This RV Manufacturer Is Steadily Rolling Along

Gail is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I’ve been taking a look at companies which are due to report earnings in the near future.  Next on my list is Winnebago Industries (NYSE: WGO) which will report first quarter earnings on Monday December 10.  The stock is currently trading near its 52 week high of $14.49.

Winnebago is in an interesting industry.  Prior to the recent recession, the company, and its stock was growing like gangbusters.  It appealed to the growing percentage of retirees looking to explore the country.  But when gas prices started to rise, and the economy began to tank, overall confidence in the recreational vehicle industry began to decline as well.  Now, as the economy begins to recover and gas prices continue to rise, Winnebago is embracing one economic force and struggling against another; a rising median age and rising gas prices.

What I’m Looking For

Winnebago has several different revenue segments.  Motor Homes and Towables make up about 93% of total revenue. I’m expecting those percentages to remain approximately the same.  I’m looking for a continued 10% increase in the Motor Home segment revenue to around $130 million in the first quarter.

Winnebago saw a 100% increase in the Towables segment from FY2010 to FY2011, and a 240% increase from FY2011 to the end of FY2012.  I think that trend will continue as buyers look to enter the RV market at the lower end.  I think we’ll see first quarter revenue come in around $17 million.

During FY2012, Winnebago continued to work on decreasing its Costs and increasing its Gross Margin.  Gross Margin in FY2010 was 5.8% and increased to 8% in FY2011.  FY2012 showed a gradual increase from 6.4% in the first quarter to 10% in the fourth quarter, with an overall 7.5% gross margin for the full year.  I’m expecting Winnebago to hold those gains in the first quarter with a gross margin around 8% or higher.

A cursory look at Winnebago’s Balance Sheet shows significant increases in both Receivables and Inventory.  That might be cause for concern if sales were not also growing significantly.  Digging deeper into those numbers, it is apparent that the company has improved its Inventory and Receivable turnover ratios.  Days Inventory Outstanding improved from 140 in FY2011 to 53 in FY2012.  Receivable Days Outstanding also improved from 46 to 17 in the same timeframe.  This shows that Winnebago’s inventory is moving and it is being paid for those sales!  I will be wary if either of those ratios takes a turn for the worse.  (A quick look at Winnebago’s competitor Thor Industries (NYSE: THO) shows its Turnover ratios are relatively flat and not showing the significant improvement that Winnebago is showing.  In addition, its Quick ratio is 0.7 compared to Winnebago’s 1.03.  Harley-Davidson (NYSE: HOG) is also in the Recreational Vehicle industry and is also showing relatively flat turnover ratios from FY2010 to FY2011.)

Looking Towards the Future

The primary issue to watch relating to the future of Winnebago continues to be overall economic recovery.  As the US economy improves, and disposable income continues to rise, Winnebago should see the benefits. 

Bottom Line

With analysts projecting earnings of $0.51 per share in FY2013 and $0.63 in FY2014 and an industry average PE of 21, I would expect to see the share price to remain in the $14-$15 range for the near future.  (It appears to me that at a current price around $14, the future growth has already been priced into the stock price.)   At the current time, I don’t see Winnebago as a “buy.” 

GailPEddy has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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