Winnebago Industries Reports Another Excellent Quarter

Winnebago Industries reported another excellent quarter to close out fiscal 2013. We plan to modestly increase our fair value estimate to reflect more expense leverage and a higher mid-cycle margin than previously modeled. Revenue for the quarter increased 31.8% year over year thanks to a 43.1% rise in motor home deliveries to 1,890 units.

For the full fiscal year, deliveries were the highest in five years. Winnebago’s fourth-quarter delivery increase matched the industry’s growth rate, so the company maintained its market share. The top-line growth drove economies of scale with the company increasing operating margin for the quarter year over year by 320 basis points to 7.2%. Revenue and earnings per share of $0.38 both comfortably beat consensus estimates.

Barring a broader headwind to the U.S. economy, we are optimistic about Winnebago’s fiscal 2014. The motor home backlog at Aug. 31 of 3,380 units grew 19% from the end of fiscal third quarter and is at a multiyear high. The CFO made comments on the call that dealers need more product. Management still believes normalized industry motor home demand is 55,000-60,000 units and the August calendar year-to-date sales total of 25,624 is already nearly equal to 2012’s full-year total of 28,198 units.

At the current rate, the industry will sell more than 38,000 units in calendar 2013, though growth will likely slow in the winter months ahead. The company’s most pressing concern is continued shortage of Class A gas chassis. The supplier is expected to increase production this winter but management is unsure if the production increase will keep up with increased demand.

Despite any headwinds that may arise from this issue, we think long-term motor home demand is healthy. We expect Winnebago will be in growth mode for several years due to the severity of industry unit volume falling to just 13,200 units in calendar 2009.

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