SOURCE: Winnebago Industries, Inc.

Winnebago Industries, Inc.

March 22, 2017 07:00 ET

Winnebago Industries Announces Second Quarter Fiscal 2017 Results

Quarterly gross margin expansion of 210 basis points compared to prior year; Towable segment accounted for 46% of revenue in second quarter of Fiscal 2017

FOREST CITY, IA--(Marketwired - March 22, 2017) - Winnebago Industries, Inc. (NYSE: WGO), a leading United States recreation vehicle manufacturer, today reported financial results for the Company's second quarter of Fiscal 2017.

Second Quarter Fiscal 2017 Results
Revenues for the Fiscal 2017 second quarter ended February 25, 2017, were $370.5 million, an increase of 64.2%, compared to $225.7 million for the Fiscal 2016 period. Gross profit was $49.3 million, an increase of 95.1% compared to $25.3 million for the Fiscal 2016 period as gross profit margins expanded 210 basis points driven by the favorable inclusion of Grand Design products within the overall sales mix. Operating income was $28.4 million for the current quarter, an improvement of 110.1% compared to $13.5 million in the second quarter of last year. Fiscal 2017 second quarter net income was $15.3 million, or $0.48 per diluted share, an increase of 63.3% compared to $9.4 million, or $0.35 per diluted share, in the same period last year.

President and Chief Executive Officer Michael Happe commented, "Our second quarter results reflect our progress in transforming Winnebago into a larger company with greater scale, a more balanced portfolio, increased profitability and better positioned to compete effectively across the entire RV market. In our first full quarter with Grand Design as part of our organization, we continued to deliver significant wholesale and retail growth in our Towable segment, enabling us to reach our highest level of consolidated gross margin in nearly a decade. In addition to delivering improved profitability, we also made significant progress in further strengthening our balance sheet by reducing our debt by $13 million in the quarter. As we move into the second half of 2017, we intend to build on this momentum by further expanding Towable market penetration and working diligently to improve future results for our Motorized business by strengthening product value and leveraging our reputation for industry leading customer service."

Significant items impacting income before income taxes in the second quarter of Fiscal 2017:

  • Postretirement health care benefit income: as previously disclosed, the Company's decision to terminate its postretirement health care plan effective January 1, 2017 positively impacted the quarter by $12.0 million or $0.25 per diluted share, net of tax, compared to prior year postretirement health care benefit income of $1.6 million or $0.04 per diluted share, net of tax. All of the benefits of this plan termination have now been recorded in the financial statements and there will be no further impact on a prospective basis.
  • Grand Design acquisition related expenses:
    -- additional transaction costs related to the Grand Design acquisition were $0.5 million, or $0.01 per diluted share, net of tax
    -- a full quarter of amortization expense of $10.4 million was recorded related to the definite-lived intangible assets acquired, or $0.22 per diluted share, net of tax. We expect that there will be a similar level of amortization expense in the third quarter of Fiscal 2017 as the remaining backlog-related intangible assets are amortized. Starting in the fiscal fourth quarter, we expect amortization expense will be approximately $2.0 million per quarter through Fiscal 2021.
    -- a full quarter of interest expense of $5.2 million was recorded related to the debt established to fund the acquisition, or $0.11 per diluted share, net of tax.

Excluding these items as well as depreciation expense, consolidated adjusted EBITDA (a non-GAAP measure) was $29.1 million compared to $13.3 million last year, an increase of 118.5%.

Motorized
Revenues for the Motorized segment were $198.9 million for the quarter, down 3.0% from the previous year. Although unit deliveries were up 3.6% over the prior year same quarter, the average selling price of product sold decreased 5.2% due to a shift in product mix. Segment Adjusted EBITDA was $9.1 million, down 22.3% from the prior year. Adjusted EBITDA decreased 110 basis points, primarily driven by product mix, pricing pressures and acceleration of West Coast operations.

Towable
Revenues for the Towable segment were $171.6 million for the quarter, up $151.0 million over the prior year, driven by the addition of $143.6 million in revenue from the Grand Design acquisition and continued strong organic growth from Winnebago-branded Towable products in excess of 36%. Segment Adjusted EBITDA was $20.0 million, up $18.4 million over the prior year. Adjusted EBITDA increased 400 basis points primarily due to the inclusion of Grand Design's products within this segment.

Balance Sheet
As of February 25, 2017, the Company had total outstanding debt of $329.5 million ($340.0 million of debt, net of debt issuance costs of $10.5 million) and working capital of $142.1 million. The debt to equity ratio was 81.8% and the current ratio was 1.9 as of the end of the quarter. Cash from operations improved by $14.0 million compared to the same period last year.

Conference Call
Winnebago Industries, Inc. will conduct a conference call to discuss second quarter Fiscal 2017 results at 9:00 a.m. Central Time today. Members of the news media, investors and the general public are invited to access a live broadcast of the conference call via the Investor Relations page of the Company's website at http://investor.wgo.net. The event will be archived and available for replay for the next 90 days.

About Winnebago
Winnebago is a leading U.S. manufacturer of recreation vehicles under the Winnebago and Grand Design brands, which are used primarily in leisure travel and outdoor recreation activities. The Company builds quality motorhomes, travel trailers and fifth wheel products. Winnebago has multiple facilities in Iowa, Indiana, Oregon and Minnesota. The Company's common stock is listed on the New York and Chicago Stock Exchanges and traded under the symbol WGO. Options for the Company's common stock are traded on the Chicago Board Options Exchange. For access to Winnebago's investor relations material or to add your name to an automatic email list for Company news releases, visit http://investor.wgo.net.

Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements, including, but not limited to increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increase in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions, integration of operations relating to mergers and acquisitions activities, any unexpected expenses related to ERP, risks relating to the integration of our acquisition of Grand Design including: risks inherent in the achievement of cost synergies and the timing thereof, risks related to the disruption of the transaction to Winnebago and Grand Design and its management, the effect of the transaction on Grand Design's ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties, risk related to compliance with debt covenants and leverage ratios, risks related to integration of the two companies and other factors. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC) over the last 12 months, copies of which are available from the SEC or from the Company upon request. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this release or to reflect any changes in the Company's expectations after the date of this release or any change in events, conditions or circumstances on which any statement is based, except as required by law.

  
Winnebago Industries, Inc.  
Condensed Consolidated Statements of Income (Unaudited)  
(In thousands, except percent and per share data)  
      Three Months Ended    
  February 25, 2017 February 27, 2016
Net revenues  $370,510   100.0  % $225,672   100.0  %
Cost of goods sold   321,194   86.7  %  200,396   88.8  %
 Gross profit   49,316   13.3  %  25,276   11.2  %
Operating expenses:                   
 Selling   9,553   2.6  %  4,929   2.2  %
 General and administrative   12,540   3.4  %  8,437   3.7  %
 Postretirement health care benefit income   (11,983 ) (3.2 )%  (1,593 ) (0.7 )%
 Transaction costs   463   0.1  %  -   -  %
 Amortization of intangible assets   10,367   2.8  %  -   -  %
  Total operating expenses   20,940   5.7  %  11,773   5.2  %
Operating income   28,376   7.7  %  13,503   6.0  %
Interest expense   5,178   1.4  %  -   -  %
Non-operating expense   4   -  %  18   -  %
Income before income taxes   23,194   6.3  %  13,485   6.0  %
Provision for income taxes   7,916   2.1  %  4,131   1.8  %
Net income  $15,278   4.1  % $9,354   4.1  %
Income per common share:                   
 Basic  $0.48       $0.35      
 Diluted  $0.48       $0.35      
Weighted average common shares outstanding:                   
 Basic   31,577        26,936      
 Diluted   31,686        27,015      
Percentages may not add due to rounding differences.              
                
      Six Months Ended    
  February 25, 2017 February 27, 2016
Net revenues  $615,818   100.0  % $439,895   100.0  %
Cost of goods sold   537,627   87.3  %  389,370   88.5  %
 Gross profit   78,191   12.7  %  50,525   11.5  %
Operating expenses:                   
 Selling   15,423   2.5  %  9,944   2.3  %
 General and administrative   22,446   3.6  %  17,257   3.9  %
 Postretirement health care benefit income   (24,796 ) (4.0 )%  (2,938 ) (0.7 )%
 Transaction costs   5,925   1.0  %  -   -  %
 Amortization of intangible assets   12,418   2.0  %  -   -  %
  Total operating expenses   31,416   5.1  %  24,263   5.5  %
Operating income   46,775   7.6  %  26,262   6.0  %
Interest expense   6,306   1.0  %  -   -  %
Non-operating income   (83 ) -  %  (117 ) -  %
Income before income taxes   40,552   6.6  %  26,379   6.0  %
Provision for taxes   13,536   2.2  %  8,467   1.9  %
Net income  $27,016   4.4  % $17,912   4.1  %
Income per common share:                   
 Basic  $0.91       $0.66      
 Diluted  $0.91       $0.66      
Weighted average common shares outstanding:                   
 Basic   29,707        26,956      
 Diluted   29,827        27,042      
Percentages may not add due to rounding differences.               
 
Winnebago Industries, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
 
   Feb 25,
2017
 Aug 27,
2016
ASSETS        
Current assets:        
 Cash and cash equivalents  $10,931  $85,583
 Receivables, net   120,498   66,184
 Inventories   148,456   122,522
 Prepaid expenses and other assets   13,943   6,300
  Total current assets   293,828   280,589
Total property and equipment, net   67,858   55,931
Other assets:        
 Goodwill   245,393   1,228
 Other intangible assets, net   240,682   -
 Investment in life insurance   26,862   26,492
 Deferred income taxes   14,203   18,753
 Other assets   5,895   7,725
  Total assets  $894,721  $390,718
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities:        
 Accounts payable  $66,873  $44,134
 Current maturities of long-term debt   11,301   -
 Income taxes payable   -   19
 Accrued expenses   73,513   48,796
  Total current liabilities   151,687   92,949
Non-current liabilities:        
 Long-term debt, less current maturities   318,164   -
 Unrecognized tax benefits   1,926   2,461
 Deferred compensation and postretirement health care benefits, net of current portion   19,370   26,949
 Other   959   -
  Total non-current liabilities   340,419   29,410
Shareholders' equity   402,615   268,359
  Total liabilities and shareholders' equity  $894,721  $390,718

  
Winnebago Industries, Inc.  
Condensed Consolidated Statements of Cash Flows (Unaudited)  
(In thousands)  
   Six Months Ended  
   Feb 25,   Feb 27,  
   2017   2016  
Operating activities:           
 Net income  $27,016   $17,912  
Adjustments to reconcile net income to net cash provided by operating activities:           
 Depreciation   3,428    2,763  
 Amortization of intangible assets   12,418    -  
 Amortization of debt issuance costs   485    -  
 LIFO expense   598    588  
 Stock-based compensation   1,539    1,266  
 Deferred income taxes   6,857    819  
 Postretirement benefit income and deferred compensation expenses   (24,034 )  (1,915 )
 Other   (452 )  (502 )
Change in assets and liabilities:           
 Inventories   (11,232 )  (22,592 )
 Receivables, prepaid and other assets   (21,551 )  (8,988 )
 Income taxes and unrecognized tax benefits   (4,631 )  (1,456 )
 Accounts payable and accrued expenses   16,131    5,265  
 Postretirement and deferred compensation benefits   (1,430 )  (1,972 )
Net cash provided by (used in) operating activities   5,142    (8,812 )
   
Investing activities:           
 Purchases of property, plant and equipment   (6,938 )  (16,357 )
 Proceeds from the sale of property   65    10  
 Acquisition of business, net of cash acquired   (394,694 )  -  
 Proceeds from life insurance   -    295  
 Other   620    (3 )
Net cash used in investing activities   (400,947 )  (16,055 )
   
Financing activities:           
 Payments for purchase of common stock   (1,365 )  (3,054 )
 Payments of cash dividends   (6,370 )  (5,455 )
 Payments of debt issuance costs   (11,020 )  -  
 Borrowings on credit facility   366,400    -  
 Repayment of credit facility   (26,400 )  -  
 Other   (92 )  9  
Net cash provided by (used in) financing activities   321,153    (8,500 )
   
Net decrease in cash and cash equivalents   (74,652 )  (33,367 )
Cash and cash equivalents at beginning of period   85,583    70,239  
Cash and cash equivalents at end of period  $10,931   $36,872  
   
Supplemental cash flow disclosure:           
 Income taxes paid, net  $11,692   $12,848  
 Interest paid  $1,731   $-  
Non-cash transactions:           
 Issuance of Winnebago common stock for acquisition of business  $124,066   $-  
 Capital expenditures in accounts payable  $322   $750  

  
Winnebago Industries, Inc.  
Supplemental Information by Reportable Segment (Unaudited) - Motorized  
(In thousands, except unit data)  
   
   Quarter Ended     
   Feb 25, 2017  % of Revenue  Feb 27, 2016  % of Revenue  Change  
Net revenues  $198,936    $205,138      $(6,202 ) (3.0 )%
Adjusted EBITDA   9,117  4.6 % 11,740   5.7 % (2,623 ) (22.3 )%
                    
Unit deliveries  Feb 25, 2017  Product Mix % 1  Feb 27, 2016  Product Mix % 1  Change  
Class A   800  38.0 % 836   41.1 % (36 ) (4.3 )%
Class B   376  17.8 % 258   12.7 % 118   45.7 %
Class C   931  44.2 % 939   46.2 % (8 ) (0.9 )%
 Total motorhomes   2,107  100.0 % 2,033   100.0 % 74   3.6 %
   
   
   Six Months Ended         
   Feb 25, 2017  % of Revenue  Feb 27, 2016  % of Revenue  Change  
Net revenues  $394,061    $402,478      $(8,417 ) (2.1 )%
Adjusted EBITDA   19,140  4.9 % 23,464   5.8 % (4,324 ) (18.4 )%
                    
Unit deliveries  Feb 25, 2017  Product Mix % 1  Feb 27, 2016  Product Mix % 1  Change  
Class A   1,466  35.7 % 1,587   40.1 % (121 ) (7.6 )%
Class B   677  16.5 % 497   12.6 % 180   36.2 %
Class C   1,964  47.8 % 1,870   47.3 % 94   5.0 %
 Total motorhomes   4,107  100.0 % 3,954   100.0 % 153   3.9 %
   
   
   As Of     
   Feb 25,  Feb 27,     
Backlog 2  2017  2016  Change  
Units   2,143   2,792   (649 ) (23.2 )%
Dollars  $191,522  $253,492  $(61,970 ) (24.4 )%
               
Dealer Inventory                 
Units   5,068   4,737   331   7.0 %
1 Percentages may not add due to rounding differences.
2 We include in our backlog all accepted orders from dealers to be shipped within the next six months. Orders in backlog can be canceled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

  
Winnebago Industries, Inc.  
Supplemental Information by Reportable Segment (Unaudited) - Towable  
(In thousands, except unit data)  
   
     Quarter Ended    
     Feb 25, 2017  % of Revenue   Feb 27, 2016  % of Revenue   Change  
Net revenues   $171,574     $20,534       $151,040 735.6 %
Adjusted EBITDA    19,954  11.6 %  1,563   7.6 %  18,391 1,176.6 %
                     
Unit deliveries    Feb 25, 2017  Product Mix % 1   Feb 27, 2016  Product Mix % 1   Change  
Travel trailer     3,046  56.3 %  796   83.4 %  2,250 282.7 %
Fifth wheel     2,365  43.7 %  158   16.6 %  2,207 1,396.8 %
 Total towables     5,411  100.0 %  954   100.0 %  4,457 467.2 %
                     
                     
     Six Months Ended  
     Feb 25,  % of   Feb 27,  % of      
     2017  Revenue   2016  Revenue   Change  
Net revenues   $221,757     $37,417       $184,340 492.7 %
Adjusted EBITDA     24,610  11.1 %  2,623   7.0 %  21,987 838.2 %
                     
Unit deliveries    Feb 25, 2017  Product Mix % 1   Feb 27, 2016  Product Mix % 1   Change  
Travel trailer     4,555  61.4 %  1,520   85.9 %  3,035 199.7 %
Fifth wheel     2,868  38.6 %  250   14.1 %  2,618 1,047.2 %
 Total towables     7,423  100.0 %  1,770   100.0 %  5,653 319.4 %
                     
                     
             As Of      
Backlog 2            Feb 25, 2017  Feb 27, 2016   Change   
Units             8,490   168    8,322 4,953.6 %
Dollars           $261,995  $3,336   $258,659 7,753.6 %
                     
Dealer Inventory                           
Units             9,216   2,306    6,910 299.7 %
1 Percentages may not add due to rounding differences.
2 We include in our backlog all accepted orders from dealers to be shipped within the next six months. Orders in backlog can be canceled or postponed at the option of the dealer at any time without penalty and, therefore, backlog may not necessarily be an accurate measure of future sales.

Winnebago Industries, Inc.

Non-GAAP Reconciliation

The Company has provided non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the accompanying news release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the news release. The non-GAAP financial measures in the accompanying news release may differ from similar measures used by other companies.

The following table reconciles net income to consolidated Adjusted EBITDA.

       
   Quarter Ended   Six Months Ended  
   Feb 25,   Feb 27,   Feb 25,   Feb 27,  
(In thousands)  2017   2016   2017   2016  
Net income  $15,278   $9,354   $27,016   $17,912  
 Interest expense   5,178    -    6,306    -  
 Provision for income taxes   7,916    4,131    13,536    8,467  
 Depreciation   1,848    1,393    3,428    2,763  
 Amortization of intangible assets   10,367    -    12,418    -  
EBITDA   40,587    14,878    62,704    29,142  
 Postretirement health care benefit income   (11,983 )  (1,593 )  (24,796 )  (2,938 )
 Transaction costs   463    -    5,925    -  
 Non-operating expense (income)   4    18    (83 )  (117 )
Adjusted EBITDA  $29,071   $13,303   $43,750   $26,087  

The Company has provided non-GAAP performance measures of EBITDA and Adjusted EBITDA as a comparable measure to illustrate the effect of non-recurring transactions occurring during the quarter and improve comparability of our results from period to period. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our operating performance because they exclude amounts that we do not consider part of our core operating results when assessing our performance. These types of adjustments are also specified in the definition of certain measures required under the terms of our credit facility. Examples of items excluded from Adjusted EBITDA include the postretirement health care benefit results from terminating the plan and the transaction costs related to our acquisition of Grand Design.

Management uses these non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to competitors and peers as they assist in highlighting trends; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our board of directors to enable our board of directors to have the same measurement basis of operating performance as is used by management in their assessments of performance and in forecasting and budgeting for our company; (d) to evaluate potential acquisitions; and, (e) to ensure compliance with covenants and restricted activities under the terms of our credit facility. We believe these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry.

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