In April, Bruce Hertzke appeared on television, saying Winnebago Industries Inc.’s (WGO) business would improve as soon as the war with Iraq ended.
In a more recent interview, the company’s chairman, president and chief executive said shipments and sales were much improved over spring levels, but about the same as a year earlier. That’s encouraging news after being hit by “war, gas spikes, and a drop in consumer confidence,” he told the Dow Jones News Service in an Aug. 8 article.
Investors agree. Winnebago’s stock price has leaped recently more than 50% to around $45 since Hertzke’s television appearance. The stock hit a 52-week low of $23.31 in March, but is still off somewhat from its 52-week high of $51.48 in November.
The reasons for investors’ optimism seem obvious, asserts Dow Jones. The major fighting in Iraq is over and the economy shows signs of recovery, while the company is expanding its presence in the diesel motorhome market at one of the most popular price ranges.
“Potholes, however, do exist on Winnebago’s road to prosperity,” the news service reports. “The economic recovery could falter, and rising interest rates could deter consumers from purchasing.”
Nevertheless, Hertzke said his company is following a pickup in business for the industry at large. Analysts, in turn, indicate that they were encouraged by talks with Winnebago dealers at the company’s recent Dealer Days event in Las Vegas at which the Iowa-based motorhome manufacturer debuted all-new Winnebago Vectra and Itasca Horizon Class A motorhomes. Those companion brands are mounted on a new Freightliner-based Evolution chassis design on which Winnebago has a one-year exclusive agreement.
Full body paint was also a theme at Winnebago’s July 27-30 dealer event in Las Vegas, as all of the company’s diesel coaches, in addition to one gas-fueled line, are now available with full body paint.
“Going into the Iraq war” consumers weren’t buying and “inventories backed up,” noted John Diffendal, an analyst with BB&T Capital Markets, and some investors saw the negativity as an opportunity to buy into a healthy company.
Wall Street “has the habit of losing its cool, giving us an opportunity to buy great names at bargain prices,” said Francois Parenteau, chief executive of Defiance Capital LLC, a New York hedge fund, which in March bought Winnebago stock “in the $26 range.”
Now, if evidence of an improving economy proves to have legs, investors expect Winnebago to benefit. “I expect good prospects” for Winnebago as the economy comes back with the “consumer leading the way,” said Ken Dupre, an investment analyst with Muhlenkamp & Co., a Wexford, Penn., investment firm.
Hertzke, for his part, said the company has taken advantage of negative sentiment toward Winnebago by buying back its depressed stock. Since 1997, the Winnebago board of directors announced eight repurchase initiatives at a cost of $164 million.
A recent rise in interest rates could, according to Dow Jones, cause problems for the company if consumers can’t afford the additional expense in monthly payments. But Hertzke said he wasn’t worried about a jump in rates. “Interest rates would have to rise to the double digits,” he said. “A slight rise will have no affect” on operations.