Earnings call transcript: Winnebago Q2 2025 sees stock surge on EPS beat
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Overview
The earnings call shows mixed results: modest revenue growth in the Towable RV segment but a decline in Motorhome RV revenues. Gross margin declined YoY but improved sequentially. The company is actively repurchasing shares and maintaining dividends, which is positive for shareholder returns. However, the net debt to EBITDA ratio is high, and warranty expenses are increasing. Q&A reveals management's reluctance to provide specifics on tariffs and inventory, indicating uncertainty. The market cap suggests less volatility, leading to a neutral stock price prediction.
Key Financial Performance
Revenue Q2 revenue for the Towable RV segment increased modestly year over year, primarily due to higher unit volume, partially offset by an industry shift toward more affordable models. Motorhome RV revenues were down year over year due to lower unit sales related to current market conditions, despite benefiting from the launch of the Grand Design Motorhome lineage lineup.
Gross Margin Gross margin declined year over year due to deleverage associated with the product mix shift, partially offset by operational efficiencies. However, gross margin improved 110 basis points sequentially, mainly due to lower allowances and discounts.
Adjusted EBITDA Adjusted EBITDA declined 340 basis points year over year due to the decline in gross margin and an increase in SG&A related to the mix of incentive-based compensation plans. However, adjusted EBITDA increased 140 basis points sequentially, driven by lower allowances and discounts and lower SG&A expense.
Net Debt to EBITDA Ratio At the end of Q2, the net debt to EBITDA ratio stood at 4.0 times, above the targeted range of 0.9 times to 1.5 times.
Free Cash Flow The company has a strong track record of generating annualized free cash flow, which supports its capital allocation strategy.
Stock Repurchase In the second quarter, the company repurchased $20,000,000 in stock, with $180,000,000 remaining under its share repurchase program.
Dividends In April, the company will pay a quarterly dividend of $0.34 per share, marking its forty-third consecutive quarterly dividend.
Warranty Expense Warranty expense in the Towable segment increased due to addressing historical quality issues, resulting in a higher ratio of warranty expense to sales, approximately 30 to 50 basis points higher than historical levels.
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Operating Highlights
New Product Launches: Grand Design’s new motorized division has successfully ramped up production of the Lineage brand’s inaugural product, the Series M Class C, receiving positive feedback for its quality and comfort. Initial shipments of the new Lineage Series F Super C Coach are underway, featuring advanced technology and premium amenities. Newmar is expanding its model year 2026 lineup, including the launch of the all-new Summit Air, enhancing its premium motorhome offerings. Winnebago Towables is resetting its product portfolio with a new pricing strategy and exciting new products to meet evolving customer needs. Chris Craft unveiled the Catalina 31, a redesigned luxury day boat, at the Palm Beach Boat Show.
Market Expansion: Winnebago aims to increase its market share in the towables segment from 1.4% to over 3% in the next three to five years. Barletta has become the fastest growing U.S. aluminum pontoon brand, increasing its market share to 9.5%. Winnebago is focusing on expanding its dealer relationships and product offerings to strengthen market presence.
Operational Efficiencies: Profitability increased sequentially due to operational improvements in the towable and motorhome RV segments. Winnebago is managing production output and input product costs effectively in a challenging market environment. Newmar is leveraging advanced 3D product development technology to reduce time to market for new products.
Strategic Shifts: Winnebago is implementing a tri-brand strategy in the motorhome sector to diversify offerings and mitigate market risks. A new senior executive leadership team at Winnebago is revitalizing the brand with a refreshed multi-generational product plan. Winnebago Towables is undergoing a strategic transformation to consolidate expertise and reset its portfolio.
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Risk or Challenges
Macroeconomic Uncertainty: Soft retail and growing macroeconomic uncertainty are creating a challenging sales environment across the outdoor recreation industry.
Consumer Confidence: Reduction in consumer confidence and sentiment is impacting sales expectations, leading to a decrease in adjusted EPS guidance.
Inventory Management: Dealers are prioritizing leaner inventory levels due to higher carrying costs, which may affect sales.
Tariff Impact: Tariffs pose a risk to cost structures, with potential price adjustments needed to mitigate their impact.
Warranty Expenses: Increased warranty expenses are being experienced due to historical quality issues, which may affect margins.
Competitive Pressures: Competitors forming strategic alliances with dealers may impact market dynamics and dealer relationships.
Economic Factors: Inflation and interest rate fluctuations are being monitored closely as they may affect consumer purchasing power.
Product Mix Shift: A shift towards lower-priced models is impacting gross margins and overall profitability.
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Guidance & Outlook
Strategic Initiatives: Focus on disciplined production, strong dealer relationships, improved operating efficiency, and sustained innovation to position for sustainable growth.
Revenue Target: Set a revenue target of $100 million plus for the overall Lineage brand lineup in fiscal 2025.
Product Development: Newmar is leveraging advanced 3D product development technology to reduce time to market for innovative products.
Towables Transformation: Winnebago Towables is undergoing a strategic transformation to reset its portfolio with a new pricing strategy and stronger dealer relationships.
Market Share Strategy: Tri-brand strategy in the motorhome sector aims to cater to distinct market segments and mitigate risks.
Adjusted EPS Guidance: Reduced to a range of $2.75 to $3.75 per diluted share from a prior forecast of $3.10 to $4.40.
Revenue Forecast: Consolidated revenue forecast adjusted to a range of $2.8 billion to $3.0 billion from $2.9 billion to $3.2 billion.
Wholesale RV Shipments: Forecasted at 320,000 to 350,000 units for calendar 2025, reflecting a conservative approach due to subdued retail conditions.
Inventory Management: Dealers are expected to prioritize leaner inventory levels due to higher carrying costs, driving improved industry inventory turns.
Long-term Strategy: Focus on seizing opportunities that fit strengths, expanding offerings, and strengthening market presence.
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Shareholder Return Plan
Quarterly Dividend: In April, the company will pay a quarterly dividend of $0.34 per share, marking the 43rd consecutive quarterly dividend.
Share Repurchase Program: In the second quarter, the company repurchased $20,000,000 in stock, with $180,000,000 remaining under the share repurchase program.
Cash Tender Offer: Recently, the company completed a $100,000,000 cash tender offer to repurchase a portion of its 6.25% senior secured notes due 2028.
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Key Q&A
Q:How much of the $0.5 cut at the midpoint to EPS is specifically on the tariffs?
A:The range that we offered on guidance would incorporate what we believe at the time for fiscal twenty twenty five would be any tariff impact.
Q:What sort of price increases would you contemplate if certain tariffs were to go into effect?
A:We won’t share intended pricing actions in the market. That will be handled brand by brand and communicated directly to our dealers.
Q:Are you seeing anything in March that is making you more incrementally concerned that the start of the selling season could be at risk?
A:March retail patterns in the first couple of weeks mirror what we’ve been seeing in February. So we’re not seeing a significant change.
Q:What are your early read on the relationship between OEM and dealer given a competitor's strategic alliances?
A:We probably won’t comment specifically on what our competitors are doing with any of their strategic dealer partners.
Q:Could you provide any color on the phase into the top line or margin in the second half of the year?
A:We continue to expect sequential improvement both in the top line from year over year perspective as we go through Q2 and Q4.
Q:What is your ideal inventory turns and where would you like to end the year?
A:We don’t have a specific target in mind. We want our dealers to serve our customers and have product available.
Q:Where is the motorized chassis manufactured and how should we think about sourcing given tariffs?
A:We do source motorized RV chassis from a number of different manufacturers, several different companies that have been good partners with us.
Q:What does resetting the pricing strategy with the Winnebago Towables business mean?
A:We truly believe that we can take share from around 1.4% of towables today on the Winnebago towables business to something north of 3%.
Q:How do you think about market share over the coming twelve months?
A:We’re focused on retail market share right now, getting the product right, and we’re confident that our dealers will adequately stock the right winning products.
Q:Can you comment on the increase in warranty expense in the towable segment?
A:We are certainly experiencing elevated warranty expense as a percent of sales, and we hold this to be more transitory.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on intended pricing actions in response to tariffs, indicating that such decisions would be communicated directly to dealers. Additionally, they did not provide a specific target for ideal inventory turns, stating that they want to work closely with dealers to ensure product availability.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Capital Markets
Industries comment
Industries shipment
Intelligence Winnebago
OEM dealer
Officer Winnebago
Winnebago Towables
Winnebago motorhome
Winnebago towables
action
administration
assembly
brand dealer
chassis manufacturer
competitor
cost exposure
cycle
dealer backlog
dealer health
dealer partner
deficit
focus
inventory lot
leader
line BMO
motorhome side
pricing
product dealer
product lineup
product market
progress
ratio sale
rebate
sentiment
share trend
shipment share
side dealer
spring summer
stocking
tariff
warranty expense
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Earnings call transcript: Winnebago Q2 2025 sees stock surge on EPS beat
Unknown3-27
The earnings call shows mixed results: modest revenue growth in the Towable RV segment but a decline in Motorhome RV revenues. Gross margin declined YoY but improved sequentially. The company is actively repurchasing shares and maintaining dividends, which is positive for shareholder returns. However, the net debt to EBITDA ratio is high, and warranty expenses are increasing. Q&A reveals management's reluctance to provide specifics on tariffs and inventory, indicating uncertainty. The market cap suggests less volatility, leading to a neutral stock price prediction.
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Frequently Asked Questions
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