Report: Winnebago Q2 Market Share is Growing

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March 29, 2013 by   - () Leave a Comment

Editor's Note: Following this week's release of second quarter financial results by Winnebago Industries Inc., the investment firm of Robert W. Baird & Co. issued a client newsletter. Excerpts from the Baird newsletter follow. Winnebago is a leading manufacturer of motorhomes and towables and an iconic brand in the recreation vehicle market.

Raising price target to $22. Winnebago delivered another impressive quarter, highlighted by strong retail growth, a huge backlog and better profit margins. Big picture, we maintain a bullish fundamental outlook as evaporating negative equity fuels consumer spending and confident dealers restock depleted inventory. Meanwhile, Winnebago is gaining (market) share. Fundamentally, we see the potential for earnings power near $2.00, but believe shares fully reflect the opportunity and see better value elsewhere within the consumer discretionary space.

Robust recovery continues to unfold. Winnebago reported another terrific quarter. The company is taking share as consumer demand for RVs builds. Confident dealers are rebuilding depleted inventory, fueling robust orders and a strong backlog. Meanwhile, supply constraints and popular products have allowed Winnebago to capture full value on shipments (unlike the chronic discounting plaguing the towable market).

Highlights include:

  • Revenue. Revenue surged 35%, constrained somewhat by capacity limitations.
  • Retail. Implied motorhome retail jumped 23%, essentially in line with our 25% forecast.
  • Inventory. Dealer inventory remains lean, implying room for a re-stocking effect.
  • Backlog. The motorhome backlog surged 174%, more than doubling our forecast.
  • Confidence. Dealer confidence remains high, supporting more orders.
  • Margin. Reduced pressure to discount and better leverage on higher volumes are enhancing margin.
  • Earnings Per Share. EPS of $0.22 exceeded our $0.17 expectation.

Earnings power scenarios. With shares surging 110% in the last 12 months, investors clearly anticipate a robust recovery. In that context, we see the potential for Winnebago to earn $2.00 on 8,000 motorhome shipments, assuming 8% EBIT margins and a small contribution from towables – but a lot has to fall into place including a robust and sustained retail recovery, significant dealer restocking, and ongoing margin expansion. We raised our EPS estimates to $1.00 on 6,309 motorhomes (F2013) and $1.20 on 6,689 shipments (F2014).

Raised target to $22. We believe fundamentals support the rally in Winnebago shares as negative equity evaporates and dealers restock inventory – but encourage investors to weigh incremental investment against potential earnings power and alternatives in the consumer discretionary sector. History also suggests fear will return to the market (tax policy, government debt, slow economic growth, gas prices), which could create a better opportunity to add.

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