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Winnebago Industries Inc. today reported strong gains in revenue and net income for its fiscal second quarter, ended Feb. 25, boosted by the company’s acquisition of towable builder Grand Design RV Co. completed in November. Towable sales rose 4% percent during the period while motorhome revenue slipped 3%.

Revenues for the quarter were $370.5 million, an increase of 64.2%, compared to $225.7 million for the fiscal 2016 period. Second-quarter net income was $15.3 million, or 48 cents per diluted share, representing an increase of 63.3% compared to $9.4 million, or 35 cents per diluted share, in the same period last year.

Gross profit was $49.3 million, an increase of 95.1% compared to $25.3 million for the fiscal 2016 period as gross profit margins expanded 210 basis points driven by the favorable inclusion of Grand Design products within the overall sales mix. Operating income was $28.4 million for the quarter, an improvement of 110.1% compared to $13.5 million in the second quarter of last year.

President and CEO Michael Happe commented, “Our second-quarter results reflect our progress in transforming Winnebago into a larger company with greater scale, a more balanced portfolio, increased profitability and better positioned to compete effectively across the entire RV market. In our first full quarter with Grand Design as part of our organization, we continued to deliver significant wholesale and retail growth in our towable segment, enabling us to reach our highest level of consolidated gross margin in nearly a decade.

“In addition to delivering improved profitability, we also made significant progress in further strengthening our balance sheet by reducing our debt by $13 million in the quarter. As we move into the second half of 2017, we intend to build on this momentum by further expanding towable market penetration and working diligently to improve future results for our motorized business by strengthening product value and leveraging our reputation for industry leading customer service.”

Significant items impacting income before income taxes in the second quarter included:

  • Postretirement health care benefit income: As previously disclosed, the company’s decision to terminate its postretirement health care plan, effective Jan. 1, positively impacted the quarter by $12 million, or 25 cents per diluted share, net of tax, compared to prior year postretirement health care benefit income of $1.6 million or 4 cents per diluted share, net of tax. All of the benefits of this plan termination have now been recorded in the financial statements and there will be no further impact on a prospective basis.
  • Grand Design acquisition related expenses:
    — Additional transaction costs related to the Grand Design acquisition were $0.5 million, or 1 cent per diluted share, net of tax.
    — A full quarter of amortization expense of $10.4 million was recorded related to the definite-lived intangible assets acquired, or 22 cents per diluted share, net of tax. Winnebago expects that there will be a similar level of amortization expense in the third quarter of fiscal 2017 as the remaining backlog-related intangible assets are amortized. Starting in the fiscal fourth quarter, expect amortization expense is expected to be approximately $2 million per quarter through fiscal 2021.
    — A full quarter of interest expense of $5.2 million was recorded related to the debt established to fund the acquisition, or 11 cents per diluted share, net of tax.

Excluding these items as well as depreciation expense, consolidated adjusted EBITDA (a non-GAAP measure) was $29.1 million compared to $13.3 million last year, an increase of 118.5%.

Results per segment:

• Revenues for the motorized segment were $198.9 million for the quarter, down 3% from the previous year. Although unit deliveries were up 3.6% over the prior year same quarter, the average selling price of product sold decreased 5.2% due to a shift in product mix. Segment Adjusted EBITDA was $9.1 million, down 22.3% from the prior year. Adjusted EBITDA decreased 110 basis points, primarily driven by product mix, pricing pressures and acceleration of West Coast operations.

• Revenues for the towable segment were $171.6 million for the quarter, up $151 million over the prior year, driven by the addition of $143.6 million in revenue from the Grand Design acquisition and continued strong organic growth from Winnebago-branded towable products in excess of 36%. Segment Adjusted EBITDA was $20 million, up $18.4 million over the prior year. Adjusted EBITDA increased 400 basis points primarily due to the inclusion of Grand Design’s products within this segment.

Balance Sheet

As of February 25, the company had total outstanding debt of $329.5 million ($340 million of debt, net of debt issuance costs of $10.5 million) and working capital of $142.1 million. The debt to equity ratio was 81.8% and the current ratio was 1.9 as of the end of the quarter. Cash from operations improved by $14 million compared to the same period last year.