Continued volatility in the U.S. economy and uncertainty of when the ongoing decline in the motorhome market will bottom out clouds the near-term outlook for Winnebago Industries Inc.
In an investor conference call today (Oct. 16), Winnebago officials said that because they are unable to predict with confidence the level of dealer orders going forward, they are uncertain when the Forest City, Iowa-based motorhome builder will return to profitability. Winnebago is generally regarded by analysts as a bellwether company for the RV industry.
The conference call came hours after Winnebago reported that sales for the fourth quarter, ended Aug. 30, fell to $85.3 million from $237.7 million in the year-ago period along with a fourth-quarter net loss of $12.7 million compared with net income of $14.8 million.
“While fuel prices stabilized somewhat during the quarter, the U.S. economy continued to falter, with the availability of credit and rising interest rates becoming major concerns for both our retail customers and our dealers,” said Bob Olson, chairman, president and CEO for Winnebago.
“There are so many variables in the downturn,” Olson said. “Fuel prices three or four months ago were a real concern. Now, it’s probably third or fourth on the list. The main issue by far is the inability to get financing for retail customers.”
Retail registrations were down 51% in the fourth quarter, and dealers are not replacing the units they are selling on a 1-to-1 basis, he said.
Winnebago dealers had inventories of 3,663 units at the end of the fourth quarter, down 18% from a year ago and down 15.6% from the end of the third quarter, Olson noted. He said Winnebago looks for further reductions until dealers regain confidence in the economy.
At the present rate, Olson said he is concerned that actual motorhome shipments by the entire industry this year will be lower than the 42,000 units projected by industry economist Richard Curtin of the University of Michigan.
In an environment of heavy discounting by manufacturers, the average wholesale price of Winnebago units to dealers declined 5.7% during the quarter, while 59% of sales volume came from the lower-priced Class C and B motorhomes, reported Sarah Nielsen, vice president and CFO.
Compounding the declining market for newly manufactured units is the infusion of unsold RVs that is occurring nationwide as dealers who go out of business sell unsold units at auctions or to other dealers at fire-sale prices.
It’s created a “flea market mentality” which is not good for the industry, Olson said.
In a somewhat related issue, Neilson noted that Winnebago repurchased 36 units this year from a total of four dealers who have gone out of business. Repurchase obligations with its entire dealer body total $200 million.
“It’s a relevant risk, but we have not seen significant dealer failures,” Neilson said.
The company had 280 dealers at the end of August, compared to 285 a year ago, she said.
Meanwhile, Winnebago instituted cost-cutting measures that saved the company $7 million in fiscal 2008 and anticipates an additional savings of $12 million in the current fiscal year, Nielsen said.
“When revenues are down 64%, we can’t cut fast enough,” she said. “We’re still looking to cut back fixed-cost structure on top of what we’ve already done.”
The cutbacks included the idling in August of its plant in Charles City, Iowa. Olson said the plant will be mothballed indefinitely, and he did not rule out the possibility that it could be sold if conditions warrant it.
The closure took out 30% of Winnebago’s plant capacity, Olson said. The company was operating at 25% of capacity at the end of the quarter, he added.
For their part, dealers are going through many of the same problems as the manufacturers as they try to right-size their businesses, Olson said. Lenders are tightening their credit lines and some dealers have been forced to find new financing as lenders such as KeyBank exit the market.