Winnebago Industries Inc (WGO) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 Winnebago Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker, Mr. Steve Stuber, Director of Investor Relations and Financial Planning and Analysis.

Please go ahead, sir.

Thank you.

Good morning, everyone, and thank you for joining us for Winnebago Industries' conference call to review the company's results for the fiscal 2019 fourth quarter and full year, which ended August 31, 2019.

I am 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 a replay of the call will be available on our website later today.

The news release with our fourth quarter and full year earnings 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, 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 SEC filings, which I encourage you to read.

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

Mike?

Thank you, Steve, and good morning to those on today's call.

As always, we greatly appreciate your time and especially your interest in Winnebago Industries.

This morning, I would like to begin with our annual overview of the progress made in transforming our business in fiscal year 2019, and highlighting key strategic drivers of our performance.

We will then turn the call over to Bryan Hughes, who will provide more detail on the related financial results, and especially details on our Q4 performance.

I will then return to offer some closing thoughts as we look ahead towards fiscal year 2020.

We are extremely proud of the tremendous progress our Winnebago Industries team of employees has made throughout the year, executing against our ambitious goal of transforming Winnebago Industries into a premier outdoor lifestyle company.

By staying focused on and continuing to activate against our 5 key enterprise strategies, we have enhanced our performance and built steady, consistent momentum behind our business.

Our first and most important strategy continues to be to build a high-performance culture through a unique blend of leadership, accountability and giving.

In fiscal year 2019, we maintained our commitment to invest in strengthening and deepening our bench of talented leaders.

In addition to our key Leadership Development Summit, we also strengthened talent in many important areas: tech, supply chain, specialty vehicles, sales management and engineering.

From an accountability standpoint, we delivered on the quarterly and annual expectations of the financial community, and produced increased earnings per share for our investors.

And in the spirit of being a strong corporate citizen, we initiated a more elevated formal level of engagement within the company around corporate social responsibility, including diversity, equity and inclusion, along with community giving.

The second enterprise strategy encompasses our intent to strengthen and expand our core RV business.

We have done this by resetting the strategic direction of our Motorhome business, pursuing exciting new brand platforms to add to our RV toolkit.

During the fiscal year, we introduced our Bound by the W brand campaign on our flagship Winnebago brand, drove market share growth in our Class B line and dramatically improved the interiors of our Class A and Class C motorized product.

Together with our pending acquisition of Newmar, we will soon have a more complete Motorhome business, larger, more profitable, significant presence in all motorized sub-segments and a stronger share of wallet with the premium RV dealers in North America.

On the Towable side, we are especially pleased with the 2019 results, considering difficult market conditions.

Our 2 brands, Winnebago and Grand Design, continue to complement each other nicely and form an increasingly compelling dual brand platform, offering much needed balance to our legacy Motorhome business.

For the second consecutive year, Winnebago Industries, led predominantly by Grand Design, has outperformed the industry as it relates to organic gains in Towables market share.

Over the past 3 years, our consolidated full-line RV retail market share has risen from under 3% to almost 10%, with significant runway and potential ahead of us.

Our third company strategy is the elevation of excellence in operations by driving higher levels of employee safety, product quality and operational productivity.

In fiscal 2019, we made material strides towards advancing all 3 of these areas.

Our commitment to workplace safety where 0 harm is possible, resulted in another year of meaningfully lower levels of recordable injuries and lost service.

This, by the way, is the most important imperative in our entire business, returning our employees home every night to their families in the same condition they arrived in.

We are proud of our progress, but impatient about the urgency to improve further in this area.

Our employees continue to be dedicated as well to producing high-quality products, maintaining an appropriate amount of inspection as needed in the manufacturing process, but truly focusing on building quality into the product through smarter design and collaborative initiatives with key suppliers.

Lastly, we are beginning to see traction on a continuous improvement mentality taking hold in the depths of our culture.

One example of this is the thousands of quick win ideas created and executed in fiscal year 2019 by our Motorhome team in North Iowa.

This focus on driving waste out of our processes, along with the strategic transition of Winnebago Class A diesel product from Oregon to Iowa, will produce increased efficiency and become contagious to other parts of the Winnebago Industries' portfolio in the future.

Our fourth corporate strategy is leveraging innovation and digital engagement, working to create stronger connectedness and intimacy with our customers.

Winnebago Industries is increasingly focused on leveraging the latest technology to ensure customers enjoy seamless outdoor experiences with their family and friends.

We announced earlier in 2019 the formation of our new advanced technology group that will scan the landscape for emerging technologies that can be applied to our business many years in the future, positioning Winnebago and our brands as a leader as cost affordable technology converges for our customer's benefit.

There has been significant progress in work made in 2019 around electric vehicle technology, solar power, lithium-ion battery, power generation systems, remote connectivity integration, user experience improvement and social connectedness with end users.

The addition of Newmar, with their legacy of innovation, think first industry slide out, and their current R&D efforts will only bolster the energy within our company on this subject.

Finally, we are continuously looking for opportunities to expand to new profitable markets, creating a more diversified business model.

We have taken bold steps in the last 3 years to expand our reach and profitability through the expansion of RV revenue streams, the addition of premium brand platforms and the entrance into adjacent, secularly similar outdoor lifestyle markets.

Through the acquisition of Grand Design RV, the pending addition of Newmar's premium Class A and Super C lineups, the early stage investments in Winnebago-branded specialty vehicle offerings and the welcoming of the iconic Chris-Craft brand as the entree to the Marine market, we have dramatically expanded our revenue and profitability potential across a premium portfolio of businesses.

We anticipate that approximately 10% of our revenues in fiscal year 2020 will come from businesses or markets that we did not have a presence in at the end of our fiscal 2017 year.

In summary, our strategic transformation over the last 4 fiscal years has led to a doubling of revenue, a tripling of both adjusted EBITDA dollars and free cash flow and a sizable increase in the enterprise value of our organization, and this is before our Newmar acquisition is factored in.

Shareholders have benefited from our team's work and our communities have been strengthened.

In 2019, we will have given away 5x more dollars in that annual period than what we did in 2015.

And most importantly, our employees are creating a stronger presence in impacting the communities with an exponential increase in hours volunteered and talents offered.

This is an exciting place to be.

In 2019, our annual revenues of $2 billion, a record net income of $112 million and RV share gains were truly remarkable considering the headwinds, tariffs, trade constraints, economic uncertainty, reckless partisan politics, et cetera that challenged the industry this year.

As notable as those results were, they were only made possible because of the outstanding contributions from all of our hard-working Winnebago Industries employees, nearly 4,700 of them.

We are ever thankful of their efforts over the year and for embracing our vision to establish our company someday as the leading provider of outdoor lifestyle solutions.

We enter fiscal 2020 laser-focused on authentically differentiating ourselves from the competition around quality, service and innovation, gaining market share by outpacing the growth of the industries we serve.

Our competitive position and the strength of our newly diversified portfolio of product lines has enabled us to deliver solid results despite prevailing industry headwinds.

Overall, organic sales growth remains strong and profitability continues to increase.

Despite industry-wide wholesale shipments in the RV market declining 20% during our fiscal year 2019 period, full year enterprise consolidated revenues decreased only 1.5% versus fiscal 2018, with Motorhome revenues declining 17.9%, mostly offset by strong organic growth of 6.2% in the Towable segment.

Profitability continued to improve with overall gross margins ending at 15.5%, representing an increase of 60 basis points over fiscal 2018, driven by the accelerated growth of our Towable segment and stabilized motorized profitability.

Turning to the segments in more detail.

In the Towables business, our growth continues to exceed that of the industry as the unique appeal of our Winnebago-branded and Grand Design RV products enables us to meet the evolving needs of today's RV customers.

For the full year, Towables revenues increased 6.2% over fiscal 2018.

Adjusted EBITDA margins contracted slightly by 20 basis points primarily due to increased allowances.

Towable segment dollar backlog for the quarter declined 4.3% over the prior year, reflecting the positive impact of utilizing additional capacity added during calendar year 2018 and dealer shifting order patterns due to normalizing inventory levels.

We remain committed to making smart strategic investments in the business, such as the recent capacity expansion project at our Grand Design RV campus announced during our Q3 earnings call, the revenue benefit of which will start to occur late in our Q2 period in fiscal 2020.

Investments like this will allow Grand Design RV to meet increased demand and convert more of our backlog into fiscal year 2020 sales.

Turning to the Motorhome segment.

Reestablishing a premium leadership position in this business remains a key priority for us, and the launch of new products and designs continues to provide customers with an enhanced lineup of high-quality innovative products.

For the full year, revenues were down 17.9% from fiscal 2018, in line with the industry, and adjusted EBITDA margin of 3.9% contracted by 20 basis points.

However, we were encouraged to see sequential adjusted EBITDA margin improvement in the fourth quarter of 520 basis points to 5.4%, reflecting the impact of our ongoing efforts to improve operational efficiency, especially in the improvement of the Class B chassis supply issue discussed during our Q3 earnings call.

The Motorhome team has dedicated a considerable amount of energy and resources to positioning the business for sustained profitability.

One source of market and financial pressure for the Motorhome segment has come from the Class A diesel category, where our manufacturing and supply chain challenges surrounding our Oregon to Iowa assembly transition affected both product availability and our gross margins.

Executing on our plan to consolidate and centralize the Winnebago brand diesel business will improve our overall efficiency and financial strength.

Additionally, the acquisition of Newmar, which is the fastest-growing brand of Class A diesel RVs, aligns with our strategy to reenergize our Motorhome business by enhancing our position and capabilities in the Motorhome market and building on the progress we have made driving growth and innovation across our offerings.

Chris-Craft continued to outpace our expectations for the business over the course of fiscal 2019.

Sales growth as well as traffic and demand for new products remained strong.

Although consumer demand within the broader boating market has been somewhat inconsistent, Chris-Craft's premium brand continues to resonate with customers.

As we look ahead, we are excited about executing our growth plan for the business, which includes driving new product development and organic growth, improving manufacturing efficiencies and expanding our reach with strong dealer partners and supporting Chris-Craft's growth with improved marketing efforts.

We will continue making strategic investments in Chris-Craft and looking for ways to drive share gains and innovation through those new products and dealer partnerships.

With that overview, I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2019 fourth quarter and full year financials in more detail.

Bryan?

Thanks, Mike, and good morning, everyone.

As usual, I will dive right into the numbers, providing some additional context where beneficial.

Fourth quarter consolidated revenues were $530.4 million, a decrease of 1.1% year-over-year, driven primarily by a decrease in Motorhome revenues of 12.2%, partially offset by strong organic growth of 6.3% in the Towable segment.

Gross profit was $83.2 million in the fourth quarter, a decrease of 0.8% year-over-year.

This slight decrease was driven by the sales decline.

Gross profit margin increased 10 basis points, driven by favorable segment mix.

Fourth quarter operating income was $44.8 million, down 2%, and net income was $31.9 million, an increase of 7%.

Earnings per share were $1.01 per diluted share, an increase of 7.4% over our $0.94 in the fourth quarter of last year.

Both net income and earnings per share were favorably impacted by an improved tax rate, resulting from the Tax Cuts and Jobs Act.

Lastly, we note that net income and earnings per share were unfavorably impacted by due diligence cost of $700,000 or $0.02 earnings per share related to the Newmar acquisition announced on September 16, 2019.

Turning to the full fiscal 2019 results.

Consolidated revenues were $2 billion, a decrease of 1.5% from fiscal 2018, primarily due to a decline in the Motorhome segment of 17.9%, partially offset by impressive growth in the Towable segment of 6.2%.

Operating income for the fiscal year was $155.3 million, down 3.2%, and net income was $111.8 million, an increase of 9.2%.

Full year earnings were $3.52 per diluted share, a 9.3% increase from $3.22 in fiscal 2018.

Net income and earnings per share were favorably impacted by an improved tax rate, resulting from the Tax Cuts and Jobs Act and a favorable change in estimate related to prior year R&D tax credits.

Fiscal 2019 consolidated adjusted EBITDA was $179.7 million, a decrease of 1.2% from $181.7 million in fiscal 2018.

We have provided non-GAAP EBITDA and adjusted EBITDA performance measures in our press release as a comparable measure to help provide further clarity into our performance.

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

As these schedules show, consolidated adjusted EBITDA for the quarter was $50.8 million, that's 5-0-point-8 million, a decrease of 5.1% year-over-year.

For the full year, consolidated adjusted EBITDA was $179.7 million, a decrease of 1.2% year-over-year.

I will now turn to comments related to the individual segments, and I'll start with the Towable segment.

Revenues for fourth quarter were $307 million, up 6.3% year-over-year, driven by continued outperformance of the marketplace by Grand Design RV and further benefiting from pricing actions taken during the year.

In addition to pricing, healthy product mix within the segment also continued to contribute favorably to improvements in the average selling price per unit.

For the full fiscal year, Towable revenues were $1.2 billion, up 6.2% from fiscal 2018.

Considering the broader RV market, wholesale shipments were down 20% during the same time period.

We are extremely pleased with the performance of our Towable segment and the market share improvement this performance reflects.

Segment adjusted EBITDA for the fourth quarter was $42 million, up 0.2% year-over-year and adjusted EBITDA margins decreased 80 basis points, driven by higher input costs and sales allowances, partially offset by pricing action.

For the full year, segment-adjusted EBITDA was $163.7 million, up 4.2% year-over-year.

And adjusted EBITDA margin decreased by 20 basis points, driven by higher cost inputs and increased allowances, mostly offset by pricing action, cost-saving initiatives and favorable product mix.

Turning now to the Motorhome segment.

Our Motorhome revenues were $200.7 million for the quarter, down 12.2% versus last year, driven by strength in the Class B lineup, namely our RV and Travato products, more than offset by decreases in the Class C and Class A products.

Our fiscal fourth quarter continued to be negatively impacted by dealers rationalizing their inventory levels, which has been taking place throughout the 2019 calendar year.

For fiscal 2019, Motorhome revenues of $706.9 million were down 17.9% year-over-year, slightly better than the broader RV market being down 20% during the same time period.

As mentioned earlier, dealers changed the inventory replenishing patterns quite drastically in order to lower their inventory levels, prompting more industry-wide discounting and decreases in wholesale shipments.

Segment-adjusted EBITDA was $10.7 million for the fourth quarter, down 18.9% year-over-year, driven substantially by the sales reduction.

Adjusted EBITDA margins decreased 40 basis points versus last year to 5.4%, driven by higher input cost and fixed cost deleverage, partially offset by pricing actions, positive product mix and decreased sales allowances.

Included in the higher input costs mentioned above is a $10.8 million reduction to WIP inventory and a corresponding increase to cost of goods sold for a cumulative correction of an immaterial error related to prior periods that was identified through our annual physical count of our work in process inventory.

Although we recorded this item as an increase to cost of goods in the quarter, this impact was largely offset by the favorable items mentioned previously, most notably the favorable mix from the strong performance in our Class B products.

You will note, therefore, in the 10-K, that this cumulative correction is called out in the footnote disclosures of our quarterly results.

Despite the recognition of this correction and the other challenges mentioned earlier, the fourth quarter adjusted EBITDA margin of 5.4% represents a solid result for the Motorhome segment as it reflects the sequential improvement of 520 basis points from fiscal year 2019 third quarter.

For the full year, segment-adjusted EBITDA was $27.5 million, down 22.7% year-over-year, primarily due to volume reduction and adjusted EBITDA margins decreased 20 basis points to 3.9%, primarily due to higher input costs and fixed cost deleverage, partially offset by pricing action and favorable product mix.

To further clarify, the $10.8 million correction mentioned in our fourth quarter results does not materially impact the full year results as the correction is largely offset within the 4 quarters of fiscal 2019.

Consistent with previous quarter's tariffs, particularly China Lists 1, 2 and 3, have impacted material and component costs, but we have largely mitigated the impact of these headwinds on our gross margin through a combination of cost-saving initiatives and pricing adjustments.

Trade relations between China and the U.S. remained volatile, as you all know.

And while we remain hopeful in the recent potential for resolution, we will nonetheless continue to closely monitor trade discussions and be ready to execute our approach of addressing each commodity and component impacted in a targeted manner: seeking substitutes where available; working with vendors to creatively solve problems; and adjusting the content and material where feasible; and ultimately, increasing prices on our units, if necessary, to counteract the cost increases.

So far, these actions, along with our competitive position and the strength of our diverse portfolio of product lines, have enabled us to minimize the impact to our overall profitability.

Turning to our balance sheet.

As of the fiscal year-end, the company had outstanding debt of $254.3 million, comprised of $260 million of debt and net of debt issuance costs of $5.7 million.

Working capital was $212.9 million.

Our current net debt to adjusted EBITDA ratio is 1.2x, in line with our targeted leverage ratio of 0.9x to 1.5x.

As a reminder, following the close of the Newmar acquisition in first quarter 2020, we expect to have a net debt to EBITDA ratio of approximately 2.0x, with the goal of deleveraging within our stated target range by the end of fiscal 2020.

Additionally, we recently upsized our ABL to $192.5 million, further improving our liquidity.

The maturity was extended 5 years to October of 2024, and there was no change to the interest rate.

Cash flow from operation was $133.8 million for the full year, up $50.4 million or 60.5%, that's 6-0-point-5 percent.

The increase was primarily due to year-over-year changes to cash contribution from working capital.

The effective income tax rate for the fourth quarter was 21.1% compared to 28.4% for the same period in fiscal 2018.

The rate in the fourth quarter of fiscal 2018 represented a blended federal tax rate resulting from the Tax Cuts and Jobs Act, which was only partially effective for part of fiscal 2018, whereas the rate in the fourth quarter of fiscal 2019 represents the full year impact of the reduced federal tax rate.

We expect a tax rate of approximately 23% in fiscal 2020 under the current tax code and before consideration of any discrete tax items.

On August 14, 2019, our Board of Directors approved the quarterly cash dividend of $0.11 per share payable on September 25, 2019, to common stockholders of record as of the close of business on September 11, 2019.

Before I pass the call back to Mike, I'd like to touch on the Newmar acquisition time line.

As we stated at the time of announcement on September 16, we expect the deal to close in early November.

We intend to share some of the impacts from items, including transaction costs, purchase accounting and financing costs at our upcoming Investor Day on November 6 to help the investor and analyst community begin to anticipate the Q1 and full year contribution that Newmar will have on our consolidated results.

We will also provide more context and insight during our first quarter 2020 earnings call, followed by an amended 8-K filing anticipated in early to mid-January.

That concludes my review of our quarterly and full year financials as well as touching on the next steps as it relates to the Newmar acquisition.

So I will now pass the call back to Mike for some final comments.

Mike?

Thanks, Bryan.

Throughout fiscal year 2019, the RV industry has seen its share of challenges from dealers and OEMs rebalancing their finished goods inventories, to the fluctuation in the interest rates, to the impact of tariffs and trade issues on end customer's pocketbooks and confidence.

And yet, industry retail has remained incredibly solid, especially our company's retail from a historical perspective, considering these headwinds.

The demise of the RV lifestyle has been a bit exaggerated in our opinion from a retail perspective.

We would like to take a moment and provide some further thoughts on the health of the overall RV market, and then share some commentary on areas of future focus within the Winnebago Industries team.

Over the long term, we, like many of our outdoor industry peers, remain confident and bullish that the growth in penetration prospects of the Recreational Vehicles and Marine segments in North America are trending in a net positive direction.

The appeal of the outdoor lifestyle, especially those activities broadly spent with family and friends creating new experiences, is becoming increasingly popular, with what we view as a multigenerational customer base.

In addition to baby boomers, who are a key customer group for several of our businesses, millennial and younger demographics are actively seeking unique outdoor experiences.

Our customers appear to have a growing sense of adventurism and are opting for healthier and mobile lifestyles.

Technology and mobility mediums are allowing all of us to have connected experiences outdoors, regardless of the use case.

Campgrounds and marinas remain busy, and in some cases, full.

We have seen a steady flow of traffic at retail shows around the country this fall, including the recent California RV show, where attendance was said to be materially higher than a year ago despite several days of high winds in Southern California.

We continue to see the mix of auto sales shift to truck and sport utility vehicles, which have become a significant catalyst for consumer investments in towable RVs and marine products.

Sans any geopolitical or macroeconomic disruptive events, we are quite comfortable that these and other secular trends support the notion that the RV and marine industries will remain generally and increasingly attractive to consumers.

Over the last 12 months, we have witnessed the RV industry's double-digit shipment growth rate transitioned to a double-digit negative shipment trajectory in that time period as the industry appropriately resets for the future.

Lower-than-expected consumer demand over that period also played a role in the length of time needed by dealers to rationalize and adjust their inventory levels.

We believe there may be another 2 to 3 months of nominal inventory reduction in the field at the industry level, but that most dealers have reached a comfort zone in terms of inventory turns, dollars and aging.

We have been very direct that Winnebago Industries' field inventory across its various brands is in line with where it needs to be going forward to compete profitably for increased share.

The market, in many senses, has reached a better state of equilibrium in terms of the power balance between dealers and OEMs.

Good brands with good products and good business support processes are winning, and those brands with less competitive products and less dealer-friendly support will continue to be rationalized by many dealers.

In order to preempt the inevitable question this morning, we believe that industry retail in the North American RV market for our fiscal year 2020 will be down low- to mid-single digits, assuming there are no major changes in consumer confidence or access to financing.

Given field inventory has worked its way back into better shape, we believe that industry wholesale RV shipments in fiscal year 2020 could, that's a keyword, could, return by the end of the period to an annualized flat level compared to fiscal year 2019 industry shipments as a more balanced retail replenishment flow will eventually offset the steep shipment declines we saw a year ago.

This shipment outlook is a bit more optimistic than the forecast, which RVIA has published, which is rare for me to acknowledge.

But if industry retail is moderately okay, the shipment environment could be better-than-expected.

Now Winnebago's consolidated RV retail sales in fiscal year 2019 outperformed the general market by 10 to 15 points, and we expect to be able to maintain that double-digit outperformance margin at retail in our fiscal year 2020, especially as we add Newmar to the portfolio.

Given we are still a very small player in the marine industry, we will respectfully decline to prognosticate on industry fundamentals in that market and defer to the NMMA or other longer-term industry players.

We do continue to be pleased with the feedback from this fall's RV retail and industry shows.

Our new products unveiled to dealers at this year's open house in Indiana received strong feedback -- positive feedback from the channel.

This resulted in consolidated new orders across the Winnebago and Grand Design brands that were cumulatively 11% higher than what we achieved a year ago in Elkhart.

That momentum has also continued thematically as we have had encouraging results at our 2 large regional retail shows in Hershey, Pennsylvania and Fontana, California.

Our consolidated retail performance, at those 2 events combined for our brands, was up high-single digits percentage-wise versus results at the 2018 shows.

Both outcomes validate for us that there is life and energy within the industry at the dealer level, and that end customers are looking to step into or up within the RV lifestyle.

Back to new products.

I would like to review this morning the highlights by business of what's actively heading to or arriving in the market to reinforce how vibrant our new product pipeline is.

Chris-Craft has been and continues to be, during one of the most -- they have continued to launch one of their most significant new product introductions in their recent history.

The Launch GT line introduction has included 35- and 25-foot models in stern drive and outboard power options.

Chris-Craft has also joined the wakesurf market trend, with the introduction of its Launch 28 GT WSX edition.

Grand Design is always reinventing itself, and this year is no different.

The Solitude, Reflection, Imagine and Transcend product lines have each been updated with new interiors, including countertops, wallboards, cabinets, hardware, carpet and many other amenities.

Winnebago Towables made a splash at the recent open house with the introduction of its new Voyage Fifth Wheel and Travel Trailer line, the SPYDER Toy Hauler Fifth Wheel and a concept product called Hike, that like our 4x4 Revel van, is striking a chord with dealers ready to serve the extreme explorer.

And lastly, Winnebago Motorhomes continues to be very active in refreshing its entire line.

New interiors are found in the Class A Intent and Forza; as well as the Class C Outlook and Vita/Porto.

They added movie theater seating to the Minnie Winnie, introduced new exterior colors, green and white, with the Travato, and stole the show in Elkhart with the introduction of the new Class B Solis, an affordable, high quality, pop-top camper van.

We are ready to roll heading into fiscal year 2020 with these new products.

Winnebago Industries will be holding our Investor Day event on Wednesday, November 6, in New York City.

Attendees are asked to RSVP with Steve Stuber and our Investor Relations team.

During this event, we will begin to share a bit more information about the pending addition of the Newmar brand.

When the transaction closes in mid-November, Winnebago Industries will be home to 3 of the best brands in the RV industry: Winnebago, Grand Design and Newmar.

And 4 of the top brands in the outdoors if you include Chris-Craft.

The close process continues to go well with our outside partners and the Newmar team.

They have continued to do good things in the market, outperforming their peers at retail and experiencing solid results at the open house show and the larger regional retail events.

We remain extremely excited about the opportunity to welcome a high-performing team in Matt Miller and all of the Newmar employees.

But we are even more excited about their future capability to grow customer and dealer satisfaction and profitable share in the Motorhome category.

Since our acquisition announcement in mid-September, almost all industry stakeholders have acknowledged the quality and momentum of Newmar, and many, many dealers have proactively engaged Newmar to inquire about their future product and distribution plans.

We will integrate this business extremely carefully, and likewise, manage our new balance sheet with careful diligence and an eye on deleveraging quickly in 2020.

This continue to be interesting times.

We will monitor the shifting macroeconomic conditions especially consumer confidence, stability of the equities market, the interest rate landscape, fuel prices, access to credit, political developments around such policies as import tariffs, the upcoming 2020 election cycle and other global geopolitical events.

We cannot predict whether an economic recession or boom will happen, but we can be disciplined and prepared in the event of either one.

By staying focused on what we can control and emphasizing a commitment to quality, innovation and service in all we do, we have made significant strides towards our goal of transforming Winnebago Industries over the last 4 years.

We believe that if we take care of our employees, they will in turn take care of our dealers and end customers, and our shareholders will ultimately be rewarded with consistent returns on their investment.

In closing, we are pleased with our consolidated results for fiscal year 2019, the strategic and financial benefits of having an expanded and more diversified product portfolio have translated to more consistent earnings results and are now driving incremental growth in our business.

As always, we are committed to outperforming in the marketplace, delivering on our promises and maximizing value for our shareholders and customers in fiscal year 2020 and beyond.

Thanks again to the thousands of Winnebago Industries employees and teammates, which make our jobs as the messengers on a day like today a privilege to have.

I will now turn the call back over to the operator for the Q&A session this morning.

(Operator Instructions) Our first question comes from Craig Kennison with Baird.

Question on the promotional trends.

The press release called out sales allowances in the Towable business, which affected margin.

It was my impression that Grand Design did not discount.

So you can confirm those sales allowances are tied to Winnebago-branded Towables?

Craig, this is Mike.

I think your assumption there is correct in that the promotional pressure that we've seen on the business has affected the Winnebago-branded RV products more than our Grand Design RV products.

And then Brian, I think if my calculation is right, you had an extra week in the quarter.

Anything -- first of all, is that true?

And second of all, are there any implications for margin that you call out?

Yes.

It's true, Craig.

We did recognize this year our 53rd week, and it took place in the fourth quarter.

There's not a material impact from that extra week, we believe, in either the top line, frankly or in the leverage equation.

I think we managed that 13-week period with our dealer network much like we would've just managed a 12-week period and time the sales accordingly.

So we evaluated that, of course, and concluded that there was not a material impact from that additional week.

Got it.

And then Mike, finally, kind of a bigger picture question here.

But what's your vision for Winnebago as the RV market embraces more digital solutions and thinking smart RVs or the Internet of Things for RVs?

I am curious if you think Winnebago needs to develop some of these platforms on its own?

Or would you consider kind of partnering with the supplier base who might be able to build things that could scale across other manufacturers?

It seems like a tough call given your scale, which is strong, but not the largest in this space.

Yes, thanks again, Craig, for the question.

I think my answer in some ways is all of the above, meaning that I think largely around technology that emerges that is applicable to the industries we compete in, we will largely be an integrator versus an inventor of most of that technology.

And we will work with suppliers and other key partners to apply and adapt that technology to our products in hopefully a way that gives us a competitive advantage in not only the way that the products operate and the way consumer engages with those products.

But in many cases, the information that's generated because of these emerging technologies and how you can use that information to deliver more value for the consumer going forward.

So we have created an Advanced Technology Group for the purposes of working on what we call Horizon 2 and Horizon 3 technology application.

Often times, you will see the business units in the company be a little bit more risk averse in the short term with their R&D and engineering spending because they have a responsibility and an appetite for monetizing those engineering expenses and getting a return on them quickly.

So really the creation of that particular group is intended over the next decade to allow us to leapfrog at times our competitors with hopefully technologies we can apply.

So yes, great question.

It's one that we're also working on and constantly aware of, but we'll invent or hopefully innovate a few things ourselves, but we'll have to have a network of good strategic partners that can create our own digital experience for our customers going forward.

And our next question comes from Scott Stember with CL King.

Can we maybe just talk about the delta between -- just trying to smooth out really what's the true order pattern is here for Grand Design and the Towable business.

Your retail seems to be accelerating to the upside, I think you are up 17% per stat surveys through August.

And obviously, the increase in capacity has helped you push through more units.

But what I'm trying to get at is are dealers ordering 1 for 1 at this point in time right now for your Grand Design products?

Scott, this is Mike.

Let me address, first of all, the retail pattern and trend that we continue to see on Grand Design, even extended into our first quarter fiscal year 2020 continues to be very solid.

We are on a materially higher than what the Towables industry retail trend appears to be.

So we are pleased to see that their business continues to have that momentum in the market.

We mentioned in the call that we have continued to add capacity in over the last several years to keep up with increased demand for that brand.

And some of the online capacity that was annualized and available to us in fiscal '19 was very helpful to working their backlog into a more appropriate place than it had been in previous years where it was extremely elevated and, in some cases, too elevated in terms of timely delivery.

The Grand Design business to the latter part of your question, does continue to see good retail replenishment order activity from their dealers.

As you know, we just completed the open house event where they also were able to collect a number of additional orders as well.

But I would say that the balance between retail replenishment orders for Grand Design and those long term stocking orders that they would have collected at events like open house, have begun to balance.

And we see their current backlog at the end of Q4 as one that is very healthy for the opportunity that we have ahead in 2020.

Got it.

And moving on to motorized.

You talked about the move from Oregon to Indiana, I'm sorry to Iowa for the motorized, the diesel product.

What was the impact in the quarter to the negative side?

And maybe just remind us again the savings and the benefits that potentially hit in 2020?

Scott, this is Bryan.

The impact of Q4 specifically was relatively neutral.

For the expenses we incurred, restructuring, relocating, et cetera were basically offset by the savings we think we generated.

For 2020, we think there's going to be about $4 million favorable year-over-year from that item.

Got it.

And then just lastly, on the Class B side.

You talked about better availability of chassis on the Sprinter side.

Can you maybe just talk about is that process completed?

I know that you, at recent events, Mike, had talked about some other issues with delivery issues from the supplier.

Are we all squared away with that?

Or are there still some residual headwinds that we have to contend with?

Thanks, Scott, for the question.

And I'll be very clear here in case that specific supplier is listening on today's call.

The situation is improved, but it is not completely resolved.

We continue to work through supply availability issues in terms of timing and 100% accuracy of the specifications of those products.

It's improved during the quarter, and we believe we have a get-well plan with that supplier that we continue to work.

But I will tell you, we did not go into deep detail during the call or any of our prepared comments about the loss of revenue opportunity and the significant dollars that we spent in rework of those chassis in our Q4.

The loss of revenue opportunity in Q4 on Class Bs was probably 8 figures on the top line.

And we spent 7 figures of rework expense in Q4 just around this specific issue.

And so, no, it is something that is very top of mind.

That being said, our Class B team in the Winnebago-branded Motorhome business is doing a fantastic job of getting enough chassis to the market across the various Class B brands in order to effectively move our share higher in the market.

I believe our share now is above 40% in some of the recent stats that I've seen, and we continue to move in the right direction.

And our next question comes from Steve O'Hara with Sidoti & Company.

I guess, I'm just curious about 2 things.

First, the outlook for Chris-Craft itself, where that stands.

Are you -- I believe you are in the middle of a CapEx program there and maybe your expectations about growth in that market.

Do you think you could exceed the market growth given that expansion?

And then just relative to motorized, I mean, Class A came down again pretty sharply in terms of the or very sharply in terms of the deliveries.

And I'm just wondering, maybe devil's advocate, what's the benefit of maybe trying to turn that business around rather than just pour the resources into Newmar when that's acquired?

Steve, let me address the first question first.

Chris-Craft, the business has performed well since we bought it in June of 2018.

They have exceeded not only our internal M&A models that we use during the process, but they have exceeded the growth of the industry in their particular segment, which is essentially 20- to 40-foot fiberglass outboard and sterndrive boats.

They have a very solid, multigenerational product pipeline and plan in front of them.

I talked about the GT launch product that they have been in the process of rolling out.

We have a number of new boats coming in 2020 and 2021 that will continue to extend and deepen the Chris-Craft line.

We have been very diligent and careful about the capacity expansion project in Sarasota, working with some of our outside partners.

We have not broken ground on that.

We have been very careful in terms of getting the design and the plan of that plant right.

And we will, in the very near future, begin to move towards the construction phase there.

It is, I believe, only around 80,000 square feet, which is materially important for the Chris-Craft business, but it's not a huge, huge space when compared to some of our other capacity expansion projects.

Let me transition to your questions about the Winnebago motorized health across the line.

We certainly continue to perform well in Class Bs.

We have struggled in Class As.

And Class Cs has been a bit of a mixed bag through 2019.

As I look at our backlog going forward, at the end of Q4, our backlog was really in good shape on Class Bs, and our Class C backlog was actually twice as high at the end of F '19 as what we had at the end of F '18.

Part of that is because some of these chassis from that supplier that I referenced we've been struggling with do affect some of our Class C shipments.

So some of our shipment revenue on Class Cs has been materially affected by the chassis supply issue.

The Class A segment is where we have been struggling in part because of what we have done to ourselves with the diesel transition from now Oregon to Iowa will come online with our new production of diesel in May or June of this 2020 year.

But our A gas business has not been as healthy as I would've liked.

As you can imagine, as we integrate the Newmar brand, we will be having significant conversations between our Newmar business and our Winnebago business about how we can complement each other in the Class A category with those 2 brands.

Newmar has Momentum, but is a luxury line.

Winnebago does not have Momentum in that particular segment, is working on some things to improve that.

But we'll work very carefully to try to create the right mix across both of those brands in the Class A category so that we can remain competitively relevant going forward.

So astute of you to pick up on that and I hope those comments help.

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

You called out input costs as a headwind to both margin -- to margin in both segments.

We are seeing those materials you use seem to be dropping in price pretty quick inventory turn.

So just wondering when you start to see that headwind turn into a tailwind?

Yes, I don't know that we see it turning into a tailwind necessarily, Gerrick.

The tariff environment, the general inflation environment is such that it has caused increases, broadly speaking, for the industry.

And that's, as I mentioned, been largely offset through cost savings initiatives, negotiations, of course with our suppliers, and ultimately, with pricing.

So we make sure that we can, over the long term, cover cost increases with that pricing activity, if necessary and we can offset it the other items.

But I don't see it reversing on us, save for some pretty strong trade resolution.

And then in the event that trade dispute is resolved with China in full, for example, under that scenario, there would certainly be then ongoing conversations with our suppliers.

Remember that we don't buy any of the impacted material directly.

It's all through our vendor network.

And so there would be a time period where that would need to settle out so to speak.

But unless there is a pretty dramatic shift in trade policy, I don't anticipate in 2020 any tailwinds, as you refer to it.

Okay.

We're just looking at the input costs, we're seeing steel down, aluminum down and plastic down, and wondering why that's not coming through for you guys.

Yes.

From a spot price perspective?

Sure.

Yes.

I think, look, our view is Q4 versus Q4 specifically, there's -- it's not on our side because of our negotiation last year, but we're not seeing that kind of reduction year-over-year.

And our next question comes from Michael Swartz with SunTrust.

Just some clarification questions.

First off, the reported EPS and EBITDA, I guess, it was $1.01 and $50 million, almost $51 million respectively.

Those include the cost related to the Newmar due diligence as well as any costs related to the reconsolidation of diesel production in Iowa, correct?

Correct, it does.

The $1.01, includes those costs, we called out the Newmar due diligence cost, which is -- we don't have any transaction cost, obviously and we haven't closed the deal yet.

But the due diligence cost we called out that's worth $0.02 that are included in the $1.01.

Okay.

Perfect.

And then maybe, Bryan, just a little more color on the accounting correction that you talked about, I think, as it relates to the Motorhome business?

Did I hear correctly that, that was a negative $10.8 million in the quarter?

I think you were trying to call out that you may have benefited in prior quarters from that, but did I hear that correctly?

Yes.

Yes, you did.

So just a little more color.

We performed our physical count for a work in process inventory once per year and that's just in the ordinary course of closing our books.

And as a result that count, which we performed in the fourth quarter, we identified we needed to increase cost of goods by $10.7 million.

That caused Q4 costs to be higher, and so you are interpreting that correctly than the -- otherwise it would've been.

But to be clear again, the 2019 fiscal year, the full year is correctly stated.

Okay.

Okay.

That's great.

And then just, I guess, when I look at the backlog for Towables and certainly directionally, it's been moving in a very healthy direction.

If I look at the implied intraquarter orders in Towables, I mean, it is a large jump this quarter.

I think you were up like 34%, 35% year-over-year.

So how does that play into your thoughts about dealers, their ordering and stocking patterns and maybe just the overall health of your dealer base?

Yes.

I think the health of our dealer base across each of our business slightly varies based on the maturity and the current vitality of the brand.

Certainly, I think the Grand Design dealer base has been able to produce the momentum on that brand to date and has the potential and capacity to continue forward as well.

We do believe that even in a period where inventory levels appear to have been largely reset, maybe not all the way, but largely reset, the dealers are continuing to be very careful and selective with the brands, but also the models and the amount of inventory that they choose to carry on their lots.

And so as I mentioned in an answer to a previous question, we believe that the large stocking order backlog process that was used by many of the OEMs during the later cycles of the recovery, 2015, '16 and '17, especially, has shifted a bit more to a natural reorder process by the dealers.

And it really depends, sometimes you have to take the new products out of this discussion as well and talk about, okay, are you introducing a new product to the market and setting new inventory on the shelves?

Or have you annualized that and you are now in sort of a steady operating state?

So the Grand Design team continues now to refresh their product line.

They have not introduced a new subbrand for a little bit more than a year now.

So you are starting to see a bit of a settling of orders into more of a replenishment process.

And again, as I mentioned, we are comfortable with the orders that we have in hand.

We've been very comfortable with the retail that we've seen in the market on that brand.

And the open house event was a very solid order production event for Grand Design.

Okay.

And maybe one last question, if I can.

There was news, I believe, last week earlier this week that one of the large RV transport companies has elected to shut down.

Any thoughts on how -- maybe you weren't using them to the extent that some others were and some of your dealers were?

But any thoughts on how that might impact you or timing of deliveries or cost of deliveries within the industry overall?

Yes.

It's a good question.

And I would say a number of our businesses are not impacted by that development at all.

One of our customers, Camping World, that we do business with in our Winnebago motorized business especially, will possibly see some impact with the transport that we've seen.

But it should be nothing material in terms of our financial results or our ability, we think, to be able to get market.

It is, again, I'm not in the middle of this personally, but it is our thought that many of these independent contractor drivers will potentially be shifted with their vehicles over to some of the other transport companies within the industry.

So for Winnebago Industries, we became aware of it very quickly.

It's not impacting our business on a day-to-day basis.

We don't anticipate it to much have impact in the future.

And I guess like with any other capitalist market, you'll see someone step in and vie and compete for that particular business within the industry.

So there may be a transition period, but we'll do everything we can to make sure it doesn't impact us to a large degree.

And our next question comes from Greg Badishkanian with Citi.

It's Fred Wightman on for Greg.

I think in the prepared remarks, you talked about expectations for low- to mid-single digits retail decline in 2020.

I believe you said that was for your fiscal year.

But you also talked about how you thought the RVIA forecast could be a bit conservative and those tend to be calendar estimates.

So can you just help us rationalize the 2 different time periods?

And any comments on more of an apples-to-apples basis would be really helpful.

Yes.

As you are aware and I won't be able to precisely answer your question, but as you are aware, our fiscal year runs from essentially September through August.

And you are correct and RVIA forecast is more on a calendar year 2020 basis.

I guess, I know other company's OEMs and suppliers do this as well.

But we've done some of our own internal modeling here at Winnebago around the inventory levels in the field, the historical, but also some of our own thoughts on dealer inventory turn levels in terms of where they want to run their business going forward.

And our estimates are showing that if we can see what I would call moderately okay retail, low to mid-single digits declines for 2020, our fiscal year, that in fact, it may be possible for the industry to have flat wholesale shipments during that specific time period.

We are now entering here into the next several months, some pretty significant shipment declines that were experienced a year ago by the industry as dealers essentially turned off the spigot.

So listen, in my 4 years at Winnebago, I think, I personally have been accused of being one of the more conservative prognosticators of industry shipments and retail amongst our peers.

And in this case, we're probably a little bit more moderately aggressive than some of the other stakeholders.

Just because we think if dealers can continue to get their feet under them from a confidence level on the retail side and customers continue to show up in their stores and have an appetite to buy, we think that they will stabilize their inventory levels about where they're at today, which means that they'll, in some cases, continue to even look at stocking back up a little bit.

So the reconciliation between the calendar year and our fiscal year, I haven't done that particular math.

But listen, our hope is that if the retail environment can stay solid, that dealers will continue to gain confidence over time.

Sure.

That's fair.

And if you could just dig into the Towables profitability in the quarter, there was a pretty big change in the year-over-year trends versus last quarter.

I know the release highlighted some input costs and then also sales allowances.

But could you just size the relative impact of those 2 items and then maybe do bit of a deeper dive in the profitability that you saw there this quarter?

Yes.

I don't think we're going to disclose the specific details underneath that.

The cost input increases, we talked a little bit earlier in terms of the general inflation and the timing with which the supply, the vendors in the industry have pushed through those increases.

Some, and many related to trade policy.

And so the cost input increases, generally speaking, are the biggest driver.

The other side of it or the other part we mentioned, is the allowances.

There was a question asked earlier on, hey is that the Grand Design.

We thought we understood Grand Design does not do discounting, that's correct, they don't.

On the other hand, the Winnebago Towables business doesn't have the same cachet with the dealer network.

And so they're not in the position that Grand Design is and they are because of the industry dynamics right now facing the higher allowances to move the product out of the lot.

And so it's really those 2 impacts, the cost increases as well as Winnebago Towables allowances that has the greatest impact on the margins.

Our next question comes from Brett Jordan with Jefferies.

This is Mark Jordan on for Brett.

Most of my questions been asked here today, but I was wondering kind of big picture question if you could talk about the company's brand portfolio strategy going forward, maybe should we see some additions in RV, Marine or maybe other adjacent markets?

Mark, this is Mike.

That's a topic we'll certainly touch on as well in a couple of weeks at our Investor Day event.

We generally do not publicly comment on business development plans or specific targets going forward.

But I would tell you that, 2 things, one, we are extremely pleased with the 4 brands that are active in the marketplace that we have in our portfolio today: Winnebago, Grand Design, Chris-Craft and I should say, in a few weeks, the Newmar brand as well.

We currently don't own that.

So we should be clear about that.

But those 4 brands come mid-November, we believe, are a tremendous platform from an outdoor lifestyle standpoint to attack the mid-to-premium side of the industries we compete in.

I think most stakeholders that we interact with are beginning to get the business portfolio strategy that we're putting together around premium brands, premium products, premium leadership teams, premium relationships with dealers, premium customer experiences, including the service side and understand that that's the type of portfolio that we're putting together.

And so if you look at either the core RV market that we're in today predominantly, or other adjacent outdoor lifestyle markets that we could enter and one we've already entered in Marine.

I will tell you that our eyes are on the premium side of those markets in terms of, we've said this before, but in a very simplistic good, better, best context, we are very much focused on better and best.

And so our business development efforts will definitely be targeted at those areas of the industries.

But that's not to say that we don't have other ideas for how we can grow our portfolio, our top line and our bottom line in the future as well.

So yes, we're very pleased with the brands we've been able to pursue.

And they are all unique, all present a unique value proposition to the marketplace, but they all have golden threads around their focus on product quality, value, innovation and superior customer service and experiences.

And as long as we can continue to put together a portfolio like that, we believe there is incredible value from a synergy standpoint, from an operating standpoint, from a culture standpoint, even working with suppliers and dealers around the portfolio like that, that will continue to hopefully produce great outcomes for us financially and in the market in the future.

And our next question comes from Brandon Rolle with Northcoast Research.

Most of my questions have been asked as well.

I guess I would, one, could you comment on your order trends at open house, I'm not sure if you touched on that.

And two, with the cleaner dealer inventory setting into your fiscal year 2020 and the expectations for improved retail sales year-over-year, would you expect promotional activity to trend lower in fiscal year 2020 given some of the tailwinds you have going for you?

This is Michael.

I'll answer those.

We did make a specific comment in the script about our open house results.

We will not share those results by brand.

But at a consolidated Winnebago Industries level for both the Winnebago and the Grand Design brands, our open house orders were up 11% year-over-year at that event, which we are very pleased with.

In terms of your second question, remind me again what that one was.

That was the...

It's the promotional activity.

Promotional activity.

Thank you.

It is, I think, beginning to settle a bit.

I mentioned late in the earnings call that we believe that in the RV market, there is a nice equilibrium right now between the dealers and the OEMs in terms of -- I hate to use the word power, but in terms of sort of a push and a pull, and really the good brands with good businesses are gaining favor with the dealers.

And the brands that do not have as healthy a product line from an end customer standpoint, and potentially are not serving the dealers as well from a parts and service standpoint, are potentially falling out of favor with dealers within the industry.

We need to make sure that we have all of our businesses on the right side of that equation.

But a lot of the promotional activity as well in the last year, we believe was spent by both the dealers and the OEMs dealing with aging inventory and previous model-year product, 2018 now 2019.

And the amount of aging inventory, especially excessively aged inventory and previous model year inventory continues to come down at a nice pace based on the information that we can gather from our inventory finance partners.

And so we believe you'll start to see any promotional spending shift from, more from the aged inventory reduction side of the business to driving current model retail going forward.

Thank you.

And I'm showing no further questions.

I'd like to turn the call back to Mr. Steve Stuber, Director of Investor Relations for closing remarks.

Great.

Thank you.

And thank you, everyone, for joining us today.

We really appreciate you taking the time out of your busy day to join us this morning.

And we do look forward to seeing and speaking with many of you, not only throughout the remainder of the quarter, but also again as both Bryan and Mike have mentioned, our Investor Day in New York City on November 6. Thank you, and have a great day.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now all disconnect, have a great day.