Winnebago Earnings: Large Year-Over-Year Declines Are Not as Bad as They Look

Winnebago’s WGO fiscal 2023 third-quarter earnings gave us no reason to change our thesis or fair value estimate. Adjusted diluted EPS of $2.13 fell 48.4% year over year but beat the Refinitiv consensus of $1.82. The company continues to post results that are seeing the North American recreational vehicle industry come off record volume levels in calendar 2021 induced by the COVID-19 pandemic, which caused a surge in outdoor living and recreation demand. This shift has caused large declines in revenue, such as Winnebago’s 38.2% year-over-year drop for the quarter to $900.8 million, which missed consensus by about $55 million, as well as increases in wholesale discounting. However, the company said on the earnings call that discounts are not elevated compared with levels just before the pandemic in 2018 and 2019, which we believe is an important point for investors to remember. Winnebago’s RV backlog is now about $1.04 billion, down about 10% from the fiscal second quarter and about 71% year over year. Although these deltas are large, we are not worried because massive pandemic demand was likely to eventually bring large declines. The balance sheet remains in strong shape, in our view, with $225.9 million in cash and net debt/adjusted EBITDA of only 0.9 times.

We were glad to hear CEO Michael Happe say that 2022 model year inventory is about 10%-15% of Winnebago dealers’ stock, which he believes is well below the industry’s mix. That should mitigate some pressure to overly discount 2023 product, which as a premium brand manufacturer Winnebago should not be doing much of anyway. The towable space is seeing more inventory-clearing dealer discounting of lesser-tier brands than market-leading ones, particularly in travel trailers, according to Happe, but he also expects the RV industry to have all or nearly all 2022 model year units off dealer lots by late calendar 2023.