Fleetwood Enterprises Inc President and CEO Elden Smith says a positive dealer response to Fleetwood’s 2007 product lines unveiled at the company’s dealer meeting Aug. 27-29 at Caesar’s Palace in Las Vegas suggests that the company’s product development team may be on track.
That, Smith reasoned during a Thursday (Sept. 7) conference call, could explain why backlogs on the Riverside, Calif.-based RV manufacturer’s product lines exceed 2005’s. Those backlogs on 2007 products, Smith told analysts, amount to 1,905 motorhomes, 4,605 travel trailers and 3,236 folding camping trailers vs. 1,287, 3,769 and 3,021, respectively, a year ago.
Those positive comments were tempered somewhat by the company’s first quarter results released earlier in the day showing Fleetwood lost $400,000 in the first quarter, ending July 30, on sales of $529.8 million. That’s 14% off last year’s first quarter revenue pace of $616.5 million and represents a decline of 12% for the RV Group, 29% for the Housing Group and six percent for the Supply Group.
The RV Group recorded an operating loss of $13.3 million in the quarter compared to an operating loss of $5.1 million last year. The motor home division incurred a loss of $3.5 million compared to earnings of $5.2 million in the prior year; the travel trailer division lost $10 million vs.a loss of $8.7 million in ‘05; and the folding trailer division earned $200,000 compared to a loss of $1.6 million.
The motorhome results reflect a 24% drop in revenues to $225.2 million from $297.8 million in the prior year. Although travel trailer sales were up 16% to $121.7 million from $104.8 million, previously reported difficulties with the changeover to the new model year products in addition to a part shortages led to incremental labor and freight costs. Folding trailer sales, in turn, increased 18% to $24.3 million from $20.6 million, which, in conjunction with significant cost reductions, led to improved margins.
“Currently, the market for motor homes remains challenging, particularly for high-end Class A’s and mid-level Class C’s, two markets that have traditionally been areas of strength for Fleetwood,” Smith said.
“The decline in sales volume masks the progress we have made in improving our products and reducing costs,” said Smith. “Motorhomes and manufactured housing in particular are operating in difficult industry environments. We reduced operating costs by $33.1 million during fiscal 2006. But with sales at current levels, it has not been enough. In a further effort to better align our costs with market conditions, subsequent to the end of the quarter, we made additional cuts to operating budgets and eliminated a number of management and staff positions at our corporate headquarters and in our operating divisions. In many cases, these moves also served to further decentralize the organization and continue our drive to become a more focused and responsive organization throughout all our business segments.”
Smith said Fleetwood products are gaining more “shelf space” on dealer lots, and he expects the company to begin soon to regain some of its lost market share.
And in response to questions about why this year’s model changeover was so expensive, Smith called it “probably the most significant model changeover this RV Group has seen in many years.” Almost every product line was “turned upside down.”
On the other hand, he said, “if there was any error in the model changeover, it was the enthusiasm to get the new product into the market too quickly” because resultant parts shortages and labor inefficiencies cut margins during the changeover. Future new product implementation and introduction will be more effective and less costly, he added.
How successful these new models play out in the retail arena may not be clear until next spring, Smith noted. “At least through the next quarter,” he stated, “we expect continued pressure on margins from weak motor home sales and a highly competitive travel trailer market.”