Winnebago Executes Well in Uncertain Times

We are not changing our fair value estimate after Winnebago WGO reported second-quarter fiscal 2023 results. We think the company had a good quarter given macroeconomic uncertainty and inflation pressure. Adjusted diluted EPS fell 40.1% year over year to $1.88 but still beat the $1.25 Refinitiv consensus. The prior year’s quarter was a very tough comparable and all three segments (towable, motorhome, and marine) saw volume declines. Towables took the largest impact with a 51.4% decline. Higher material costs and nearly $10 million of lost revenue from the Mercedes Sprinter chassis recall announced in December meant price increases in all segments could only do so much. We calculate that adjusted operating income and margin fell by 43.7% and 310 basis points, respectively, with the latter at 9.4%. The chassis recall was remedied earlier than management expected, so the nearly $10 million revenue hit for the quarter was far below the roughly $50 million impact guided. We calculate total company free cash flow burn for the quarter of $34.7 million versus a $30.6 million burn in the prior year’s quarter. Working capital has been a drag on the metric and we are glad to hear management expects improvement in the back half of fiscal 2023.

CEO Michael Happe stressed on the call that the company cannot predict where revenue is going and that his team can best control costs to fight uncertainty. We are glad to hear him say that Winnebago will not overproduce just to keep market share, so we would not necessarily be worried about the firm’s future results should revenue declines accelerate in the back half of fiscal 2023. Backlog for now is still healthy at $1.39 billion with recreational vehicles making up about 83% of that by our calculation, but we could see revenue under more pressure once the backlog is depleted. Backlog fell by 68.2% year over year and 40.8% sequentially, so at the current pace it will be gone during fiscal fourth quarter.