Winnebago Industries Inc Q3 2024 Earnings Call Transcript

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

Question: Tristan Thomas-Martin - BMO Capital Markets - Analyst : Hey, good morning. Mike, the profitability headwinds in the fourth quarter is that tied to clearing kind of the remaining carryover inventory or just incentivizing dealers to order. And then while you're at it, where do you think carryover inventory is for you guys and then for the industry?

Question: Tristan Thomas-Martin - BMO Capital Markets - Analyst : Okay. Thank you. I'll hop back in the queue.

Question: James Hardiman - Citi - Analyst : Hey, good morning. Thanks for taking my question. So on the inventory front, maybe a little surprised to hear you say you're actually pushing back the introduction of some of the model year '25. Certainly, some of the commentary that we've heard from dealers is that they're actually waiting for the model year '25 to make orders because they don't want to further exacerbate the aging issue. Maybe speak to the thought process there, do you think it will be a catalyst once the '25 begin to make their way into the channel. And I think there's been some discussion at an industry level of moving up that model year changeover, any thoughts there?

Question: James Hardiman - Citi - Analyst : Got it. Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning There's been some outliers on the total side to that summertime model year introduction, just a couple of outliers. I think the big players for the most part are disciplined in that regard. The motorhome has been less disciplined. So if you were to look at it segment by segment, motorhome has certainly had a history and continued this year to introduce the next model year earlier than the summer period here in July, when the industry largely shakes hands and agrees, is the model year turnover. Some of that driven by the OEM, the chassis providers on the motorized side having a different timing of model year changeover too.

Question: James Hardiman - Citi - Analyst : It does. That's good perspective. Thanks, guys.

Question: Bret Jordan - Jefferies - Analyst : Hey. Good morning, guys.

Question: Bret Jordan - Jefferies - Analyst : Could you talk a bit more about the general -- the relative health, I guess, of the dealer channel, marine versus RV. Obviously, the Marine downturn started after the RV downturn, but might be a little deeper at the moment. Maybe could you talk about are we going to see attrition or meaningful incremental attrition in either one of those channels given just inventory carrying costs and slow retail sales?

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

Question: Michael Swartz - Truist Securities - Analyst : Hey, guys. Good morning. Maybe just drilling down a little bit into profitability and more specifically, the motorized business. I think EBITDA margins were in the 4%, 5% range this quarter and over the past year or so as productions come down, they've really been kind of sticking in that 7% range. So maybe help us understand, I guess, one, what changed during the third quarter to drive it down about 300 basis points. And then I guess, two, how should we think about that going forward?

Question: Michael Swartz - Truist Securities - Analyst : Okay. And on the, I guess, on the new Grand Design Lineage, I know this product hasn't officially launched yet, but any color or context you can give us around just the response from the dealer base? And any way to think about, maybe the initial distribution opportunity there, maybe the number of doors and then what maybe the initial stocking levels will look like on that business?

Question: Michael Swartz - Truist Securities - Analyst : Okay. Great. Thanks.

Question: Noah Zatzkin - KeyBanc Capital Markets Inc. - Analyst : Hi. Thanks for taking my question. I guess just kind of related to the kind of affordability concerns in the industry. Just wondering if you could kind of provide any color on how you're thinking about ASPs across segments? And then somewhat relatedly, I think we had kind of picked up from some other industry participants that they're expecting motorized chassis price increases from the auto OEMs. So as it relates to the motorized side and model year '25, like is ASP an offset there? Kind of how are you thinking through those kind of cost increases? Thanks. Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning Hi, Noah. This is Bryan. I'll start with the second part of your question. Yeah. I did see your note on chassis costs. I think, frankly, the industry has seen most of those increases. It's in the rearview mirror. There's still some inflationary pressures remaining on motorized chassis that we're anticipating but nothing of the magnitude that you cited. We certainly, and I don't want to minimize the size of increases we've seen in motorized chassis over the last three years because they have been high. But the remaining increases I think, will be modest and will be digestible as it relates to our ability to price for those remaining increases in the coming years. So I guess I'd start with that. And then it kind of gets into the affordability question that you raised broadly. So I'll shift to that part of the question. And on the towable side, we're seeing very benign cost environment. So on an apples-to-apples basis, if we look at our bonds from model year '24

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

Question: Craig Kennison - Robert W. Baird & Co., Inc. - Analyst : Hey, good morning. Thanks for taking my question. You've addressed most of them already, but I wanted to follow up on Mike's question earlier. Regarding Grand Design in motorhomes and scaling that opportunity, what's the philosophy around the margin profile of that brand within motorhomes. Would you expect it to be accretive to margin in motorhomes over time in the way that it is in towables?

Question: Craig Kennison - Robert W. Baird & Co., Inc. - Analyst : That's great. And then maybe to follow up, you made some comments about Q4 revenue and margin profile, profitability profile. I'm wondering if you could just help us think through like segment EBITDA assumptions in that. And in particular, I'm guessing motorhomes could stick around that 4.5% range. Is that what you're suggesting? Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning I think, Craig, we're going to refrain from getting into the segment-level conversations that we've been providing the last couple of quarters. We'll come back in the fall in our -- as part of our 2024 wrap-up and looking forward into 2025 and provide some, we think, better guidance, forward-looking guidance was that the industry and more specifically Winnebago related. But we're going to refrain from getting into a segment-level forward discussion at this time.

Question: Scott Stember - Roth MKM - Analyst : Good morning, guys. Thanks for taking my questions. Mike, you made a comment about how dealers -- it sounds like they're starting to go back to some of their prior pre-COVID ordering patterns, which would help your share. But then you also mentioned that at least, I guess, on the towable's Grand Design that you expect some near-term pressure on market share. Can you maybe just talk about those two opposing comments or just some of that have to do with -- there's a couple of new players in the market that may be giving a couple of headwinds. Just trying to parse that out.

Question: Scott Stember - Roth MKM - Analyst : Got it. And then just last question. You made a comment that there's really no '22s left and '23s and '24s out in the field on the RV side. Could you -- I don't know if you gave the information of how much of it is '23s versus '24s in a percentage standpoint?

Question: Scott Stember - Roth MKM - Analyst : Got you. That's all I had. Thank you.

Question: Joe Altobello - Raymond James - Analyst : Thanks. Hey, guys. Good morning. Mike, I just wanted to pick up on that last comment you made about June being a little bit better than May. I guess, first, was that an industry comment as well or was it just Winnebago specific?

Question: Joe Altobello - Raymond James - Analyst : Good morning. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 2:00PM, WGO.N - Q3 2024 Winnebago Industries Inc Earnings Call

Question: Joe Altobello - Raymond James - Analyst : Okay. Helpful. And just a follow-up on that. I mean, obviously, you mentioned cautious dealer network several times this call and other calls. What do you think your dealers need to see to start ordering at a more normal rate. I mean, obviously, one or two good months probably is going to do it. But what are you hearing from dealers in terms of what would cause them or push them to start ordering at a more normalized order pattern?

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

Question: David Whiston - Morningstar - Charles Stanley - Analyst : Thanks. Good morning. In the press release, you called out inefficiencies on towables and motorhomes. Just curious, is the motorhome inefficiency, is that chassis related or is it more of the other variables you were talking about earlier, like direct labor? Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning It's more direct labor, David. And then on the towable side, as I mentioned, we had some plant consolidation in the Winnebago line, we had some new product launches that didn't go as we would have liked them to in terms of the productivity. Those things that I mentioned are really the drivers.

Question: David Whiston - Morningstar - Charles Stanley - Analyst : All right. Thank you. And just one last question on the direct labor issue we talked about earlier. Is that quality-related issue or something else? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 20, 2024 / 2:00PM, WGO.N - Q3 2024 Winnebago Industries Inc Earnings Call Bryan Hughes - Winnebago Industries Inc - Chief Financial Officer, Senior Vice President - Finance, IT and Strategic Planning Yeah. In certain instances, there's some quality things that we've been dealing with on the portfolio. I wouldn't say that it's at the top side of that, but it's not the main driver. The main driver is just the level of shipments, the deleverage that occurs and the product mix shifts that need to be done in an environment like this. So I would characterize it more related to that. We have had some new product introductions that have caused some initial productivity challenges as well, but that's not terribly unusual relative to our past.

Question: David Whiston - Morningstar - Charles Stanley - Analyst : Okay. Thank you. Appreciate it.