opening price point Class A diesel product, the Forza, is in good shape and has performed well at retail here in during this fiscal year.

We need to strengthen our diesel lineup overall as we transition the production and assembly process from Oregon to Iowa.

So, boy, it's tough to come up with a metaphor, I guess, Steve, to kind of say exactly where we're at in that journey, but I think we're feeling better and better every quarter.

And that's why you're starting to see both margins improve on a year-over-year basis, but also the market share is starting to stabilize and hopefully turn in a positive direction.

But we will have roughly 15% market share in that business.

And candidly, I'd like to see the market share for that line get to 20% in the future or more.

And that's a team that -- a goal that the team that is clearly aware of from my perspective and working hard to that end, but that will still take some time.

Our next question comes from the line of Gerrick Johnson with BMO Capital Markets.

I have 2 questions here.

First, when you guys say that wholesale shipments and retail sales equation will approach a new equilibrium, what exactly does that mean?

Does that mean retail and wholesale units will be the same?

Or does that mean the percent growth of each will be equal?

So what precisely does that comment mean?

Thank you, Gerrick, for the question.

What I mean by that comment is that the pace of dealer inventory destocking will slow and reach a point where dealers are comfortable with the inventory on their lots as it pertains to their turns targets going forward.

And that will probably vary by category, Towables and Motorhomes, and even by subcategories within there.

But on a macro basis, we'll see the destocking of dealer inventory slow to a much more reasonable pace, if not to a more stable place.

So the -- certainly, the math would have to be that retail will continue to have to outpace shipments on a percentage basis over the next several months in order to get there.

But that's what I mean by that.

I'm probably not in a position here to give you specific numbers, but that's the intention of that comment.

No.

That's great.

Appreciate it.

Very helpful.

The second question I have is you guys said that in the quarter, onetime investments were 12 points of the 16% increase in SG&A.

And it sounds like that does not include much Oregon cost, if any.

And you quantified that Oregon cost for third quarter and fourth quarter, I guess, $0.02 each quarter.

How about those other onetime-ish investments?

How much more of that will we have in future quarters and for how long?

Gerrick, this is Bryan.

I'll take that one.

Yes.

So in Q2, we continued to have that project alluded to in Q1 as an investment.

We're not going to commit to future quarters in terms of having or not having those types of investments.

We reserve the right to invest strategically when we see the opportunity to do so.

I will say that the specific strategic projects that we alluded to in Q1 and Q2 here is wrapped up effectively.

So as it relates to that specific item, we don't expect costs to be incurred again here in a material way in Q3.

But like I said, we do reserve the right to continue to invest in other items as we see the opportunity.

Our next question comes from the line of Michael Swartz with SunTrust.

Mike, just wanted to maybe flesh out your comments around the retail backdrop for 2019.

And I guess correct me if I'm wrong, but it sounds like down low single-digit to down mid-single digits is how you're thinking about it now.

And I think when we talked previously on your first quarter call, you were thinking more low-single digits.

It sounds like maybe that got a little worse.

But on the share gain side, I think I remember you saying that you expected to outperform retail by 8 to 10 points.

Now you're saying by double digits, so it sounds like your share is actually getting better.

So are those correct?

And maybe what have you seen in recent weeks that gives you more comfort that, that kind of 10-point share gap is the right way to think about it?

Yes.

Thanks, Mike, for the questions.

I do believe you stated our assumptions well in your question there.

Industry retail has been a little softer in the last couple months than I think we had projected earlier, and our overperformance has, I think, hung in there very well at that double-digit overperformance rate.

And so that's really simplistically the genesis for modifying slightly both our industry retail thoughts for 2019 as a calendar year but also, I guess, our overperformance.

Both of those, as you would probably agree, 2 points either way or probably within the margin of error as we sit here today.

But I would hope that retail for calendar year 2019 for the industry is no worse than 5% down and again hopefully closer to lower single digits.

I'm still not quite there myself in terms of being able to project a flat to slightly up retail year.

I'd love to see that, but I'd still like to see a couple more months of evidence that, that can happen.

But our teams are very focused.

And whether it's the Class B market share gain potential that we think we have but also the momentum of our Towables business and specifically the Grand Design momentum, we think we can continue to serve dealers well, earn their business, satisfy our end customers.

And we know our competitors are fierce, and they will continue to serve their customers as well as they can.

But I guess you are right.

Those are some of our latest assumptions.

Okay, great.

And then one point of clarification.

I think you said you lost a number of days due to weather in the second quarter, I think specifically February.

Did you quantify how many days that actually was?

Maybe on a year-over-year basis, was it 3 fewer days or how to think about that?

I will tell you.

So, Mike, I'll give you some numbers here, but I do want to make sure everybody takes them with a grain of salt because it is hard to sometimes go back and calculate exactly what could or should have happened had you had a stable operating environment.

But we've roughly calculated that in the second quarter, we lost approximately 10 production days across our various facilities.

Now that's not 10 whole days calendar-wise, but several facilities were down for the same day, and other facilities were down just by themselves.

But 10 production days, several hundreds of units, and we believe that had a potential value of $20 million in terms of possible shipments to the market.

And so you'll notice here I'm just a bit tentative in stressing that because we're -- by no means are we going to use that as a crutch or an excuse because the rest of the industry saw some of that as well in North Indiana.

I will say that the state of Iowa and the state of Minnesota where we have some of our operating facilities, it was -- it was an especially harsh winter here, and so those are the numbers.

10 production days in total and approximately $20 million of potential lost revenue we attribute to weather, but we stand by our results and are still pleased with them for Q2.

No.

That's great.

Thanks for that color.

And then one more.

And as we think about the inventory situation, is there a way you think about it geographically, just in terms of how we're progressing in this kind of rebalancing act?

Are there areas where inventory seems to be a little heavier than others?

Or are we across the board kind of in the same position?

No.

I would say that geographically, the northern part of the country still appears to be lagging in terms of dealer inventory correction, meaning they probably have a little bit further ways to go.

And the southern part of the country is ahead of the North, and that would seem to make common sense due to weather and spring coming earlier in the South than it does in the North.

And that's just from some of our own qualitative feedback.

But also candidly, a number of you, analysts, do a great job in your own dealer surveys of looking at that inventory on a regional basis, and we read those reports as well and get some feedback from our inventory finance partners.

But I don't want to get into further regional specificity, but I would just say the North is a bit behind the South, and we expect the North to continue to destock here over the next 2 or 3 months, for sure, as retail starts in this part of the country.

Our next question comes from the line of David Whiston with Morningstar.

Kind of following up on that last question in terms of dealers have been going through a pretty -- sounds like pretty significant rightsizing process.

Just now that they're at least in the South, maybe towards the end of that, do you think your dealers nationwide are relatively optimistic going into the spring selling season?

And will incentives slow?

Or do you think they're still pretty uneasy about the macro situation?

Well, I think it's -- in some ways, it's a mix of both.

I don't think any RV dealers are predicting that the sky is falling and that there's going to be a massive retail correction here in calendar year 2019.

I think it depends on the strength of the dealer, the lines that they carry, their competitive position in their various markets that they may have a presence in.

So my general dealer view is that, especially coming off RVX in Salt Lake City, that they are optimistic that they can have a solid retail season.

They are seeing good foot traffic at some of their retail shows.

The marine and RV industries are both noting, however, a more difficult environment to close sales, specific to retail shows in some cases but also when customers are on their lots.

And I think that is due to a number of factors that I mentioned earlier in the formal comments but just a general anxiety of kind of where the economic conditions are.

But again, I think your strong dealers continue to get stronger, and your dealers that don't have as good of a competitive position are probably more pessimistic.

And again, I think it depends on the lines they carry.

And I know dealers that, for example, carry Grand Design, are very bullish about their retail prospects in many ways because of the Grand Design presence on their lots.

And so -- and we're glad that that's the case.

But...

Okay.

And on free cash flow generation in the second half of fiscal '19, first half really benefited from the inventory reduction on working capital.

Do you think second half is going to still be robust, even if there's an inventory tailwind?

Yes.

Dave, this is Bryan.

We do feel good about second half cash flow generation.

We've got a lot of working capital initiatives underway at the moment.

And working capital, as you can appreciate, is always a challenge to manage as the market is shifting down or as we're seeing headwinds on the wholesale shipments.

So we've been struggling with managing it overall in the first half of the year, as I'm sure our peers are as well, because you have to get ahead of that sales downturn.

But we do expect with the initiatives we have underway to manage it well in the second half, and that is our current expectation.

Our next question comes from the line of Greg Badishkanian with Citigroup.

It's actually Fred Wightman on for Greg.

Just a quick clarification.

Last quarter, you talked about dealer inventory concerns lessening each month.

And has that pattern continued since then?

Yes.

I would say, for our business, we had always maintained, Fred, that our business was probably late in the cycle in terms of dealer destocking and that our brands were being impacted a little bit later than some of the other brands in the industry.

Q2 definitely showed some headwinds in terms of dealers taking more inventory of our brands, and I think you saw that on some of our top line softness.

I would tell you that our inventories continue to drop on a year-over-year basis from end of Q1 to end of Q2.

They're in -- getting in, I guess, better shape as it pertains to position for future retail in terms of turns.

Our Winnebago Motorhome inventory has always been in relatively good shape.

I would tell you I think that's more a function of the strength of the product line but also the Motorhome space being a little softer here in recent months as an industry in several spots.

So we are -- we continue to feel good about our field inventory.

We've watched the aging very carefully, the turns.

We have some spots that we are focused on working down.

There are some dealers that we are working with selectively.

And we always have an aspiration to drive our field inventory turns higher, and we look to do that here as well in the next year or 2. So not much of a change in terms of macro thoughts, but our inventory position continues to improve on our brands as well.

Perfect.

And then just from a wholesale perspective, the RVIA data for February, down, sort of mid-teens on an overall basis, so down year-over-year but not as much as last month.

I mean, is that sort of consistent with what you guys saw from a cadence perspective?

I mean, should we really be thinking that we've seen the low point in terms of year-over-year declines just at an industry level, then it will sort of continue to approach being more aligned, similar to what you're saying into the late spring, early summer?

Yes.

I would hope that would certainly be the case.

I would need to have to go back, Fred, and look at the numbers here for the next couple of months a bit more closely.

But I would hope that most of your significant shipment declines on a year-over-year basis, I would hope many of those are behind us, and you start to see those numbers improve.

Now I don't think they'll turn positive here anytime in the next couple months but ahead of industry level, but I would think that our chances for seeing better negative shipment conditions will improve here over the next several months.

So -- but we'll have to see.

We are still only 10% of the North American RV industry.

90% of the RV industry is in the hands of some other players.

We'll work to make our number larger and their numbers smaller, but the rest of the industry is really still driving a lot of the shipment and the inventory pacing.

Sure.

And then just finally, from a -- if we do see retail pick up in April and May, how confident are you guys that you can meet that demand from a wholesale perspective?

I would say we're very confident that we can turn things back on.

Some of it depends on how quickly that you can ramp back up the supply chain, but we have good relationships with almost all of our suppliers certainly, and we are not running anywhere near full production in most of our plants at this time with the exception, I would say, of the Class B line.

That's probably the one production plant that continues to produce at a strong rate, but -- and we still have more capacity there as well.

So I think we can respond.

It will depend probably series by series, line by line, and in some cases, supplier by supplier.

But we are not talking about capacity constraints a lot in our business anymore.

We've done a lot of investing in the Towable segment to address those.

We've done a number of projects on the efficiency side in North Iowa around the Motorhome business.

We've identified some new space in North Iowa for the diesel line.

And I would tell you that the place where we're having capacity discussions going forward is really around our Chris-Craft business because that is continuing to exceed the expectations that we had in our M&A model.

And we bought that business thinking that we could grow it significantly and still maintain the luxury brand integrity that it has in the space, and those are our latest capacity expansion discussions around that particular branded business.

We have no further questions at this time.

I would now like to turn the call back to Steve Stuber for any further remarks.

Great.

Thank you, everyone, for joining our call today.

We certainly appreciate your time and look forward to speaking with many of you throughout the quarter.

Have a great day, and thanks again.

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

This does conclude today's program.

You may all disconnect.

Everyone, have a great day.