Q1 2020 Earnings Call
At this time, all participants I not listen only mode. After the speaker presentation, there will be a question and answer session.
Yes. Good question during the session you will need to press star one on your telephone.
Please stand by that todays conference is being recorded.
If you acquire any further assistance. Please press star Zero I would now like to hand, the conference your speaker today, Steve Stuber director of financial planning and analysis and Investor Relations. Please go ahead Sir.
Thank you for joining us today to discuss our first quarter earnings results.
And on the call today by Michael Happy President and Chief Executive Officer in Brighton Hughes, Vice President and Chief Financial Officer.
This call is being broadcast live on our website at Investor Day, W.G.O. Dot net and a replay of the calls will be available on our website later today.
News release with her first quarter results was issued and posted to our website earlier this morning.
Before we start.
To remind you that certain statements made during today's conference call regarding Winnebago industries and its operations, maybe considered forward looking statements under securities laws.
Company cautions you that forward looking statements involve a number of risks in are inherently uncertain and a number of factors many of which are beyond the company's control could cause actual results to differ materially maturity from these statements.
These factors are identified in our 60 filings, which I encourage you to read.
With that I would now like to turn the call what works to our President and CEO , Michael Happy Mike.
Thank you, Steve and good morning to everyone on today's call.
No. This is an incredibly busy time of year and we appreciate your time and your interest in Winnebago industries.
On the Investor Relations front, we have been quite active ourselves.
Many multiple road shows our Investor Day meeting in November in New York City in the annual shareholders meeting earlier this week.
We are telling the story of our company's transformation often.
And they'll say, we'll work to be efficient and beginning this morning's discussion with an overview of our fiscal year, 2021st quarter results and our perspective on the balance of the fiscal year.
I will then turn the call over to Brian Hughes, who will provide important details on the financials, especially considering the accounting implications of our recent Neumar acquisition.
I'll then return to offer some closing comments before concluding the call would they kinase session.
In early September as we kicked off the fiscal 2020 year, we entered the first quarter eager to build upon the tremendous progress made in previous fiscal years strengthening our overall position in the North American RV market.
Initiating an intentional effort to diversify our overall portfolio.
And setting the stage for achieving our future aspiration of becoming a leader in outdoor lifestyle solutions.
As you may recall in fiscal year 2019 annual revenues were $2 billion for a second year in a row.
Particularly meaningful given the double digit negative shipment environment of the RV industry.
Net income in fiscal year 19 grew to a record 112 million and we extended our recent track record of gaining cumulative share in the RV market.
We also announced in September another transformational event in our company is journey that being the acquisition of the Newmark Corporation.
This bold moves gives winnebago industries, a more complete premium overall motor home business with a more significant presence in all motorized sub categories, including increased market share in the north American luxury RV market and they more profitable motorized segment in the future.
Our overall premium portfolio is now home to four of the most valued brands in the outdoor lifestyle Arena Winnebago Grand design, New bar and Chris craft.
We expect to maintain the same level of high performance in fiscal year 2020.
Recognizing there will be important work associated with the Neumar integration.
Based on our first quarter results, we're off to a very good start as consolidated net revenues were up approximately 19% for the period, including the three plus weeks associated with new bar as part of the business.
Consolidated top line growth during the quarter was driven once again by strong performance from our Towable segment class B Motor home performance and as mentioned a short period of sales contribution from tomorrow.
We are particularly encouraged that organic revenues at Winnebago industries without new bar continue to grow at a healthy pace up over 12% versus the prior year.
As a result of the steps we've taken to strengthen and improve the core RV business. We're also seeing more consistent operating results and cash flow.
Operating cash flow in the quarter was $79 million up 45.9% over last year, which allows us to continue to invest in our businesses appropriately.
Now, let's turn to the segments in more detail.
In the Towable segment revenues for the quarter were up 16.6% over the prior year period, primarily driven by the strength of the Grand design Bran.
Grand designs, new product launches and recent interior redesigns of many of their models have supported their continued strong momentum and maintain the increasing appeal of grand designs products across a broad customer base.
This impressive brand continues to outpace the industry in terms of both unit shipments and retail growth as the Gd RV reputation for quality innovation and service are accepted well by value channel partners and the end user buying community.
Adjusted EBITDA margin of 10.5% for the Towable segment was flat compared to the same period last year.
Largely reflecting pricing actions and a favorable mix of business offset by higher input costs.
Towables backlog for the quarter decreased 22% and units versus the prior year, reflecting increased utilization of added capacity and the projected shifted dealer order patterns to smaller frequent orders.
We remain confident in the forward looking strength of our multi branded R&D towables lineup in the opportunities we have collectively.
Executed to perform outperformed the market, even one navigating challenging industry conditions.
The overwhelmingly positive reception and excitement around redesign models and new products at the open house in September and showcased at this falls RV retail shows is validating in terms of our future momentum and potential for fiscal year 2020 .
Turning to the motorized segment reestablishing a premium leadership position in this business remains a key priority for us in fiscal year 2020.
We've enhanced our lineup of high quality Winnebago branded motorized RBS by launching innovative products and designs.
Additionally, the acquisition of Neumar completed on November eight has energized our company by adding a highly respected premium brand that allows us to compete in the high end luxury motor home markets.
The integration process, which involves a primary cross company team of select participants is underway and off to a productive start map Miller now Vice President of Winnebago industries and ongoing president of New Bar is now participating in my leadership team meetings and provide an excellent.
The to our board of directors just this week.
We are very focused on ensuring the new martine retain significant autonomy and operating the business facing the market.
But very much benefits from the support and the synergy we can provide from the whole at Winnebago industries behind the scenes.
This is a very similar approach as to our two previous acquisitions and a strategy. We believe will result in a one plus one equals three outcome in the future.
When executed well, our employees dealers and customers and shareholders should all benefit from this transaction.
First quarter revenues for the motorized segment were strong up 24.6% over the prior year period, including 19.7 percentage points of growth due to the three weeks of new Mars operating results.
Organic revenue for the Winnebago branded motor home business was up 4.9% driven by strong Clos class B units sales and previously executed pricing actions, partially offset by a decline in class a units sales.
We remain focused on managing costs and improving the overall manufacturing efficiency in our Winnebago motor home business last year, we took steps to position the motor homes segment for sustained profitability. This includes shifting our winnebago branded class a diesel motorized manufacturing from our junction.
So the Oregon plans to our manufacturing campus in Forest City, Iowa.
The transition consolidates and Centralizes product development supply chain and assembly operations for that brands diesel business to a single location with the strong intent to see increased operating efficiency.
Our motor home backlog increased 34.2% in units from the prior year, which reflects the addition of new bar, which provided 31.8% percentage points of growth.
Year over year, new product innovation, primarily in our class B lineup.
We look forward to improving the financial profile of our motor home segment and building on topline momentum throughout fiscal year 2020, while instilling learnings and best practices from our new colleagues at Neumar.
Before turning the call over to Brian I would like to touch on our marine business, Chris craft delivered another solid quarter of sales growth and the retail demand for Chris craft products remains vibrant.
Additionally, interest by quality marine dealers in representing and growing the Chris craft brand is as high as anyone can recall as those dealers see a stronger Chris script business developing maintaining its unique place as one of the world's most beautifully designed brands, but also carefully expanding its lineup.
Of inboard outboard offerings.
Through the first 18 months of ownership by Winnebago industries, Chris craft remains on track for our M&A models are planning process for capacity expansion in Sarasota remains active with the permitting stage ongoing.
We will monitor the health of the marine market and the confidence of our channel partners, when making a final timing decision on putting shovels in the ground.
Chris scrap is a very important brand in our portfolio as it represents the type of premium manufacturer, we look to be and we continue to learn through the Chris craft team about the marine market and the opportunities at holds in the future for our company.
With that overview I will now turn the call over to Brian Hughes to review, our fiscal 2021st quarter financials in more detail.
Brian .
Thanks, Mike and good morning, everyone.
First quarter consolidated revenues were 588.5 million for an increase of 19.2% compared to 493.6 million for the fiscal 2019 period, primarily driven by organic growth from both our tool and motor home segment.
As Mike mentioned earlier, excluding Neumar, we thought topline organically grow 12% year over year.
Since the acquisition of New Mark goes on November November eight we only had the benefit to our reported results in Q1 of three weeks of numerous business.
Gross profit was 78.6 million an increase of 10.7 per cent compared to 71 million for the fiscal 2019 period.
Gross profit margin decreased 100 basis points in the quarter due in part to the acquisition of new modern and the impact of purchase accounting as well as lower motor home segment profitability in the quarter.
Operating income with 23.9 million for the first quarter compared to 32.6 million in the first quarter of fiscal 2019.
Operating income included the impact of transaction cost of 10 million.
Inventory step up of 1.2 million.
And amortization related to new modern of 1.4 million.
Net income was 14.1 million a decrease of 36.5% versus the same period last year.
Reported earnings per diluted share were 44 cents per share a decrease of 37.1% compared to 70 cents in the first quarter fiscal 2019.
This decrease with more than driven by a result of transaction costs purchase accounting and noncash financing costs related to Newmont acquisition.
We have provided an adjusted earnings per share performance measure in our press release as a comparable metric to clearly illustrate our performance and we will continue to provide this new disclosure for the foreseeable future.
The scheduled accompanying the press release have been enhance to show a reconciliation between reported earnings per share and adjusted earnings per share.
Adjusted earnings per share were 73 cents in the first quarter, an increase of 4.3% compared to the same quarter of fiscal 2019.
For purposes of clarity adjustments to reported earnings per share totaled 29 cents and include transaction cost of 10 million inventory step up of 1.2 million and noncash interest of 1.0 million I.
I will come back to this topic in a moment.
Consolidated adjusted EBITDA was 42.0 million for the quarter compared to 38.5 million last year for an increase of 9.3%.
Now turning to the individual segments.
Before I begin the discussion of the individual segments I would first note that we have concluded for our public segment reporting that 100% of the acquired New Maher business will be included in the result of our motor home segment.
That said starting with the total segment, which are not impacted by the new My result revenues for the first quarter were 341.3 million up 16.5% over fiscal 2019, driven by an increase of 12.9% in unit sale.
Considering that towable wholesale shipments in the broader RV market are down 9% on a trailing three month basis through October we continued to be extremely pleased with the performance of our total segment and its ability to consistently gained share in a challenging market environment.
Segment adjusted EBITDA for the first quarter was 35.8 million up 16.1% over the prior year.
Adjusted EBITDA margin of 10.5% was even with the first quarter fiscal 2019, reflecting pricing actions and a favorable mix of business.
By higher input costs.
Turning now to the motor home segment. Our results. In this segment include three weeks of the acquired new water business.
Our motor home revenues were 225.9 million for the quarter up 24.6% versus last year.
Excluding neumar revenues grew 4.9% during the first quarter, primarily due to growth and market share gains in our class B lineup and fiscal 2019 second half pricing action across all product classes.
Partially offset by a decline in class eight unit sale.
Segment, adjusted EBITDA was $9.3 million for the quarter down 22.1% year over year and adjusted EBITDA margin decreased 250 basis points, primarily due to the addition of new margin pricing in excess inflation more than offset by an unfavorable mix of business and slightly higher.
A few the expenses.
Turning to our balance sheet.
As of the ended the first quarter. The company had outstanding debt of 463.5 million net of convertible note discount of 84.0 million and debt issuance cost of 12.5 million.
Working capital with 297.8 million.
Anticipated and as a result of the new more acquisition. Our current net debt to adjusted EBITDA ratio is 2.0 time applying an unaudited trailing 12 EBITDA associated with new manner.
Our goal is to focus on returning to our targeted leverage ratio range of 0.9 to 1.5 times near the end of fiscal 2020.
Cash flow from operations was 79.0 million for the quarter up 24.9 million or 45.9% over the same quarter last year, driven by our operating performance and favorable changes in working capital.
The combined strength of our balance sheet and cash flow continues to provide tremendous flexibility as we expect to continue to invest in the business.
The effective income tax rate for the first quarter was 21.7% compared to 23.3% for the same period in fiscal 2019. The decrease was primarily due to an increase in estimated research and development tax credit for the fiscal year.
On December 18th 2019, our board of directors approved the quarterly cash dividend of 11 cents per share payable on January 29, 2020 to common stockholders of record at the close of business on January 15 2020.
As mentioned earlier I would like to now provide more insight on the adjustments to reported EPS.
We are adjusting for three items.
Transaction cost inventory step up and noncash interest.
In the future quarters, we also intend to adjust for share dilution. So long as the dilution is economically covered by our costs, but overlay, which provides dilution coverage up to a share price of $96 in 20 cents.
Finally, we will adjust for any material discrete tax items.
Note that share dilution for GAAP purposes will begin to impact our reported earnings per share as soon as our stock price increases above $53.73 per share.
With that is our framework for calculation of adjusted earnings per share the adjustments to our first quarter fiscal 2020 result are as follows.
Transaction costs were 10 million or 24 cents earnings per share.
Inventory step up was 1.2 million worth three cents earnings per share noncash interest was 1.0 million were two cents earnings per share.
The adjustments to the second quarter fiscal 2020 are expected to be as follows.
Transaction costs no adjustment.
As these costs were fully adjusted for in the first quarter.
Inventory step up 3.7 million or eight cents earnings per share noncash interest 3.2 million or seven cents earnings per share.
We currently expect that adjustments in the third and fourth quarters will be limited to noncash interest and we'll be in the range of seven cents to eight cents earnings per share per quarter.
We do not anticipate or forecast impact from discrete tax items, which may occur from time to time.
While not adjusted for we also incurred incremental intangible amortization expense related the backlog dealer network noncompete and other items.
In the quarter amounting to 1.4 million or three cents earnings per share related to the new more acquisition.
Second quarter amortization expense is expected to be 6.0 million related to neumar or 14 cents earnings per share.
Third quarter amortization expense is expected to be 3.5 million related to new mer or eight cents earnings per share.
Fourth quarter amortization expense is expected to be 1.4 million related to new modern worth three cents earnings per share.
Annual fiscal 2020 impact therefore effected to be 13.2 million related to new modern or 31 cents earnings per share.
Fiscal 2021 is expected to be 5.6 million or 13 cents earnings per share.
That concludes my review of our quarterly financials and with that I will now turn the call back to Mike to provide some closing comments happy holidays everyone.
Mike Thank you Brian .
I would like to conclude our comments this morning with some thoughts on the overall market and then our company's progress in the SG Arena.
We are in general agreement that the strength of the overall at US economy is squarely on the back of the American consumer at the present time.
Our can consumers have shown tremendous economic resilience and adaptability in the face of a tumultuous last 18 months that has included a material global trade war and increasingly partisan politics in this country.
Employees across most companies, including our own are working hard every day to earn a fair wage and improve the productivity of the organizations they working.
The general strength of the us financial markets and the confidence of private consumers and financial institutions alike. In the equities market has also provided a sense of stability in these interesting times.
As we turned the corner into calendar 2020, and our second quarter of fiscal 2020. We believe there is a sense of stability in our industry that has arrived.
Fear of an imminent recession appears to have subsided. According to many economists and even the financial press.
The recent trade for us with China.
He is a good step in the right direction.
Dealers in the RV in Marine industries have been diligent about returning their inventory levels to a prudent smart base manufactures appeared to have broadly right size their production operations and capacity utilization to levels that match retail and dealer confidence.
In total we feel that there is a better equilibrium in the market.
Where the winners fairly gain ground and market share and those with work to do have difficulty with traction.
Winnebago industries as hopeful we will be one of those winners in 2020.
We stated at our Investor day in early November that our projection for RV industry retail in our fiscal year 2020 is down mid single digits. While the consumer is strong per my earlier comments. They have also shown a bit of fickleness for some of the high end consumer discretionary categories as CLL.
Second cycle ramps up toward next November .
To be clear, though the RV industry is healthy and retail in 2020 should likely end up being one of the top five in the history of our industry.
Winnebago industries is in a strong position to continue to outperform the industry retail trends by double digit points throughout our fiscal year.
With a slightly cautious retail environment, we do believe however that the industry wholesale arena will be much more stable through the year and as stated in New York City. There is a solid thesis that can be made for cumulative 12 month industry shipments by the end of our fiscal year that could be down only low single.
Digits to even flat if the retail environment is robust adopt.
Winnebago industries shipments should organically rise year over year, given our market share trends and the topline contribution from the recently acquired new our business will be quite meaningful.
This past Monday Winnebago industries released our inaugural corporate responsibility report.
Our shared purpose to help customers explored the outdoor lifestyle, enabling extra ordinary experiences as they travel live work and play.
And our values bond, our various brands and businesses together and steer us as a company and the right direction.
How we leave matters. It is about the power of and in terms of driving positive financial and social returns.
We recognize our responsibility to the people communities and outdoor spaces, we love.
Through this first report and most importantly, the tremendous work being done by our teams around the company, we extend our commitment to making progress on the environmental social and governance issues that impact our world and most directly affect the long term sustainability of our business.
This corporate responsibility report provides a snapshot of where we are now and how we will go forward.
Please spend some time reviewing.
Lastly, we also announced this week. The addition at appointment of a new director to our board Sarah Our Brewster, Vice President of strategy research and digital transformation at Steelcase I am pleased to welcome Sarah to our board of directors and look forward to her many contributions in the future.
Yes. It is incredibly important that we added further gender diversity to the composition of our board, but it is equally important that we are adding someone was cerus experiences and skill set to our team as a senior leader in her own respected organization several offer tremendous insight to Winnebago industries on.
Many subjects, including innovation strategy digital intimacy design and general management.
She will be a fantastic condition.
We have been working extremely hard at Winnebago industries in the last four years to strengthen the value our board brings to the company, but also ensure its overall fiduciary and governance responsibilities are being executed at a high level in the interest of our shareholders.
Like the rest of the company we have made good net positive progress with our board.
With that I will end, our formal comments before passing the call over to the moderator for the QNX session I would like to again. Thank the now more than 5500 plus employees in the Winnebago industries family for their incredible daily contributions to our results and what we are bill.
Building in the long term.
It is our employees that are truly at the center of our success.
My leadership team's commitment is to work diligently to provide them all a safe environment in which to do their jobs the vision in which they can become connected to and the resources needed to work in a smart yet engaging manner.
All of this so that our channel partners and end customers have exemplary experiences with our company and products.
I am hopeful that each of my Winnebago industries teammates and all of you listening on the call have a safe and happy holiday season, and find some joy in the rest spirituality or camaraderie of the weeks ahead.
We will now begin with the Q and a portion of the call.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Your question comes to Pankey, please stand by evolving from barbecue Monday roster.
Our first question comes from Craig Kennison with Robert W. Baird. Your line is now open.
Hey, good morning happy holidays.
I guess, maybe a question on just the promotional environment Im curious whether because the inventory situation has been resolved in large part in the industry, whether we're seeing a little less promotional activity.
Good morning, Craig This is Mike.
I. Appreciate your question I think we've been consistent here recently in the stating that our perception.
Being roughly 10, 11% of the RV industry right now our perception is that the promotional environment has shifted.
Previously it was more of a push promotional environment many months ago, when we face both a field inventory buildup in the dealer channel, but also candidly some inventory at a certain Oems in the industry.
That has shifted from more of a push to uphold.
And our perception is that a lot of that pull has been focused on aging inventory previous model year inventory that continues to be worked down by the dealer some support from the Oems so that as our perception, where the majority of the promotional spending has shifted to and I think in macro it appears to be a live.
Will lower across the industry I would tell you that again those brands that have momentum a vibrant product line. Good relationships with dealers are most likely discounting less those brands that have some deficiencies in the areas I just cited our most likely promoting a little bit more.
Order to maintain lot placement in retail velocity.
Thanks, and I guess as though as a follow up we know the Grand design does not discount that's part of that philosophy of the company you've lived through this cycle in this industry is that something that.
What Grand design does in terms of no discount that's something that other brands could work towards or if not what prevents you from.
I guess instituting that policy to avoid some of the.
ABS inflows in this industry.
Craig you are correct in that.
The Grand design business is very limited in any discounting they do offer a.
And open house program for for their dealers, but outside of that they are very disciplined.
With their promotional support in the field that they can get away with that because of the incredibly valued products that they bring into the market that the dealers can sell at good profit margin from a dealer standpoint.
We have been working for three years since the Grand design business joined the portfolio.
To create.
More commonality across our entire portfolio with the elements that seemed to be critical to the Grand design success and that includes.
Certainly hopefully overtime less discounting and all underpinned by a stronger product catalog value by end customers.
But there are elements of channel strategy. There are elements of talent strategy. There are elements of production strategy that we are working to all across the portfolio too.
To transfer those best practices from Grand design elsewhere, we are not all the way there yet in all of those elements. We do have an elevated level of promotional spending relative to grand design in some of the other parts of our portfolio. The last comment I'll make on your question is that the addition of Neumar is actually quite similar to.
The Grand design experience.
They are different businesses, but many elements of the Neumar business model are already very similar to the Grand design business model and Neumar has been around now for 51 years. So it's it's good to see the commonality between those two businesses and so.
Thats, a thats, a nice synergy coming into the portfolio from that perspective.
Great. Thank you.
Thanks, Greg.
Thank you. Our next question comes from Scott Stember with CL King Your line is now open.
Good morning, Happy holidays also and thanks for taking my questions Nick.
Maybe talk about the class beside it over the last few quarters, we've had some chassis availability issues, but it looks like.
At least from a sales perspective, if things are starting to come back to normal maybe talk about how far along we are in that process and also with regards to incoming chassis is quality issues are we in the later innings of.
Of.
Of these issues.
Yes got this is Brian .
The chassis issues that we've been seeing and affected class b, principally but also classy while we've seen some improvements I'd say the the delivery from a quantity standpoint, there is lingering challenges and the quality.
Meeting our spec in standards and so we continue to incur some production inefficiencies associated with that rework and bringing those chassis is up into our spec as it relates to which ending might we be in and we're working I'd say very productively with the vendor.
I think that we've made progress with them I think it will continue.
For the foreseeable future here as we work through issues with them and so we're not we're not prepared yet to call that were in the late innings of this journey.
Some of these issues are certainly.
Deep rented or systemic and like I said, we're working very productively with them, but more work to be done I would say Scott I would only this is Mike I would only add the following comment to what Brian said.
This particular vendors serves many of our competitors within the industry as well and so we view it as less of a market share.
Issue, it's more of efficiency financial issue and certainly always want to protect your customer for many challenges with quality issues around your product so relative to the rest of competition. We do not feel at all that this is holding us back from increasing our market share in the class B.
Segment, if anything it's probably just holding the overall class B segment from growing at a faster pace in total and what it has been in the past.
Great. Thanks, it might be going to last call you might have alluded to the the fact that you might be looking for some relief I guess at some point for some of these.
Rework issues.
Have you started to do that yet and if not what would that start.
Yes, Scott those those conversations between Winnebago, our and our vendors on any particular issue.
The.
The sharing of some of the pain involved is something we will keep confidential. It's an ongoing discussion with this vendor, but we want to come out of this situation with a win win solution for all parties. So I'll keep those conversations confidential between the parties but.
Bryan's point, we're trying to protect our production efficiency reprice trying to protect the customer from an end quality issues and we remain focused on driving market share in light of this and so.
It is better today than it has been in a long time.
We will continue to work.
To resolve this as best we can.
Got it and last questions are on the core Winnebago business, you talked about how that will be some I guess sharing of.
Best practices and just maybe just talk about the the core business outperformed in the quarter from a margin perspective, excluding new bar and then going forward that future calls what are the the markers that we.
Look forward to talk about.
Some of the initial progress that we've made from having Winnebago and.
New more working together.
I'll start with the organic Winnebago motor home performance in Q1.
And it all starts with retail I will tell you we were pleased with overall retail and Winnebago branded motor homes in quarter. One we believe it slightly outperformed the industry retail in that segment in those three months I have visibility as we sit here today, it's a retail through last week in our business part of our sector.
Third quarter and the only thing I'll comment there is that we continued to see Winnebago motor home retail stabilizing.
MB at or even slightly better than the industry retail for the motor home segment now the way we're getting there is certainly our own path.
The Winnebago team continues to drive tremendous success.
In velocity through the class B business, our share continues to increase their it becomes a higher part of our product mix. The good part with that is that youre seeing even the some of the Asps I continue to elevate there with how the mix in that category has been going.
We've got some tremendous new product coming in the future, including the solace, which is not far away here in the fiscal year from being a part of our menu. There I was pleased in Q1.
With the moderation in the decline of class sees it was a decent quarter in terms of class C performance. We've got a couple of product brands that do quite well there.
We have the rest of the product lineup, especially in classy gas to continue to work on our class C. Diesel business has always been relatively stable. The class a business is obviously, where the accretive this from the new our acquisition, we will take hold and total.
It will allow us to become more selective would the Winnebago brand about where we want to play with class a gas in class a diesel underneath our flagship brand. We continue to see deficiency. There on that segment versus the rest of the industry I will tell you, though the entire industry is struggling on the class a.
Value side of the equation Neumar is doing very well, where they play and.
We are very pleased with the retail on the Neumar side as they've come into the business the last five or six weeks.
And we see them continuing to take share.
In their particular sweet spot so.
That is the that is sort of the look from a from an organic standpoint going forward what are some of the markers.
Certainly stabilization of shipments in retail share in class C would probably be the first thing that we'd want to keep an eye on continued progress on class B for Winnebago to hold but preferably increase share and then I think you'll what you will see emerge Scott over the next couple of years is a compliment.
Larry strategy on the class say side between the Winnebago brand in the Neumar brand in terms of how we cover the market.
We need to do a better job of profitability in that sub segment as well and that is my first priority with the Winnebago brand is just to make sure that the profitability and sustainability of profitability on the class a products is is there still.
Great. Thanks again.
Thank you Scott.
Thank you next question comes from Steve O'hara with Sidoti. Your line is now open.
Hi, good morning.
Good morning.
Just quickly on thanks for taking the question quickly just on.
The new trade agreement North agreement North America trade agreement.
The bold NAFTA agreement were there any issues with Canadian sales around that.
The ending of NAV and that does the new agreement potentially have any.
Positive impacts going forward.
Steve Good morning. This is Mike Thanks for the question Yeah, the new U_s_m_c agreement.
Really doesn't impact our business a significant amount and in some ways.
I wish that were a little bit different primarily because we don't have quite the share we'd like to have on the Winnebago branded site in Canada. The good news is on the Grand design side the share of Grand design products in Canada is not too dissimilar from the share of Grand design products in the in the us.
But from a impact standpoint, looking backwards here in the last year and a half or so.
It all the issues dealing with the ongoing negotiations around U_s_m_c a in the the challenge of getting that passed through the U.S. Congress has not inordinately affected our business on north of the border by any means we are paying attention to several elements of the USM CA, particularly around any.
Tariffs or requirements on car autoparts manufactured in North America, and also some of the discussions and agreements included around no im position of tariffs.
On on auto is from Canada, or Mexico, So generally where an agreement that that trade policy needed to be refresh.
And that it as a positive step in the right direction.
However that does not significantly affect our business in a huge way we pay much more attention to the ongoing discussions between the us government and the Chinese government in terms of the the trade policy discussions there than the tariffs that are in place and now in some ways on hold.
On that particular subject.
Okay. That's helpful and then I'm sorry, if I missed it did you talk about.
New more new Mars organic growth.
In the period.
That you own them.
Or maybe even for the quarter.
Overall.
For the period.
No we don't we don't disclose that.
Okay.
So I assume you're not going to kind of talk about what they did.
Going forward kind of year over year, I guess im just yet.
Helpful. I guess the understand that are they continue to.
Outperform or how they're doing versus they've done what they've done in the past I guess.
And maybe how much of that performance.
Improving class days due to may be.
Improvements on the legacy side versus new bar.
We're going through continued outperformance.
Yes, I think we'd see the looking at the retail information that comes off methods side. They continue to take market share at a at a nice pace and their trends are continuing to be positive in that regard. So we have.
Positive expectations of course.
For their continued success there.
Okay, and then maybe just.
Lastly.
Relative to.
Grand design I mean.
In terms of the.
Are there any things that you're watching in terms of.
Producing too many units are keeping dealer inventories in line.
It looks like dealer inventories.
I think we're up again, but it needs and I know, you're taking share reserve point at which you know and I'm not seeing your there yet, but it means or point at which you say.
We need to pump the brakes and inventory I mean, you guys are clearly outperforming so I guess, that's not an issue right now, but I guess I'm just wondering.
Obviously everything gets over bought at some point.
Is there anything on the horizon that concerns you maybe on the dealer inventory side, there as being too high or pockets that would be to buy.
Yes. Thanks for the question, it's a fair one.
We constantly alluded to the fact that the increased field inventory levels with Grand design are almost solely associated with their market share increases and even at times. Some careful expansion of their dealer base.
And their product line, obviously here in the last year into as well.
We are not overly concerned at this moment as I believe you're well aware and most people are on this call.
They have a very experienced industry team.
And the Theres, a really healthy sense of discipline and commonsense.
Humbleness in that particular team about not getting over their skis in terms of filling the market up so.
You never say never we need to watch that every day.
But at this time, we're not overly concerned by any means with.
The field inventory there if we should see.
Or hear any concerns from our dealers that team has the ability of very quickly to modify their production schedule I want to be very clear in that particular business. We built very very few opened orders.
These orders that end customers and dealers have generally asked for this is also very similar to the Neumar model.
And so when you run.
Production.
Strategy, which is.
Minimizes the lack of open inventory that you're pushing into the channel.
Tend to be in better shape, if the market turns solve I'll make one last comment maybe in an effort to preempt potentially a future question, but.
Some of you may be wondering about the towables backlog certainly grand designs, a big part of the business.
We have very little concerns with the Towables backlog the number that we're reporting this particular quarter I know on the surface. It appears as a material step backwards a lot of this is timing in terms of new products capacity that came online at certain times throughout fiscal 19.
Where we are literally weeks away from capacity coming online again at Grand design through one of our recent projects.
And the and the ordering ship.
Patterns have shifted in terms of dealers ordering up product more frequently versus bulk orders. So we have very little concerns about.
Specifically the Grand design business going forward in terms of the retail velocity the appetite from dealers for product in their ability to react in a smart way to those trends I'll just add one more thing on to that if I may recall, the grand design relationship that they have with that.
Dealers has as a quid pro quo to that relationship that the dealers will carry the full line and so part of the growth in the Grand design business as well as in the field inventory is related to the filling out the the brands that Grand design have.
And I think that that certainly contribute to the field inventory growth as well ultimately the way that we manage it.
Both the Grand design management team as well.
At an enterprise level is through inventory turns we we manage that are monitor that very closely and we continue feel very good about the inventory turns should that ever.
Appear to be heading in the wrong direction, then certainly would.
The Grand design team would step in intervene and manage.
Field inventory from it turns perspective.
Okay, all right. Thank you happy holidays.
Steve.
Thank you next question comes from Gary Johnson with BMO capital markets. Your line is now open.
Hey, good morning couple of questions for you.
Mike You mentioned that you are forecast for the industry for the fiscal year with retail down mid single digits.
Last quarter, you sit down low to mid single digit through is there a change in thinking there.
No I, probably just forgot to have the low during my comments. This morning. Thank you Eric So listen to your guess might be as good as mine what we've been seeing would the initial ESI retail reports each month is a gross number that ultimately.
Gets adjusted pretty materially here recently to a net number.
30 days later, the net adjustments have essentially been here recently in that down mid single digit range I.
I guess, probably the brunt of my message is that retail patterns will probably very similar going forward. So call. It mid single digits I hope, it's low single digits I did not mean to infer any new negativity by the absence of that this morning.
Great. Thanks for the clarification.
Last quarter also you put some numbers around the.
The sprinters chassis issue, you mentioned $30 million to $40 million.
Class B.
Classy business had been lost.
Are there any new numbers you can put around that could you recapture 30 to 40 million how much of an impact this quarter and then also.
Now how this has impacted your EBITDA margin and motorized this quarter.
Yeah, good I wouldnt.
Say that the topline.
Has recovered what with loss and I don't think that that was ever our expectation that would be fully recovered.
Due to just the flow the availability of the number of chaff season, our own flow within our plant.
So I think I would say that.
The flow in terms of quantity through our plants has normalized.
To a large extent I mentioned earlier that theres still some inefficiencies as it relates to the rework.
On the chassis, but I don't think that the the quantity has been heartland.
Okay, and just one more question.
Motorized EBITDA margin do you have a target shooting for their what.
As a good number to shoot for over the next couple of years.
You know, we've we've stated long time that our internal goal that we've communicated for ourselves is to return to a double digit EBITDA ratio over the long term and we're certainly not going to give up on that goal I think.
From quarter to quarter here, we had.
Slightly lower margin in the current quarter.
You know and that's driven by by several thing.
We've talked about most of them already as it relates to some of the production efficiencies.
That we've had related to the chafee's.
The mix within the classes that we think affected the profitability this past quarter, we've got.
Some production inefficiencies as relates to classy class the volume that did affect some of our verticals. His view on this call I think realized or no. We are highly vertically integrated and that is more closely tied to the class a and classy.
Businesses and.
Lastly, also recall that our prior year profitability in Q1 was favorably impacted by that inventory accounting entry. We discussed in our Q4 results probably to the tune of two to 3 million. So thats part of our year over year comp story on but the margin in the current quarter also at.
4%, we would expect to Inc. increase over the long term towards that internal goal that we set for ourselves.
Thank you Brian .
Youre welcome.
Thank you. Our next question comes from Michael Swartz with Suntrust Robinson Humphrey. Your line is now open.
Hey, good morning, guys.
Just just sticking on the motorized profitability and understanding it's not going to be a linear.
Process getting back to double digits, but I guess, just trying understand from the.
During the quarter from the the Reconsolidation of diesel production in Iowa, I think Brian on the last call. You said it was about a 1.5 million dollar headwind in that quarter.
Anything you can provide on what that impact was this quarter was it a net positive was it a wash in terms of the some of the savings coming out of it.
And how to think about that playing out through this year.
Yes, it was not a meaningful contributor to a favorable or unfavorable impact EBITDA margin in the current quarter and that's going to be the K for most of 2020, frankly, we expect the benefit will start to accrue in 2021.
And forward in the amount of approximately $4 million.
But 2020 year fiscal 2020, as well as Q1 of 2020.
With not a meaningful contributor.
And what I think you called out in the in the press release, one of the headwinds are offsets in the motorized business from a profitability standpoint, with higher SGN, a well what was that related to.
Yeah in the quarter, we have some incremental investments in marketing and advertising to enhance our our capabilities in those areas.
Customer service related.
Investments that we made.
Those are the primary thing for you are referencing there are those others.
Not expected to continue were to continue at that level is that way.
We've been called out that's right that's right okay.
And then just more of a housekeeping item on new Maher.
Thank you Brian you gave us what the the backlogs were excluding new our but any sense of what the inventory that the inventory for motorized at quarter end was without newmark.
Yes.
Let me look that up here and I'll get back to you as we go to the next question, but do you flip into Atlanta, shortly and will.
We'll give you that number okay.
Okay, that's what that's great.
Yes, if you got there yet so Mike real quick so Nu Mark we had about 1400 units 1420 units of field inventory related to new markets. So our reported number was 5169 of that 1420 units were neumar, okay perfect. Thanks.
For that and just finally, and I think Mike you talked about some of the teams from new law and the motorized Winnebago Motorize team are starting the integration work now and you win at the time you made that acquisition you were looking for 5 million synergies over three years has it thinking changed at all because if you look at these two businesses together, you've got a $1.2 billion.
Cost base, and you're calling out 5 million in savings that just seems that got the surface pretty low has there been any change in that thinking and any sense of when you might update that.
The integration process is five or six weeks on new in the team is well organized and beginning all the work to that end that needs to happen.
I will be very honest with yet.
We need to be able to exceed that number.
We want to make sure that.
The acquisitions that we've put in place in some ways can meet their financial return hurdles on more of a synergy light model. So that we don't lead on probable synergies in order to justify acquisitions that 5 million dollar number is.
Conservative reasonable number.
I don't disagree that would the scale of our business now.
The challenge for the team is to exceed that so.
Timing wise will give you updates as they become appropriate.
But my expectation is that we will we will take a good hard run that exceeding that number but I won't offer what a new number might be quite yet the teams got more work to do.
Alright, Thanks, a lot that's it for me.
Thank you.
Our next question comes from Greg Badishkanian with Citi. Your line is open.
Hey, guys. Good morning, its spread whiteman on for Greg Mike in your prepared remarks, you did talk about some I think the term useless say comments for consumers and some of these high and discretionary products can you just sort of give a bit more detail on the election impact procure expecting next year is that something that you've seen historically.
Being retail and what impact if any that could mean for HMA cadence perspective.
Yes to be quite transparent with you.
Is just beginning my tenure here at Winnebago industries in 2016 during the last presidential election, So I'm not steeped in history at Winnebago industries, nor in the RV industry in terms of past election cycle impact.
It is difficult to define that fickleness, we get asked often if the American consumer is so robust in other parts of the economy why as retail off a little bit in the in the RV business and and that's not the easiest question to answer because the answer is probably multiple in terms of its its reasons I.
I think generally.
Consumers continue to spend in a number of facets of their life, whether it's the retail side now holiday shopping or restaurants or.
Or travel.
But some of those higher end.
Products, maybe like ours that are more of a want as opposed to a need.
It appears that they've just slightly taken that foot off the gas through some of the retail that's been trending.
Is it a little bit of uncertainty.
In terms of.
Potential future economic policy change related to who sits in the white house.
Really unclear, obviously to us, but theres just this earlier in 2019 there was.
Some some higher level a difficulty in closing sales within the retail dealer environment that abated a bit as we got into some of the fall RV retail shows if you remember Fred we commented at our last call that we were seeing really good traffic, but also good retail sales at our at our fall shows and.
Again, our our business continues to see good retail, but so difficult to describe I think the election cycle has something to do with it but.
Maybe consumers are just be.
Little bit more disciplined with some of those discretionary ill get higher end type purchases.
No that's totally fair just switching to a co. Both I mean, the segment margin there was flat year over year, but that's been sort of choppy the past few quarters anything to call out I know you've called through congestion pricing was a tailwind there, but how should we think about that margin cadence going forward.
Yes, I think in the this is Brian in the quarter.
There were some mix issues within the product nothing big to call out it's mostly just the year over year impact, we're still seeing year over year increases.
From the lagged impact of some of the tariff that affected the business, so a little bit higher cost there.
But going forward I would I would expect to continue to see some.
Some commensurate leverage if you will with the growth of the business.
Okay and then finally, just on the class B segment from its still strong double digit growth, but it was a bit of it ticked down versus last quarter, a lot of focused on that category across the industry. What are you guys sort of thinking about the trajectory.
Going into next year, just from accounting perspective.
Well I think the category will continue to grow I think the addition of new competitors is probably not a bad thing overall for the RV consumer and for the future of that particular segment, obviously on our end as the market share leader currently we need to be prepared to defend and hopefully advance our share and our teams have been busy.
The with.
Certainly the product development side, and the dealer development side to make sure that we have the ability to increase our business.
Ill certainly the law numbers might come into place gradually over time as the category gets bigger and you may see some comp year over year numbers that may not be as aggressive both at an industry level and our level as as in the past, but we do not anticipate that.
Category is.
Coming upon an imminent slowdown or collapse of any real significance I think again a lot of the Oems are working hard to add that product to their their catalog and in many cases that are being viewed as attractive and part of the the nice aspect of the story of class fees as its.
Redefining what a recreational vehicle is within the industry. Many many people yet probably don't realize that those products are available for them to consider.
Adding to their driveway or their garage and getting out in the outdoors through those and overtime I think that will be one of the the ways that RV and will become from a lifestyle standpoint.
EBITDA, even a bigger part of the mainstream consumers viewpoint.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Mark Jordan with Jefferies. Your line is now open.
Good morning, Thanks for taking my questions just two quick ones here so.
You talk about the integration of Neumar, how that's been going and maybe have there been any issues are any early lessons that may have and learned.
Yes. Thank you for the question.
The integration is going well given were five to six weeks in to the process.
We learned a lot through due diligence set certainly more of a risk assessment process.
Now that we.
Have a formal keys to the business and are working closely with.
Miller and his team, we're getting access and visibility now into.
Certainly a much lower level of detail.
There have not that any significant surprises that we would share with the investor community at this time.
The.
The team is strong the product line is is pretty sharp. They continue to have a very healthy pipeline of products coming their dealer dealer relationships are generally fantastic as well and I've been very pleased with the culture.
That we've been able to start to get an even firmer grip on as well so.
We're working very hard on the cultural assimilation here in the early stages to.
To make sure that their employees certainly their dealer partners and their end customers know that Winnebago will be a great parent company.
Then certainly we have a long list of strategic and financial synergy that we will go after in the future one thing of note.
Gentlemen, leaving the business and Neumar Mad Miller is also spending a nice amount of time with one of his peers on the Winnebago motor home side to learn that business. So that Matt can potentially offer some opinions and value and and more seamlessly share some best practices across those two motorized businesses. So very early in the.
Process, we have strong aspirations, but we also need to remain both humble and paranoia that if you don't.
Your head down on an integration like that that something could surprise you, but nothing to report as of late.
Okay great.
Thinking kind of longer term following the Neumar acquisition, how should we thinking about maybe future additions the company's brand portfolio.
Well I think you've seen in the last several years.
Very specific story emerging about a a premium outdoor lifestyle viewpoint here at our company.
We value brands that.
Our leading brands within their segments are there industries.
We value businesses that have a strong leadership teams.
We value organizations that have.
The flywheel spending, but with Winnebago support and some synergy that that flywheel can spend even faster.
Certainly we want businesses that.
I have the ability to be either accretive to the company as a whole or to the segments that they joined within the within the portfolio.
We don't generally share specifically what adjacent sees.
Outside of Rvs and door what segments within our views we could continue to invest end.
But you could take some of the filters that youre starting to see from our last three acquisitions of Grand design, Chris craft, a new bar and generally apply those to the types of opportunities that we are looking for in the future. The last thing I'll just comment on there is that we continue to plant seeds on a very small but strategically important specialty vehicles.
Yes.
Follow us on social media, you often see some highlights of our progress there. That's another adjacency that we continue to explore and.
We will try to determine what competencies, we can leverage with organic and inorganic expansion there in the future. So stay tuned I would brands leadership will will.
Manage our balance sheet now that's been levered up a little bit.
Continue to get that back in great shape here over the course of fiscal 20 and be in a position to be either proactive or opportunistic.
Sometime in the future again.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from Ben Rolla Northcoast Research. Your line is now open.
Good morning, most of my questions have been asked but I guess heading into 2020 early retail show season could you remind us of some of the comps there were shot were show strong last year or.
What were you kind of seeing at retail and what will you guys be comping. This year. Thanks.
Yes.
Thank you for the question I don't have the exact numbers in front of me we had them at the last earnings call. It just and bring them to this particular call. This morning, I can tell you that some of the major ones are certainly the Hershey show in Pennsylvania.
The California RV show, we also have a big Marine show the Fort Lauderdale show that occurred a few other smaller RV show us almost consistently across those shows our brands had positive retail comps at those shows on whether it was one of the legal motor.
Homes, Winnebago, Towables Grand design or Chris craft and.
From what I can now recall from new bar.
They had some decent success at some of those shows as well either flat to slightly up from what I can recall from from listening to them. So so.
Generally it was a good call traffic was decent and at some shows it was slightly down.
At other shows it was up but in most cases, our brands performed well at the show as I can't obviously comment on the the 90% of the retail industry RV retail segment that we don't have.
But we were we were pleased that customers or still out exploring the lifestyle looking for new products and in many cases looking to upgrade from our visa that they already own today.
Right, Okay that a little bit branded retail is relatively flattish.
Through the early for last year was the wholesale to three recall the wholesale that saw the big decline retail.
Lightly softer than the prior year, but it with bill.
Viewed as a healthy trend just just off slightly.
Okay, great. Thank you.
Thank you Sir our next question comes from David Whiston with Morningstar. Your line is now open.
Thanks, Good morning on Chris Crafts.
In New York, you had that slide that talked about 16% unit growth and that's.
We're not hearing from our discretionary payments.
Standing outperformance relative to the rest of the industry. So could you just talk a bit more about what's driving that is it purely just at the Mark. The brand is just really awesome and I I know gaining share as you showed but.
Premium customers, just not hurting, whereas the volume customer is running in marine.
Yes. Thank you David for the question we agree that the brand is also on the here's some of the reasons why we believe that Chris craft retail has been up here recently first of all they've been expanding their product lineup. They have a sort of a series of product. The GT the launch GT series, where they've been introducing deferred.
Lengths of boats within that series and.
Just have done a tremendous job of of coming out with some great looking boats that.
Ill customers are flocking to dealers are.
Our seen embracing and promoting now in their retail environments. They've also introduce some center console both.
Here in the last.
Year. So theyve also added to that new product energy and vibrancy that is driving those retailers. So last comment I'll make is that as I noted in my prepared comments, Chris craft has been focused on improving the quality and quantity of its dealer base since our acquisition and they are having increasing success with.
During in front of some of the best Marine dealers in the country that can appeal to these extremely affluent customers and they are having great conversations about the expansion of their brand to carefully to complement the other branded heard other dealer relationships and Thats, probably also having an incremental effect as well one comment on the concern.
However, you are correct.
I talked about the fickleness of the RV consumer, but what's very interesting is that with the new Maher brand of very high end luxury motor homes and with the Chris craft brand of luxury marine products, we are actually seem pretty robust retail within those.
Thin air segments add it gives me the impression that that highly affluent customer is not slowing down at this point in terms of investing it is probably more of the consumers that.
Our somewhat under that to some degree and so most of the consumers on the Chris craft side actually pay cash for their bolts from their dealers and.
They are less impacted by some of the dynamics with the stock market or maybe even their own business they've got enough net wealth to make that investment in that toy, whether it's a boat or a marine. So we are seeing a a healthy stability and in fact, even a little growth there during these particular times.
Well that's helpful. Thank you.
Switching over to Grand design again, another brand that's just got outstanding.
Gross every corner.
Can you just talk a little bit about what customer demographic both age wise socioeconomic.
Is the Grand design customer.
Yes.
I'll do that at a broad level the Grand design brand Appeals to a very wide selection of customers. If you were to go to a and RV rally or campground.
The Grand design customers can be 35 years old and they can be certainly 75 years old that speaks to a number of things within the business model first of all their product lineup is pretty complete right now they've got everything from a stick in 10 brand and transcend lightweight travel trailers in the imagine, but also they've got tremendous fifth wheelers and.
Quite haulers across their other brands other brands of travel trailers.
Really cover the market and while they started on the premium in the high side and probably attracted initially the more mature experienced our beer.
Their brand progression and their product line progression and building out the product lines has led them into some of the younger less experienced started years that are hearing the momentum of the Grand design brand almost in a cold like fashion would then the RV community the customer service reputation the quality reputation.
The way they take care of customers.
Is bringing really just a wide demographic. So yes, there is still getting some play out of the baby Boomer generation, but the Grand design customer base as a as I I don't know if I can call it balance because I'd have to go back and look at the numbers, but they've got strong representation in some of the younger generations of now.
For years going forward. So it's a really good place for that brand to be because I think that will bode well for them as they grow up it's only a seven year old brand and so as they grow up and create positive experiences with younger consumers. They should have a very loyal customer base to continue growing with as as those customers age going forward.
I appreciate all the detail all the best and Tony Tony.
Thank you David.
I'm not showing any further questions at this time I would now like to turn the call back over to Steve Steve that for closing remarks.
Great. Thank you operator, and thank you everyone for joining our call today at both Mike and Brian mentioned earlier, we wish you all a happy holiday season, and certainly all the best in the new year.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.