Winnebago Industries Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Craig Kennison - Robert W. Baird & Co., Inc. - Analyst : Hey. Good morning. Thanks for taking my question. My question really relates to dealer health. There's been a lot of stress on your dealer networks and RV and marine industries. A lot of dealers have been hit hard there, including some large and prominent dealers. I'm just wondering if you could frame the health of your RV and marine dealer networks? And where you see risk to Winnebago as a result of any pressure there?

Question: Craig Kennison - Robert W. Baird & Co., Inc. - Analyst : Thanks. And as a follow-up, Bryan, have you seen an elevation in your need to move inventory around based on the conditions you described? Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning No, not at this stage, Craig.

Question: Michael Swartz - Truist Securities - Analyst : Hey, guys. Good morning. Maybe just to start, I mean, in the quarter, you undershipped the RV industry pretty significantly. I'm wondering maybe just the strategy there. Do you think that's having any implications on retail market share for your brands?

Question: Michael Swartz - Truist Securities - Analyst : Okay. That's helpful. Thank you, Mike. And then maybe for Bryan, just I think you gave some commentary just directionally in the second quarter, in line with the first quarter from a revenue perspective, a little better profitability. Could you maybe dig down a little deeper into that, maybe what some of the puts and the takes are for us to think about 2Q versus 1Q production mix, costs, things of that nature. Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning Yes. I think sequentially, there will be a couple of impacts that we would expect on margin. First, we did have some warranty costs associated with a recall specifically in the first quarter. I expect warranty will improve slightly sequentially. And then I think just some ongoing productivity improvements that we have seen continue to take hold in Q2. And then finally, it's a very competitive discounting practice out there in the marketplace right now, and some of that should start to ease as we get into the new calendar year here in our second quarter. So those are probably sequentially the main things I'd call out. And obviously, a lot of the leverage we're experiencing in both Q1 and Q2 will then start to ease as our seasonality improves in the back half of our fiscal year and we start to see greater sales flowing through.

Question: Tristan Thomas-Martin - BMO Capital Markets - Analyst : Good morning. Could you maybe provide us with maybe some metrics around Lineage, are we still expecting -- I'm sorry Grand Design Motorized $100 million in annual sales contribution kind of what we expect that ramp will be? And then maybe the timing of when Series F is going to start to ramp production wise?

Question: Tristan Thomas-Martin - BMO Capital Markets - Analyst : Maybe just one quick clarification. I'm assuming Series F was included in Bryan's initial guidance last quarter.

Question: Tristan Thomas-Martin - BMO Capital Markets - Analyst : Okay. Awesome. Thank you.

Question: Sean Wagner - Citi - Analyst : Hey, guys. Kind of as you touched on retail has been stronger in recent months. Is there anything tangible you can point to behind that with regard to consumer or dealer sentiment kind of how do you see that translating into the second half recovery? And have you seen an uptick in dealer appetite for new orders yet? Or will they kind of need to see a more prolonged improvement in demand for that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 3:00PM, WGO.N - Q1 2025 Winnebago Industries Inc Earnings Call

Question: Sean Wagner - Citi - Analyst : That was very helpful. Just to clarify, the November and December improvement from October is on a year-over-year basis?

Question: Sean Wagner - Citi - Analyst : Thank you very much.

Question: Fred Wightman - Wolfe Research - Analyst : Hey, guys. Good morning. I just wanted to sort of contextualize the guidance. So if we think about the first quarter, it came in below Street numbers, it sounds like 2Q numbers need to come down based on Bryan's commentary. But the full year is unchanged, right? So did the Street just have numbers wrong? Has the first half been a little bit weaker than you guys sort of thought, but you're encouraged by some of those green shoots that Mike just mentioned? How should we sort of evaluate the setup of the year versus how you thought it would shape up at the start?

Question: Fred Wightman - Wolfe Research - Analyst : Okay. Understood. And then on Motorized, to your point, this is the first quarter, that's kind of the Grand Design start-up, inefficiencies are shifting there. So could you help us think about what the drag was on that Motorized margin in the quarter? I think you've given some numbers previously, but is it better or worse, unchanged versus that sort of corporate drag that we saw last quarter? Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning Yes. I'll speak to kind of the holistic performance at EBITDA margin for Motorhome. The biggest impact by far is the deleverage impact from the lower sales. That's worth good 4.5 points there. The discounting that we're seeing out in the marketplace is impacting the segment by a good 3 points to the negative. I called out some warranty impacts that we were seeing in Motorized. And those are primarily driven by some recall activity that we had in the quarter. That was, call it, 1 point to 1.5 points of margin impact. We did have some operational improvements year-over-year. So those were welcomed and good to see from the team's efforts. And then we didn't call out specifically in the earnings release, the Grand Design Motorhome I did in my prepared remarks. But that was -- think of that as less than 1 point in the 0.5 to 1 point impact as it is still in the early stages of its output and sales recognition. So we expect that, as we said, in some earlier calls to be accretive to the Motorhome segment as we wrap up fiscal year '25.

Question: Bret Jordan - Jefferies - Analyst : Hey. Good morning, guys. On the Marine segment, I guess, outperformance within the portfolio, is that something that you're seeing underlying improvement there at a greater rate than what you're seeing in these green shoots in the RV space? Is that inflecting more dramatically in helping your outperformance? Or is it really just share gain in an otherwise still sluggish segment?

Question: Bret Jordan - Jefferies - Analyst : Okay. Great. And then could you give us any quick updates on what's going on in the Motorhome around the CARB legislation. And I guess are there any signs that they'll give you some kind of break on that restriction? And I guess how does that set up with the Grand Design Super C, is that a chassis supplier that you could sell in a CARB state? Or is that a freightliner somebody else is rescripting?

Question: Bret Jordan - Jefferies - Analyst : Great. Thank you.

Question: Joe Altobello - Raymond James - Analyst : Thanks, guys. Good morning. Just a couple of questions on affordability, if I could. You mentioned through the recent Fed rate cuts as offering some optimism for retail in the back half of the year. But I feel like at the 10-year, for example, the yield on the 10-year has moved higher since the Fed started cutting rates. So I guess first question is, what are you guys seeing in terms of the typical borrowing rate that buyers are paying in the market today? Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning Yes, you're exactly right, Joe. We're not seeing movements yet in that 10-year, which is what most retail rates are tied to. I guess I would point out that the current retail environment and what we are seeing in terms of the green shoots that Mike talked about earlier, those are all in the context of the current rate environment. I think perhaps it could be I hypothesize that consumers have been waiting for improvements to the retail lending rates before buying. But nonetheless, I guess, we're encouraged by some of those green shoots and retail activity and the year-over-year stabilization, which is much of what we are counting on a flattish retail performance in 2025, which we're seeing some good trends towards that, as Mike mentioned earlier. So there's many variables we talk about impacting retail demand, interest rates being one of them, certainly, consumer confidence and many other factors as well impact that. And I think based on the current language the Fed is using, that's hinting out another couple of cuts in 2025. I think our expectations that we're building into our guidance capture that environment, okay? It's very hard for us to correlate with accuracy the impact of two more rate cuts versus three more rate cuts. But as I said, I think our guidance appropriately captures the current environment.

Question: Joe Altobello - Raymond James - Analyst : Got it. Okay. Thank you.

Question: Scott Stember - Roth MKM - Analyst : Good morning, guys. Thanks for taking my questions as well. Going over to Motorized. You mentioned I guess, the North Iowa operations having some challenges. Can you maybe just walk us through some of the things that are being done. You talked about some facility consolidations. Maybe talk about that and maybe talk about product development and anything else that we could expect to help improve the margins here going forward.

Question: Scott Stember - Roth MKM - Analyst : Got it. And then last question on the balance sheet. We're at 3 times levered now, expecting, I guess, free cash flow in the next few quarters to pick up. But your commentary about the second quarter, we want to believe that we might go a little bit higher than the 3 times in the next quarter or so before things go back down. Are there any covenant restrictions or anything that we need to consider? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 3:00PM, WGO.N - Q1 2025 Winnebago Industries Inc Earnings Call Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning No, there really aren't. We have incurrence-based covenants, but we don't anticipate any issues with maintenance type of covenants. And I think your assessment is correct there that maybe it will nudge up a little bit higher with the year-over-year erosion in EBITDA or the denominator in that equation. But we still see a path of nice recovery as we get from Q2 through Q4.

Question: Noah Zatzkin - KeyBanc Capital Markets Inc. - Analyst : Hi. Thanks for taking my questions. I guess, first, just in terms of ASPs, when we look out across the rest of the year, is 1Q kind of a good marker for how to think about ASPs shaping up by segment? And then second, you guys gave good color on how you're kind of thinking about the state of the RV industry shaping up. Any thoughts around Marine dynamics looking out through the rest of the year? Any anecdotes or kind of green shoots from an industry perspective in marine that you could share would be helpful as well. Thanks. Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning I'll take the first part on ASPs, Noah, and then Mike can comment on the marine market. ASPs are most notably impacted in Towables as they continue to have a preference by the end customer towards affordability. And so we continue to ship an overweighted part of our affordable lineup as a result of that. Most notably, the Transcend and Grand Design is having some very strong success, and that tilts the ASP towards that decline. I think that will continue likely through Q2 and then start to ease a bit as we get into the selling season and start to see a pickup in some of the broader market, which should ease the ASP decline. I don't expect a whole lot of ASP decline in the marine side or in the Motorhome side. Not anything of note or a meaningful decline there. Mike, on the marine side, do you want to comment?

Question: Noah Zatzkin - KeyBanc Capital Markets Inc. - Analyst : Thank you.

Question: Michael Albanese - The Benchmark Company LLC - Analyst : Good morning, guys, and thanks for taking my questions. Just two quick ones. First, as it relates to consumer affordability. Obviously, we talked about rates and borrowing costs. What are you seeing in terms of insurance and insurance premiums, inflationary pressures stabilizing, decelerating? Really any color you could provide around that would be helpful.

Question: Michael Albanese - The Benchmark Company LLC - Analyst : Got it. That's helpful. Thank you. And then just a clarifying question on Marine. Obviously, Barletta and Chris-Craft both taking share. Were -- are units -- I'm sorry, if I missed this, but are unit volumes positive across both brands? Or is one a bigger driver than the other? Obviously, Barletta is a bigger piece of the business, but --

Question: Michael Albanese - The Benchmark Company LLC - Analyst : Got it. Yes, that's helpful. I mean, really, what I was trying to parse out was, within recreational boating, right, there's kind of a few different stories depending on how you break down into the data, whether you're looking at pontoons, ski wake, saltwater, et cetera. So I was just trying to get a sense around that. That's helpful. Thank you.

Question: David Whiston - Morningstar, Inc. - Analyst : Thanks. Good morning. Mike, you made a comment earlier about how you're not de-contenting, you're focusing on what consumers value. So I'm just curious what features do they value most right now? And then how is that different from not de-contenting?