Q2 2024 Winnebago Industries Inc Earnings Call
[music].
Okay.
Good day, and thank you for standing by.
Speaker Change: Welcome to the second quarter fiscal 2020 for Winnebago Industries financial results Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to turn the call over to Ray Posadas, Vice President of Investor Relations and market Intelligence you may begin.
Raymond Posadas: Good morning, everyone and thank you for joining us to discuss our fiscal 2024 second quarter earnings results. The call is being broadcast live on our website at Investor <unk> Dot net and a replay of the call will be available on our website later today.
Raymond Posadas: The news release with our second quarter results was issued and posted to our website earlier. This morning. Please note that beginning this quarter, we will be using an earnings slide deck that follows along with our prepared remarks, you may access the deck on the Investor Relations section of our website under quarterly results.
Turning to slide two let me remind you that certain statements made during today's conference call regarding Winnebago industries and its operations may be considered forward looking statements under securities laws.
Raymond Posadas: Company cautions you that forward looking statements involve a number of risks and are inherently uncertain and a number of actors many of which are beyond beyond the companys control.
Raymond Posadas: <unk> actual results to differ materially from these statements. These factors are identified in our SEC filings, which we encourage you to read.
Raymond Posadas: In addition on today's call management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to their comparable GAAP measures are available in our earnings press release.
Raymond Posadas: Please turn to slide three.
Raymond Posadas: Joining me on today's call are Michael Happy the President and Chief Executive Officer of Winnebago Industries, and Bryan Hughes, Our senior Vice President and Chief Financial Officer.
Michael J. Happe: Mike will begin with an overview of our performance during the quarter.
Bryan L. Hughes: Ryan will discuss our financial results and the primary drivers Mike will share our future mid cycle organic growth targets and underlying assumptions then management will be happy to take your questions. Now please turn to slide four ill turn the call over to Mike.
Mike: Thank you Ray good morning, everyone.
Mike: And thank you joining us to discuss our second quarter fiscal 2024 financial results.
Mike: I wanted to start by thanking the teams across our businesses Winnebago Grand design, RV, Newmar, and Chris craft, Barletta and lithium ion X.
Mike: I am incredibly proud of your dedication and commitment to executing on our growth strategy and delivering exceptional outdoor experiences for our RV and marine customers every day.
Before diving deeper into our results I will.
Mike: I'd like to emphasize the three main points that we want you to take away from our call today.
Mike: First.
Mike: We performed in line with our expectations during the second quarter of fiscal 2024.
Mike: <unk> demonstrated resilient profitability.
Mike: Second we anticipate industry softness in fiscal Q3.
Mike: Particularly on the motor home RV and marine side.
Mike: <unk> continued dealer caution.
Mike: And third as we move beyond the near term market dynamics, we remain confident in our ability to grow our business capture.
Mike: Capture market share and substantially increase our profitability and free cash flow.
Mike: This optimism is reflected in our new future mid cycle financial targets.
Mike: Now, let me expand on our fiscal Q2 results.
Mike: The December through February period is typically a seasonally lighter retail quarter.
Mike: Of what historically has been a sequentially stronger spring selling season.
Mike: As anticipated dealers continued to closely manage inventory levels in Q2.
Mike: In the face of a higher <unk>.
Mike: Environment.
Mike: Atlanta.
Mike: Despite the macroeconomic challenges.
Mike: We continued to demonstrate resilient profitability and an unwavering commitment to operational discipline.
Mike: Net revenues for the second quarter were $703 6 million.
Mike: Reflecting the anticipated sequential and year over year softness in the total RV motorized RV and marine businesses that Brian and I referenced in our first quarter earnings call.
Mike: Our consolidated adjusted EBITDA margin of seven 1% was flat on a sequential basis.
Even with a $59 million decrease in revenue.
Mike: Overall, we delivered adjusted earnings per diluted share of 93.
Mike: Brian will review of financial results in more detail shortly.
Mike: Our performance speaks to our diversified portfolio of premium brands as well as our investments in new products and technologies.
Mike: Over the past seven and a half years, we have added four premium OEM brands to our portfolio.
Mike: And significantly strengthened our mobile power management offerings with the acquisition of lithium ion X.
Mike: Our enterprise approach remains one of collaboration across our brands rather than competition.
Mike: We are driving growth and profitability through our centers of excellence that.
Mike: Further enhance what makes each of our brands correctly and enables powerful portfolio synergy.
Mike: In this way, we provide our diverse and passionate customer base with the quality innovation and service they have come to expect from us.
Mike: Turning to slide five I'll.
Mike: I'll comment briefly on inventories and shipment trends.
Mike: As we enter the back half of 2020 for the.
Mike: The most recent data suggests that the RV industry is moving in a positive direction from an inventory standpoint, particularly on the <unk> side.
Mike: The RV industry associations January wholesale data showed an 11% increase in total RV shipments compared with the prior year period.
Mike: Total RV shipments were higher by 21% year over year in January.
Mike: While motor home Rvs were down 27%.
Mike: Historically, the third and fourth quarters of our fiscal year are the destocking quarters for our RV dealers as retail accelerates through the spring and summer selling season.
Mike: Given the current macroeconomic environment it remains to be seen whether this year's dealer behaviour.
Mike: Follow a normal seasonal pattern.
Mike: At the industry level RV shipments ended calendar year 2023 at 313174 units.
Mike: Down 36, 5% from the prior year.
Mike: For calendar 2024, the RBI continues to expect RV shipments to increase to a mid range estimate of 350000 units.
Mike: While we remain mindful of continued uncertainty around the timing and quantity of fed rate cuts this year.
Mike: Based on recent trends, we believe that for the full calendar year, the RV industry, well return to a one to one retail to a wholesale replenishment ratio.
Mike: On slide six Winnebago industries saw a modest decline in RV market share on a trailing 12 month basis through the end of January our total market share stood at 11, 4%.
Mike: More recently, we've seen improvement in motor home, RV, particularly class a and class C. We are in the most recent three and six month periods.
Mike: Given consumer emphasis on affordability.
Mike: We believe our premium brands are holding up well.
Turning to slide seven.
Mike: As we expected marine orders were soft in the second quarter as dealers continue to work through elevated industry inventory levels and address the effects of higher interest costs on inventory floor plan expenses, while also being mindful.
Mike: Inconsistent retail performance.
Mike: The bright spot remains the pontoon segment.
Mike: And within that our Barletta brand, which continues to gain market share increasing to seven 9% on a trailing 12 month basis through the end of January.
Mike: On slide eight and looking across the outdoor recreation markets that we serve one of our true competitive advantages here at Winnebago industries.
Mike: We call purposeful innovation.
Mike: Delivering customer centric design, and thoughtful and affordable technology to delight customers as they travel live work and play.
Whether it is our highly differentiated house power solutions from lithium ion X or Winnebago connect our game changing intelligent RV platform.
Mike: These and other technology investments provide us with significant runway for future profitable growth.
Mike: Turning to recent highlights that the Florida RV Super show in January consumers got a firsthand look at the innovative new models from Winnebago Grand design RV and Newmar.
Mike: Our flagship Winnebago brand launched five all new rvs, including the newest generation of the popular Echo and rebel motor homes, both of which began shipping in Q2.
Mike: Built on Mercedes sprinter chassis, the class C. Echo sprinter 20, <unk> and the new class B rebel are designed with enhanced extended season capabilities for adventure ready outdoor enthusiasts.
Mike: We also show cast.
Mike: All new Winnebago view and Navient motor homes equipped with Winnebago connect.
Mike: With the systems easy to navigate touching consumers can monitor and control all major RV systems from lighting climate and energy management to refrigeration water systems slide outs and door locks.
Mike: We also offer a subscription service that gives consumers access to a host of other benefits such as automatic temperature control for pet monitoring and remote diagnostics.
Mike: The rollout of Winnebago connect is its early stages. We are excited about the long term potential of this technology.
Mike: In the total category Grand design debuted its exciting new influenced fifth wheel.
Influence offers spaciousness in amenities comparable to grand designs industry, leading solitude fifth wheel, yet packaged at a more affordable price point.
Mike: We're also leaning into our commitment to a more sustainable outdoors through new partnerships such as our recent alliance with <unk>, a leading manufacturer of electric commercial vehicles at our Winnebago specialty vehicles Division is partnering with <unk> to develop a fully electric chassis.
Mike: That will use Sos battery and electronics technology customized for Winnebago has unique commercial applications, such as medical and dental clinics.
Mike: Mobile child advocacy centers and mobile command vehicles.
Mike: This agreement underscores the mission of Winnebago Industries Advanced Technology group, and creating new solutions that anticipate the evolving needs of our customers.
Mike: At Winnebago industries, our commitment to corporate responsibility is also the cornerstone for sustainable business growth and long term profitability.
Mike: So in January we were especially honored named one of America's most responsible companies by Newsweek for the second consecutive year.
Mike: This recognition underscores the work we have done as an organization to advance our corporate responsibility initiatives.
Mike: On the marine side at last month's Miami International Boat show, Chris Craft Availed, a special 150 year anniversary edition of its iconic launch 27, one of two new Chris craft products that will be introduced this year.
Mike: Meanwhile, our letter brand is expanding its reach as the industry's fastest growing pontoon business.
Mike: The recent Ssi data shows that bar Atlanta continues to take market share.
Mike: The brand also continues to capture the attention of the industry.
Mike: The National Marine Manufacturers Association and boating writers International recently recognized by a letter with the 'twenty 'twenty four discover boating Minneapolis boat show Innovation Award for its unique center mounted twin engine pontoon boat.
Mike: This unique design shifts the engine mounts from the outer tubes to the transom, allowing an exponentially higher level of performance and functionality.
Mike: Looking ahead demand for the RV and boating lifestyles remains strong, creating a tailwind in the future. It supports the growth of our portfolio of exceptional brands and aligns with our vision to be the trusted leader in premium outdoor recreation.
Mike: We continue to focus on those areas within our control we're.
Mike: Reliant on our diversified business model flexible cost structure and balanced capital allocation strategy.
Mike: Continue to deliver value for our stakeholders.
Speaker Change: With that I will now hand, the call over to.
Bryan L. Hughes: Bryan Hughes.
Bryan L. Hughes: Thanks, Mike and good morning, everyone. As a reminder, in my prepared remarks, starting on slide nine I will focus on the key drivers of our performance.
Bryan L. Hughes: Please refer to our earnings release and earnings supplement documents for a detailed overview of our key financial results.
Bryan L. Hughes: Our fiscal 2024 Q2 results.
Bryan L. Hughes: Reflect the success of our disciplined production.
Bryan L. Hughes: And cost management, the strong dealer and supplier network that we have built over time as well as the resilience of our highly variable cost structure.
This cost structure is a critical advantage that provides us with production flexibility and enabled us to swiftly respond to changing volume and market conditions in today's dynamic environment.
Bryan L. Hughes: As a result during the second quarter of fiscal 2024, we were able to partially offset the deleveraging effect of an 18, 8% decrease in revenue compared to prior year to deliver seven 1% adjusted EBITDA margin and adjusted diluted EPS.
Bryan L. Hughes: Of 93.
Bryan L. Hughes: The decrease in revenue was driven by lower unit sales.
Bryan L. Hughes: Due to lower shipments given the current retail market conditions.
Bryan L. Hughes: And a shift in product mix.
Bryan L. Hughes: Resulting in lower average selling prices.
Bryan L. Hughes: By extension on gross profit decreased 28, 3% compared to prior year.
Driven by the deleveraging effect of slowing sales.
Coupled with an unfavorable shift in product mix.
Bryan L. Hughes: Although there was a small sequential decrease in our gross profit margin our operating margin remained relatively healthy.
Bryan L. Hughes: This was the land can be attributed to a sequential reduction in <unk>.
Bryan L. Hughes: SG&A expenses.
Bryan L. Hughes: It's also important to note that our SG&A expenses as a percentage of revenue.
Bryan L. Hughes: Remain elevated compared to historical levels, reflecting our ongoing investments in engineering did Alaska development and the expansion of our data and it capabilities.
Speaker Change: Before covering our performance by segment I'll highlight a few unusual items that had a financial impact on our bottom line this quarter.
Speaker Change: In January we announced the issuance of $350 million of convertible senior notes due in 2030.
Speaker Change: We used the proceeds of the offering to refinance approximately $240 seven.
Speaker Change: $7 million of convertible senior notes that had been due in 2025.
Speaker Change: Associated with this refinancing we recorded a loss of approximately $32 7 million.
Speaker Change: It is important to note that while this loss negatively impacted our GAAP earnings is not reduced our taxable income.
Speaker Change: Therefore caused our reported tax rate for the period to be elevated.
Additionally, we incurred a nonrecurring noncash fair value adjustment of $3 million related to a debt investment.
Speaker Change: As a result second quarter fiscal 2024, GAAP net loss was $12 7 million and.
Speaker Change: And GAAP loss per share was 43.
Speaker Change: After adjusting for these nonrecurring or nonoperating items, our adjusted earnings per diluted share was <unk> 93.
Speaker Change: As a reminder, fiscal Q2 is traditionally a lighter quarter for the industry as it relates to shipments.
Speaker Change: However, even though sequential $59 million decrease in revenue our variable cost operating model enabled us to deliver sequentially flat consolidated EBIT margins of seven 1%.
Speaker Change: Okay.
Speaker Change: Turning to our performance by segment.
Speaker Change: Starting with total RV on slide 10.
Speaker Change: During our last earnings call. We noted that dealers had been reluctant to take on additional inventory.
Speaker Change: Given the uncertainty tail environment.
Speaker Change: Dealers remain cautious heading into the spring, preferring to evaluate the spring retail selling season performance before committing to an increase in their inventory levels.
Speaker Change: Due to lower unit volumes related to market conditions, and a reduction in average selling price per unit related to product mix and targeted price reductions.
Speaker Change: We offset by lower discounts and allowances.
Revenues for the TOB RV segment were down 16, 9% year over year.
Speaker Change: Total RV segment adjusted EBITDA was down 31, 8% and adjusted EBIT margin was down 210 basis points year over year Pri.
Speaker Change: Primarily due to deleverage and unfavorable warranty experience, which was comparing against favorable warranty experience in the prior year.
Speaker Change: These unfavorable drivers were partially offset by lower discounts and allowances.
Speaker Change: Backlog decreased compared to the prior year due to current market conditions and a cautious dealer network.
Speaker Change: Turning to slide 11.
Speaker Change: Revenues for the motor home RV segment were down 16, 2% from the prior year, but up slightly sequentially as we launched several new products.
Speaker Change: Including the <unk>, two five and the echo on a Mercedes chassis.
Speaker Change: That resonated well with customers.
Speaker Change: Year over year decline was driven by lower unit volume related to market conditions.
Speaker Change: Higher levels of discounts and allowances compared to prior year.
Speaker Change: An unfavorable product mix.
Speaker Change: Partially offset by price increases related to higher motorized bassi costs.
Speaker Change: Segment, adjusted EBITDA was down 38, 9%.
Speaker Change: And adjusted EBITDA margin was down 280 basis points versus the prior year due to volume deleverage higher warranty experience.
Speaker Change: Higher discounts and allowances and operational inefficiencies.
Speaker Change: Sequentially, our adjusted EBITDA margin increased 130 basis points due.
Speaker Change: Due to improved labor productivity and cost containment efforts.
Speaker Change: Backlog decreased in the prior year.
Speaker Change: Due to current market conditions and the cost of the dealer network.
Speaker Change: Please turn to slide 12.
Speaker Change: Revenue for the Marine segment were down 38, 2% from the prior year.
As a result of a decline in unit volume related to market conditions.
Speaker Change: Unfavorable product mix due to the launch of lower price point Barletta ARIA.
Speaker Change: And higher levels of discounts and allowances compared to prior year.
Speaker Change: Marine segment, adjusted EBIT margin decreased 650 basis points versus the prior year.
Speaker Change: This was primarily due to volume deleverage and higher discounts and allowances.
Speaker Change: Partly offset by lower incentive based compensation related to operating performance.
Speaker Change: Backlog for the Marine segment was down from the prior year period due to a cautious dealer network.
Speaker Change: Moving now to the balance sheet on slide 13.
Speaker Change: At the end of the quarter Winnebago industries had a net debt to EBITDA ratio of approximately one six times.
Which is slightly above our targeted range of $3 90 to one five times.
Speaker Change: Maintaining a strong balance sheet remains core to the Winnebago industries investment thesis.
Speaker Change: And enables us to execute on our well balanced capital allocation strategy.
Speaker Change: As discussed we completed this quarter at 350 million offering of convertible senior notes for refinancing the 2025 maturities.
Speaker Change: This successful refinancing underscores our strong operating performance and credit profile.
And provides us with financial flexibility for future growth.
Speaker Change: We.
Speaker Change: <unk> to prioritize digital and strategic investments in our business.
Speaker Change: Like the opening the Atg Advanced Technology Group Innovation Center for example, or strategic acquisitions like Lithia annex.
Speaker Change: While returning capital to shareholders.
Speaker Change: During the second quarter, we paid a quarterly cash dividend of 31 per share.
Speaker Change: As a reminder, we increased our quarterly dividend by 15% during the first quarter.
Speaker Change: Reflecting the confidence we have in our ability to profitably grow revenues.
Capitalize on new opportunities.
Speaker Change: And gained market share in the coming years.
Speaker Change: These actions further underscore our commitment to the long term strength and trajectory of our business.
Speaker Change: Before turning the call back to Mike.
Mike: Let me provide some color on our expectations for the fiscal third quarter.
Mike: Based on current market condition with softness in retail sales and dealer reluctance to carry high inventory.
Mike: We anticipate Q3 consolidated net revenues to be higher sequentially.
Mike: But down mid to upper single digits on a year over year basis.
On our Q1 call in December.
Mike: We expressed the view that destocking of aged inventory on the total RV side with.
Mike: <unk> largely complete.
Mike: While the motor home RV categories still had some excess inventory remain remaining on dealer lot.
Mike: Recent reports from Marine dealers suggest the marine industry also happened Destocking left to do.
Mike: As a result, we anticipate both the motor home RV and the Marine segment revenue to be roughly flat sequentially in Q3 versus Q2 as.
Mike: As we continue to aggressively manage inventory.
Mike: While total RV segment revenue is expected to increase modestly on a sequential basis.
Mike: Profitability will continue to be challenged by the deleveraging impact of lower year over year sales volume and we therefore expect consolidated margin to be down versus the prior year quarter.
Mike: We expect that consolidated Q3 profitability will reflect modest improvements sequentially from an EBIT margin perspective.
Mike: Now, let me turn the call back to Mike to discuss our future mid cycle growth targets and provide some closing comments Mike back to you.
Mike: Thanks, Brian.
Mike: In addition to our fiscal Q2 financial results.
Mike: We also announced future mid cycle organic growth targets. This morning.
Mike: Please turn to slide 14 for an overview of our targets in comparison with our trailing 12 month financials.
Mike: Market assumptions underlying the financial targets include North American RV retail volume at a mid cycle fiscal year range.
Mike: 425 to 400000 units.
Mike: And U S aluminum pontoon retail volume at a mid cycle fiscal year range of 60 to 63000 units.
Mike: In reviewing our updated targets I would like to emphasize the potential for EBITDA margin expansion.
Mike: And free cash flow generation inherent in our business model.
Mike: As we move towards the mid cycle in coming years, we expect revenue to increase by approximately 51% at the midpoint of our range.
Mike: Compared with our fiscal Q2 trailing 12 month results.
Mike: This translates to nearly two full expected increase in adjusted EBITDA and a 56% increase in free cash flow.
Mike: Underscoring our substantial operating leverage.
Mike: Additionally, we believe there is ample opportunity to broaden our market share in both the RV and the pontoon industry.
Mike: While we do not anticipate a consistent expansion in basis points every year. We believe these ranges reflect achievable average annualized improvement rates.
Mike: Finally.
Mike: In the coming years, we plan to meaningfully expand our philanthropic giving to the communities, where our employees live work and play.
Mike: We are extremely proud of our programs that eliminate barriers promote access and connect all people with the social mental and physical health benefits of the outdoors.
Mike: Please turn to slide 15 I.
Mike: I briefly touched on the EBITDA margin expansion opportunity ahead at.
Mike: At the midpoint of our range, we expect our adjusted EBITDA margin to buy 255 basis points.
Mike: This is in part driven by improved operating leverage through our flexible hybrid.
Mike: <unk> operating model.
Mike: As well as expected new product margin improvements and business excellence and operational efficiency initiatives.
Mike: We anticipate a substantial increase in free cash flow.
As illustrated on slide 16.
Mike: We expect to generate $325 million to $375 million in free cash flow.
Mike: Representing a 56% increase at the midpoint of our range driven largely by higher profitability.
Mike: To support our future revenue growth, we expect higher working capital requirements that will be partially offset as we realized efficiencies.
Finally, we expect both maintenance capital.
And grow capital to remain consistent.
Mike: Each of which would be around 1% of revenue.
Mike: Our 2% in total when taken together.
Mike: Before we turn to your questions. This morning.
Mike: Ill sum up on slide 17 by highlighting the three things I want to leave you with as well as the aspects of our business that makes us unique.
Mike: First as you heard today, we performed in line with our expectations for the same quarter navigating the effects of ongoing softness in the RV and marine markets.
Mike: We demonstrated resilient profitability and an unwavering commitment to operational discipline that is underscored by our results.
Mike: We anticipate continued industry softness in fiscal Q3.
Mike: Motor home RV and Marine segment revenues are expected to be roughly flat sequentially.
Mike: While total RV segment revenues are expected to increase modestly on a sequential basis.
Mike: Third as we move beyond near term market dynamics, we are confident in our ability to grow artists.
Mike: Capture market share, increasing our profitability and free cash flow.
Mike: We expect to capitalize on long term secular growth trends.
Mike: And a number of combined elements of our business that make US unique. These include the following.
Mike: We are leveraging an enterprise approach to promote collaboration across a diversified portfolio of industry, leading outdoor lifestyle brands each of our brands brings unique attributes and operational strengths and our functional centers of excellence bring out the best in each brand and drive strong portfolio synergy.
Mike: We have a proven go to market business model that leverages trusted dealer relationships and strong brand equity within consumer.
Mike: Our commitment to innovation and our investment in our enterprise capabilities are enabling us to capitalize on long term secular trends despite any short term fluctuations in demand.
Mike: Our flexible integrated operating model and highly variable cost structure is enabling the resiliency that has been demonstrated on our results as we navigate through the current cyclical trough.
Mike: And finally, we have a healthy balance sheet and a balanced capital allocation strategy that supports future profitable growth.
Mike: <unk> M&A and long term shareholder returns.
Speaker Change: With that I will turn the call back over to the operator.
Speaker Change: Who will open up the line for your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: One moment.
Speaker Change: Okay.
Speaker Change: And our first question comes from Scott Stenberg.
Scott Lewis Stember: Roth MKS.
Scott Lewis Stember: Hi, Good morning, guys and thanks for taking my questions.
Scott Lewis Stember: Good morning, Scott.
Scott Lewis Stember: You talked about expecting in calendar.
Will it be different and transition in the second half of the year.
But we believe that that equilibrium.
Can ultimately be ultimately be reached in that 12 month period, but by the end of the year.
Got it.
On the warranty expense.
Alright.
You talk about what drove that and will there be an extended tail.
Through the next couple of quarters.
Yes, Scott, Brian I don't anticipate that this is a <unk>.
Stemming type of issue I think.
The analyst community needs to occur.
Appreciate and acknowledge that when you go through peaks and valleys like the industry is going through right now sometimes that warranty expense.
Can show up as a ratio to sales.
Favorable one quarter unfavorable another quarter in fact, we had some favorable experience.
That came as a.
Reduced warranty as a ratio to sales last year in Q2, this year with elevated versus that so it's a driver of year over year margin, but I don't.
I don't want to convey that its deck issue here you also have from time to time some lumpiness in the events as you manage through some particular campaigns that will come up in our business. So.
To answer your question, specifically I don't see this as an ongoing elevation. It was quarterly driver, but not expected to be an ongoing challenge for us.
Got it and just one last quick one with some of the mouth the challenges and motorized right now has the timing of the rollout of grant line motorized changed at all.
Scott the timing for Grand design motorized remains on track.
Versus.
Our expectations over the last year of preparation.
We anticipate that our fourth quarter of this fiscal year 'twenty four we will see some sales of branded motorized.
Motorized.
In that period.
But the ramp the majority of the ramp up of Grand design motorized revenue.
Will happen in fiscal 'twenty, five, but we will begin shipping.
Motorized at least settled today, we will begin shipping motorized in our fiscal fourth quarter. This year.
Got it that's all I have now thanks.
Thank you one moment for our next question.
And our next question comes from Tristan Thomas Martin of BMO capital markets.
Before.
Competitive behavior on model year transition.
But our three Rd businesses are planning to transition to model year 'twenty five.
In.
The same window that we have executed that in the last several years. So we're not planning a significant pull ahead.
Our model year 'twenty five introductions that time, it does vary a little bit by brand as to when they changed the year is over.
But.
But we are not anticipating any significant shift forward in our model year <unk> shipments.
Yeah on the ESP drift and you have to look at it segment by segment of course in motor home, it's pretty neutral.
Alright.
Big increases or decreases.
For the most part <unk> got some higher allowances and discounts that are offsetting some pricing initiatives that are.
Meaning to or offset the chassis increases.
We've been seeing so.
Net net pretty neutral order home on total.
Down high single digits approaching 10.
In percent on Asps.
Basis.
The Big news, there, it's really mix more than anything shows up.
As a reduction in asps, but thats our efforts to introduce products that are.
Targeted at where the customer is that right now. So you have some some negative mix. There is some mild targeted price reductions on certain models. So in other words, some apples to apples reduction.
The reduction, but that range is probably in the 2% to 3% range.
That high single digit ASP decline that I referenced so some targeted price declines, but most of it shows up in mix.
And then on the marine side Likewise, some mix there we referenced the introduction of the Barletta ARIA.
As an example of.
US entering that lower price point with that great product. So some of that going on and then we also run.
The allowances and discounts that we are.
Attributing some of that <unk>.
Okay. Thank you and then just how did retail trend over the quarter and then how has it been so far in March.
Uh huh.
Yes, I think you can tell by some of the numbers in the earnings release that our retail has generally been in line with the rest of the industry during the quarter.
We've actually felt better about.
Trailing.
Sure results here recently in Q2.
Yeah.
I would say retail to date on the RV side in Q3, which began with month of March.
<unk>.
Hey, Ben.
Speaker Change: Sequentially, better obviously with the seasonal nature of our business.
Speaker Change: But but probably still.
Speaker Change: A little bit behind where.
Speaker Change: Most of the industry would like us to see.
I know there's been commentary in the industry about when we'll start to see positive retail comps.
Raymond Posadas: On Rovs and some have speculated its in the April to May time period.
Raymond Posadas: My guess as we sit here today as you probably see that more in the May time period.
Raymond Posadas: Then the April time period based on what we've seen here in the first three weeks of March.
Speaker Change: Okay. Thank you.
Thank you one moment our next question.
Raymond Posadas: And our next question comes from Craig Kennison of Baird.
Craig R. Kennison: Hey, good morning, Thanks for the slides and.
Craig R. Kennison: Commentary on mid cycle targets I wanted to ask about on slide 15, you talk about profitability initiatives.
Craig R. Kennison: Can you shed light on what that might be.
Speaker Change: Yes, good morning criticism.
Speaker Change: The little Those'll hover a range of activities.
Raymond Posadas: And ill offer some examples we expect to see margin improvement based on certainly recovering.
Raymond Posadas: Volume.
Raymond Posadas: As we indicated on slide 15, but we also believe that some of the new products that we have in our pipeline. We will also demonstrate improved margin.
Raymond Posadas: Over the course of the next three to five years as well.
We have ongoing constant.
Raymond Posadas: Strategic sourcing initiatives in the business.
Raymond Posadas: <unk>.
Michael J. Happe: I would say in fiscal year 'twenty four to date.
Bryan L. Hughes: Were tracking somewhere in the neighborhood of $17 million to $20 million of strategic sourcing savings.
Mike: From that particular center of excellence.
Mike: We anticipate continued success.
Mike: And contribution to margin from that area and then each of our <unk>.
Speaker Change: Manufacturing operations around the company are also focused on productivity and efficiency and we offered some of these mid cycle targets. This morning.
Mike: On the EBIT side, we have.
Mike: Estimates internally.
Mike: As do some of the benefits of those productivity inefficiency.
Activities from our manufacturer campuses so.
Mike: We won't get into specific details there, but it'll be a combination of volume.
And the combination of.
Mike: On new products, and a combination of operational supply chain and manufacturing efficiency.
Mike: As a follow up Ken Lithia on X play a meaningful role in EBIT margin expansion or is it not large enough to matter in that context.
Mike: Lithium ion X well and can contribute to.
Mike: Two incremental.
Mike: Margin improvement for our overall business.
Mike: The degree of how much that will be and the timing of that.
Mike: It will certainly depend on.
Mike: The growth of lifting the onyx and the overall adoption of lithium ion battery packs in the RV marine and specialty mobile.
Mike: Industry segments.
Mike: But when we made the <unk> acquisition.
Mike: Now almost a year ago April of 'twenty, two 'twenty three we indicated that it was not only a strategic acquisition in a technology acquisition.
Mike: But we also expected that to have on the bottom line some meaningful financial.
Mike: Contribution impact overtime, and so so again, we're not going to assign a value to lithium onyx.
Mike: This morning, but yes, we do anticipate that it will begin to contribute.
Mike: A little bit more every year.
Mike: In terms of bottom line impact.
And finally as it relates to slide seven.
<unk> has had just an amazing Ron getting almost 8% market share of the market. Your goal is 13%, which is not a small leap from here could you just give us some.
Mike: Reasons behind your confidence in expanding share buyback.
Mike: Well first and foremost our confidence begins with the team at Barletta, we feel we just have a tremendous.
Mike: Team of passionate leaders and employees there.
Mike: Who are focused everyday on the end customer.
Mike: Our channel partners and building the very best.
Mike: Pontoons in the market.
Craig our recent market share results with Barletta have been very impressive in fact, I believe the standalone months.
Mike: That would just receive from Ssi here recently on pontoons.
Mike: It was double digit market share for <unk> in that particular month.
Mike: And so while the <unk>, while the 13% is a trailing 12 month number that we intend to shoot for.
Mike: And that is aggressive versus.
Mike: What we have indicated here on slide seven for trailing 12 months.
Mike: Here early in fiscal 'twenty for the recent trailing three months.
Standalone months market share numbers.
Mike: We're actually approaching double digits. So the gap may not be as far away as we think.
Mike: But we'll remain humble and paranoid and stay focused on doing the right thing and driving to a top two or three position in that category over time.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Our next question comes from James Hardiman of Citi.
Okay.
Hey, good morning, guys. Thanks for taking my questions here so.
James Lloyd Hardiman: Dig in on the inventories a little bit I guess first.
It looks like the absolute level of inventory.
Mike: R R.
Mike: So the business seem like they're in pretty good shape.
Mike: I think from an issuer perspective, the bigger concern seems to be the aging of inventory maybe walk us through any numbers you have in terms of.
Mike: The model year, 'twenty fours versus 23 years at this point.
Mike: In this channel.
Mike: Then an imperative be great work, where were those where was that mix last year.
Mike: Where is that mix, historically, and where you would like it to be.
Mike: And then any thoughts on sort of how would you compare the industry would be great. Thanks.
Yeah. Good morning, James This is Mike.
Mike: Well, let's start with the RV specifically.
Mike: At the end of February I wouldn't say, our model year, 'twenty four inventory, especially for our two largest RV businesses from a unit standpoint, when beggar on Grand design.
Mike: We're approaching the 75% range at the end of February.
Mike: Which meant for those two brands.
Mike: The model year 'twenty, three inventory was probably in that.
Mike: 3% to 24% range and the model year, we may have had 1% at the end of February a model year 'twenty two in the field.
Mike: The numbers on Nomura are a little higher just based on the type of category. The class a is <unk>.
Mike: Overall.
It's probably in that.
Mike: 70% to 75% range of our model year 'twenty four.
Mike: Almost.
Mike: <unk>, 25% range on model year, 'twenty, three which I think is very similar to what.
Mike: One of our largest competitors recently reported now you actually compare that.
Mike: Two a year ago at this time and those numbers are.
Mike: A little lighter.
Mike: For our Winnebago brand.
Mike: We're a little bit more aged on the Winnebago brand, but.
Mike: But actually on the Grand design brand, which is our biggest RV business.
Mike: That mix is actually.
Mike: Earlier this year than it was a year ago. If you compare the numbers I just stated on rvs.
Mike: To the pre Covid periods.
Mike: Both.
Mike: As an OEM, probably the industry as a whole.
Mike: Is is sitting with more aged inventory here in 2024 than we had in let's say 2018 or 2019.
I anticipate that will continue as an industry to work.
Through this cycle and as we see the <unk>.
Overall, RV cycle start to pick up and in retail begin to regain some momentum.
I anticipate over the next three or so years will will head back to.
Mike: Some of those are numbers that we saw pre COVID-19 in terms of aging metrics. So we feel comfortable James Bottomline on the RV side as to where we're at we're very focused on it I would imagine three weeks into March I don't have the numbers in front of me, but we're probably obviously under situation today than we were three weeks ago.
Mike: The on the pontoon side.
Mike: As Brian commented about quarter three as we look forward.
Mike: We have more aged inventory.
Mike: <unk>.
Speaker Change: Certainly I think.
Speaker Change: The dealers and.
Speaker Change: And ourselves would like but we also have great retail momentum on barletta as well and we anticipate continuing to move through that.
Speaker Change: Very quickly so.
Speaker Change: February there, we were probably closer to 65% modeled 24, let's.
Speaker Change: Let's say, 35% March 23.
Mike: And the <unk> business and we believe that will work its way down nicely here over the over especially the spring and summer.
Mike: <unk> again, those are a little higher than we've seen.
Mike: Barletta.
Mike: It continues to be a great story and dealers, if theyre going to put inventory in any pontoon brand right now they are choosing barletta.
Mike: And.
Mike: They are still being cautious with their overall PON to inventory, but they continue to shift shipment share and retail share to that brand.
Speaker Change: One other thing I'd add to that James go ahead, as our process related to managing the aging of inventory, which is just to take.
James: Take a very detailed and targeted approach.
James: So if we have incentives that we are introducing it is targeted at those retail units that we feel we want to help the dealers in partnership with them move off their lots. So we take a unit by unit approach to that we're tracking every unit and our incentives are certainly targeted at moving.
Mike: That is aging so I wanted you to be aware of that process.
Got it that's great color.
Speaker Change: <unk> into my next question right.
As you are trying to move those model year 'twenty three units I'm, assuming that that could be part of what's weighing on the Q3 margin outlook.
Mike: Dave.
Mike: And so I guess my question is you talked about margin being.
Mike: I guess somewhat better sequentially, but down year over year in Q3.
Mike: Maybe it's too early to make a call on Q4, but.
Mike: Is there a chance how should we think about Q4 margins is there a chance that those could grow year over year I'm guessing that it has a lot to do with the effectiveness of clearing out those model year two.
Mike: <unk> 2000 <unk>.
Speaker Change: Yes, It does and then certainly we are.
Citing leverage and deleverage is the biggest driver.
Speaker Change: As we go through the cycle here of year over year margin performance that will continue to be the case.
Mike: Going forward of course, but then to your point the allowances the discounts.
Mike: We.
Mike: Right size, our inventory as we deal with the.
Mike: The aged inventory that Mike was just referring to.
Mike: Those allowances and discounts and retail space will start to wane as well so that should help.
Speaker Change: We go.
I'll go through the coming quarters.
Speaker Change: Do you think it's plausible.
Speaker Change: Margin could could grow year over year in Q4 alright.
Speaker Change: Yes, im going to refrain from commenting on that at this stage.
Speaker Change: Okay fair enough.
Things are going on.
I appreciate the color guys.
Thanks James.
Speaker Change: Thank you one moment for our next question.
Mike: And our next question comes from Bret Jordan of Jefferies.
Bret David Jordan: Hey, good morning, guys.
Speaker Change: Barbara Little follow up I guess on the last question really around the marine dealer environment should we expect sort of that.
Support the promotional support cadence to pick up here into the spring I guess technically you Nathan this is Brian.
Mike: <unk> going to try to hit summer with clean inventory or.
With what we're seeing sort of consistent with what we're going to see going forward, if theres not going to be a surge in promotion.
Mike: Brett This is Mike. Thanks for the question I would say arguably we've already seen a surge in support to the market actually.
Mike: So by the pontoon Oems and certainly we've searched a little bit as well we try to be.
Mike: Surgical with that particular support working on certain aged models and with certain dealers.
Mike: I would say we don't see.
Mike: Probably a dramatic shift upward in our support for Barletta as we go into the spring and summer selling seasons as I indicated in a previous response, our aged inventory is higher than.
Bryan L. Hughes: It has been in past years in that brand in <unk>.
Bryan L. Hughes: Certainly a little higher than we'd certainly like it today, but we don't.
Bryan L. Hughes: We're going to be very rational and.
Bryan L. Hughes: The teams market support activities have been I think right on target as they continue to.
Bryan L. Hughes: To work with the dealers.
Bryan L. Hughes: On that brand. So so no I don't think we'll see.
Bryan L. Hughes: <unk> surge by our business, but I can't comment on what the rest of the industry of our competition will do okay and I guess question for your Chief economist.
Bryan L. Hughes: Yeah.
The possible timing of mid cycle.
Bryan L. Hughes: Environment, you talked about a comp retail comp recovery in may given the magnitude of the downturn and I guess, maybe the magnitude of the surge that preceded it.
Bryan L. Hughes: Are you thinking about mid cycle being something that could happen in 'twenty five 'twenty six I mean, it's hard to know but.
Bryan L. Hughes: Just looking at the industry and your history with that how long do you think the recovery might be.
Speaker Change: Yes, Brett, but we appreciate the question.
Speaker Change: In past.
Speaker Change: Let's call it Investor day target releases.
Speaker Change: We have assigned specific fiscal years to those targets as I think everybody who's on this call as well aware.
Bryan L. Hughes: The fluidity and dynamics and volatility of these outdoor recreation industry segments has been.
Bryan L. Hughes: High end.
Speaker Change: It's been very difficult for all of us to forecast, both short term and long term exactly what the market's going to give us good or bad and so one of the reasons. We've labeled these targets mid cycle and given you some framing of what that means in terms of industry retail size.
Bryan L. Hughes: Is that we don't exactly know the timing of when.
Bryan L. Hughes: They are the North America, RV industry or the pontoon industry will return to those levels.
Speaker Change: We certainly are rooting for sooner rather than later.
Bryan L. Hughes: But.
Bryan L. Hughes: I would say these organic mid cycle targets are probably something we hope to achieve over the next three plus years.
Bryan L. Hughes: It happened sooner are fantastic.
We.
Speaker Change: We are trying to be very humble with.
Speaker Change: Not assigning a year or two it because we just simply don't know at this time, we are quite confident though let me reiterate that when the industry does return to those types of retail levels and we're back into that more normal dealer inventory cadence as well in terms of.
Speaker Change: How they bring in products based on retail.
Speaker Change: We are very confident that those numbers are achievable and that's why we wanted to give a special you all today those.
Speaker Change: Those numbers.
Speaker Change: Totally fair. Thank you.
Speaker Change: Thank you Amit for next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from Fred Wightman of Wolfe Research.
Hey, guys I just wanted to come back to excuse me that Tristan asked P question, Brian in your response to that were you talking about.
Frederick Charles Wightman: Fiscal 'twenty four asp's.
Speaker Change: And could you also make any comment on model year 'twenty five asps, particularly for the total category. How do you think those are going to.
Speaker Change: Trend on a year over year basis, both from a like for like perspective, but also whether the mix headwinds are expected to persist into next year too.
Speaker Change: Yes.
Speaker Change: In my answer earlier, I was really referring to our most recent quarter. The numbers that I was referring to were really Q2 versus the prior year and what we were seeing on a year over year basis, because I assume that thats similar to the analyst community is tracking so that's how I was answering that first question.
Speaker Change: And.
Speaker Change: Im going to refrain from commenting extensively on what we're seeing model year 'twenty five.
Speaker Change: Sitting here today on that.
Speaker Change: The motor home side, I think we're going to continue to see some.
Pass through of chassis inflation.
Speaker Change: On a total side I think we'll continue to see some.
Speaker Change: Some mix that pushes AFP downward in the near term.
Speaker Change: And likewise for our marine business will continue to see some some asp's influenced by that mix.
Speaker Change: Downward as we talked about earlier with the ARIA entering the product lineup.
So I guess, that's what I'd say on ESPN. The other color I will give because I know the analyst community is highly interested in margin.
Speaker Change: Our margins are most impacted by deleverage and the lower sales dollars.
Speaker Change: We are not calling out as a driver of margin.
Our cost environment that is not being offset appropriately by our pricing initiatives you know if thats a relatively neutral equation and that is true across our segments.
Speaker Change: As we.
Speaker Change: <unk> introduced new products for example.
Speaker Change: That half.
Speaker Change: Lower price points associated with them or is that mix shift lower we're not seeing a negative draw down in terms of EBIT the yield or margin.
Speaker Change: So I think that that's an important.
Speaker Change: Attribute of our financial delivery of two.
Speaker Change: To acknowledge.
Speaker Change: Makes sense and then shifting gears a little bit just for the mid term or the sorry, the mid cycle.
Speaker Change: Targets, if we look at the market share numbers, specifically you guys are talking about 13% plus if we go back to the targets you talked about in late calendar 2022, I think you talked about something that 15% range. So can you just help US bridge. The gap there why is that target coming down a little bit, especially considering that you have.
Speaker Change: <unk> the greatest time horizon.
Yeah.
Speaker Change: Platform subsequent to that so.
Speaker Change: Help us understand if the <unk>.
Speaker Change: Targets or aspirations, maybe come down a bit for rvs and if so why.
Speaker Change: Yes, Thanks, Fred It's a fair question.
Speaker Change: And in fact, I think the target.
Speaker Change: Language, we use today on mid cycle already market share was 13% plus.
Speaker Change: To be quite honest and transparent we've seen a little bit of regression.
Speaker Change: Our current North American RV market share over the last a year and a half.
Speaker Change: Since we are offered those those targets and so some of that lower target.
Speaker Change: Yes.
Speaker Change: We really today in the future is somewhat attributable to.
Speaker Change: A little bit of the market share pressure, we've seen in the short term.
Speaker Change: We actually feel that we fared pretty well considering that.
Speaker Change: We've been in a dramatic environment in terms of first hyperinflation and then now.
Speaker Change: An affordability challenge within particularly the RV industry, and we're a premium branded premium priced OEM and so to hang onto the market share that we have especially in the last 12 months were.
Speaker Change: We're not satisfied but we also believe that that has been pretty reasonable performance I think as we look forward. We're just more honest about what I just referenced the affordability challenges and where we sit in the market.
Speaker Change: And we want to be you know candidly, we there's probably a bit of under promising and over delivering that's associated with that target, we still aspire to 15% to 20% market share for the North American RV business.
Speaker Change: Someday in the future.
Speaker Change: But.
We think we can grab a couple of more points here.
Speaker Change: By the time, we get back to mid cycle.
Speaker Change: And then anything above that will probably as you said be related to strategic growth initiatives like granted a motorized.
Speaker Change: Unlike <unk>.
Speaker Change: Just a reminder, when we released some of the targets in November 2022 for the end of I think it was our fiscal year 'twenty five range. We did include some inorganic additions to those targets that we did not speak in detail at the time, so some of those financial and financial targets.
Speaker Change: Did have some inorganic aspirations in there. These targets. This time in addition to being framed mid cycle, our organic only and so any M&A activity that we would do in either RV or marine.
Speaker Change: Would be incremental to what we've released this morning.
Speaker Change: Okay.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from Michael Swartz of choice Securities.
Michael Arlington Swartz: Hey, everyone. Good morning, maybe.
Michael Arlington Swartz: Maybe just comp.
Michael Arlington Swartz: Comment on.
Speaker Change: I think in your prepared remarks in the press release, you talked about within the total or the unit.
Mike: Kind of called out lower promotion allowance as being a positive to margins and I think one of your <unk>.
Mike: Your competitors a couple of weeks ago kind of cited higher discounting and allowances is weighing on their quarter.
Mike: Any commentary you can give us why do you think there is a divergence in the commentary between yourself and your competitor.
Speaker Change: My guess is this.
Good morning, Thanks for the question.
Mike: No.
Mike: I don't know if we really know the true answer to that other than obviously grand design.
Mike: Where is the lion's weight of our total segment.
Mike: And the team has just been again very rational in.
Mike: And very targeted with the support that we offer the market, particularly around.
The aging inventory, so I would hope Mike that it's a combination of.
Mike: Our inventory position in the field.
Mike: Being very reasonable.
Mike: Our aging inventory being in relatively good shape, all things considered in this environment.
Mike: And in the way, we just we we partner with the dealers to still move products.
Mike: At a price point that allows them to make some money and it certainly keeps us profitable.
As well so.
Mike: Total segment is very focused we have two brands.
Mike: One big one one small and in that in that segment.
Mike: So we're pleased to see that build that that allowance.
Mike: Has tempered a little bit in Q2 versus the last.
Mike: Two or two or three quarters, but.
Speaker Change: Yes, we're going to we're going to stay focused on it that doesn't mean, we're turning away from appropriate support.
Mike: It just means that.
Mike: We're being smart about it so.
Mike: I won't offer any.
Mike: Okay.
Mike: The comparisons to competition, because we candidly just don't know what's going on inside their businesses in that way.
Speaker Change: Yeah. So thank you for the commentary Eric color and then just second question I apologize if I if I missed this but did you.
Mike: Disclose it and the priority you talked about some of the costs related to Grand design motorized the startup and such.
Mike: Inefficiencies in the motorized business is weighing on the prior quarter, but.
Did you quantify what that was this quarter and then should we still think about the incremental investment for Grand design motorized being in that $10 million to $15 million range for the full fiscal year.
Speaker Change: Yeah, Mike Thats still our expectation I.
I think what we said a couple of orders that go with that ramp up during our fiscal year here.
Mike: And get to the $4 million to $5 million investment range by Q4, So we're ramping up.
Mike: And we continue to do so in accordance with our timing that.
Mike: That we expect earlier in the year so.
Mike: Youre going from the $1 million, we disclosed earlier this year up to a $4 million to $5 million investment by Q4.
Mike: We're still on track with that.
Speaker Change: Okay, and some of the inefficiencies that you called out last quarter did you did you experience those.
Mike: In the second quarter as well.
Mike: We improved from Q2 versus Q1, we're still less efficient in the current year versus last year. So I think we are good with.
Mike: To convey that is that we believe we still have an opportunity to further improve.
Mike: Our.
Mike: Productivity.
Mike: Forward and.
Mike: Dragged us year over year this year versus last.
Got you alright, great. Thank you.
Speaker Change: Thank you one moment for our next question.
Mike: Yes.
Mike: And our next question comes from Joe <unk> of Raymond James.
Thanks, Hey, guys. Good morning, most of my questions have been answered here I just have two quick follow ups I guess first of all the 13%.
Speaker Change: RV market share that you guys are targeting by mid cycle, how much that is the net impact.
Mike: From the Grand design motorized launch.
Mike: Joe Good morning, this is Mike.
Mike: Offer a specific number because we don't.
Mike: That would that would lead to some reverse math calculations on how big we think that business will be and we don't disclose that by brand category.
Mike: But it is it will contribute no doubt to that number.
Mike: New Grand design.
Mike: Motorized was in play when we offered our last targets in 2022.
Mike: So, yes, I mean, the Grand design motorized strategy.
Mike: A material contribution to our financial.
Mike: And share future.
Speaker Change: Here at the company so I won't.
Won't offer.
Mike: Specifically.
Mike: You know what that number will be but youll see youll see the majority of that ramp up in fiscal year's 25 through 27.
Mike: We will get.
Mike: Fiscal 'twenty for fourth quarter.
Mike: But we have a very robust.
Mike: Our strategy for Grand design motorized over the next three to four years.
We we have high confidence that the Grand design motorized team can execute.
Mike: Our business plan.
Mike: Okay.
Mike: Just a follow up on that the EBITDA margin target of 11 to 11, 5%.
Mike: Assume that that assumes that your motor home market growing in the high single digits.
Speaker Change: Yes, we very much believe that as Brian inferred here with a response a little while ago that there is upside on our motorized margins from where we stand today, both in terms of the benefits of volume in the existing businesses.
Mike: But we anticipate that Grand design motorized will also be.
Mike: A financially acceptable.
Mike: And good contributor to that.
Mike: That's separate yield going forward as well so so all three of our brands when a bagel newmar and Grand design, we believe in.
Mike: Can can operate in that zone.
That you've talked about I mean long term, we've been very public with saying that we expect all of our businesses and all of our segments.
Mike: To be double digit adjusted EBITDA yield.
Mike: In the future and so that's our long term aspiration and we expect that the motorized segment will work its way there.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you Amit for next question.
Mike: And our next question comes from Brandon <unk> of da Davidson.
Brandon: Good morning, Thank you for taking my questions.
Brandon: First just on getting back to the pricing conversation.
Brandon: One of your largest competitors had mentioned they were going back to their supplier partners to identify opportunities to reduce costs, where possible. One have you had those conversations as of late and two how they've progressed in three.
Mike: Which segments within your business right now do you feel like.
Mike: Need the most price at auctions or need to improve the affordability of the most improved retail sales. Thank you.
Yes, good morning, Brandon This is Mike.
Mike: We have great relationships with our supply chain partners.
We have less scale than our two largest RV competitors do we have less scale candidly than some of the other larger marine players.
Speaker Change: So we have a little less leverage to throw a route in terms of volume to be able to negotiate.
Speaker Change: Component and material.
<unk>, but.
Speaker Change: We're we're very proactive.
Speaker Change: Yes.
Speaker Change: In those discussions and certainly work world our suppliers.
Speaker Change: We have have fair pricing.
Speaker Change: So we will continue to do that.
Scott Lewis Stember: And believe me as we continue to organically and Inorganically create scale.
In this company we will.
Speaker Change: We will expect that the benefits of that.
Speaker Change: Will come from our suppliers.
Speaker Change: As well as part.
Speaker Change: As far as which.
Speaker Change: Parts of the portfolio need those those cost reductions.
Speaker Change: We've been very upfront that.
Speaker Change: That's probably the single greatest current cost pain point in our business.
Speaker Change: It is motorized chassis.
Speaker Change: I think for the whole of the industry. If we are to improve the affordability of motorized RV is going forward, we will need to see motorized chassis pricing.
Speaker Change: It will begin to stabilize.
Speaker Change: And then we will need to work closely with those chassis partners to see what we can do.
Speaker Change: To improve cost going forward, but.
Speaker Change: That is probably the.
Speaker Change: The.
Speaker Change: The big the biggest challenge their business right now in terms of addressing affordability.
I'll add just a little bit under that brand in some of our not all but some of our our purchases are categories.
Speaker Change: <unk>.
Speaker Change: Of supply are.
Speaker Change: Fractionally tied to certain indexes are commodities we've seen.
Speaker Change: A lot more stability in the commodity space steel aluminum lumber.
Speaker Change: Notably and so as a result, we're seeing likewise.
Speaker Change: Some stability in the cotton so.
Speaker Change: Not nearly to the volatility that we've seen over the past couple of years.
Speaker Change: So a smoothing out of course, we're not seeing that being a.
Speaker Change: A big driver.
Speaker Change: Going forward, we will continue obviously as Mike alluded to negotiate appropriate with our vendors, where we think we have an opportunity for that.
Great. Thank you.
Speaker Change: Thank you one moment for our next question.
And our next question comes from David Whiston of Morningstar.
David Whiston: Thanks, Good morning.
David Whiston: Just curious in terms of the continued.
David Whiston: Hesitation by dealers and I understand one of your inventory.
David Whiston: Size, but.
Speaker Change: Our interest rates.
Speaker Change: One of their most primary concerns if so how many rate cuts.
Speaker Change: Does the RV industry really need to see before we see any kind of meaningful change or improvement in consumer and dealer confidence.
Speaker Change: Good morning, David This is Mike.
Speaker Change: Yes.
Speaker Change: Triste rates.
Mike: And obviously the associated costs to our end consumers.
Mike: Are amongst the top.
Mike: Two or three factors that they say are.
Mike: Inhibiting stronger retail.
Mike: Our slowing down retail as we speak it is interesting. This spring we are hearing.
Mike: Some signs.
Mike: And consumers are beginning to.
Mike: Understand that.
Mike: Rates are going to a little higher.
Mike: Or meaningfully higher here into the future for a while.
Mike: There were two or three years ago and so.
Mike: Could there could there be some acceptance by consumers.
Mike: This is where rates will be for a little while and if they want to get into the RV or vote lifestyle just have two.
Mike: Deal with that and find a way to.
Mike: So for that we could see a little bit of that but there is no doubt that.
Mike: Both of our businesses are interest rate sensitive in terms of consumer appetite and decision, making for our products at retail and any rate cuts at this point. We believe we will have a real effect from our affordability standpoint.
Mike: But they will also potentially have an effect on consumer buying confidence.
Mike: In terms of where things are headed going forward, we were pleased that the yesterday's technology.
Mike: That in the back half of the year, we could still see as many as three fed funds rate cuts.
Mike: And.
Speaker Change: Well, David I can't give you an exact number as to.
Speaker Change: But the quantity of cuts or how large they are.
Speaker Change: Order basis quarter percentage or.
Speaker Change: A 50 basis points.
Speaker Change: And any movement will help and will take three for sure.
Speaker Change: If that happens we think that will offer.
Speaker Change: A little bit of a trigger to consumers, becoming more active again.
Speaker Change: Thanks, that's helpful. And then on Marine is there any major difference in confidence.
Speaker Change: The perhaps altra.
Altra wealthy Chris.
Speaker Change: <unk> and <unk> customers.
Speaker Change: I would say.
Speaker Change: That's an error that priestcraft operates in is a.
Speaker Change: As you know first and foremost they are a cash buyer 95% of the time.
Speaker Change: But they're also pretty smart in these.
Speaker Change: Economic times as well and so the rebound that we've seen on Chris craft has been less.
Speaker Change: Robust than what we've seen on <unk>, probably for a variety of reasons.
Bartlet has got momentum.
Speaker Change: Because of a number of factors dealer confidence.
Speaker Change: We're entering open markets.
Speaker Change: We're introducing great products.
Speaker Change: Chris craft is a more mature business with a very targeted.
Speaker Change: <unk> affluent customers, so there's not a lot of crossover.
Speaker Change: Those customers.
Speaker Change: And they act a little bit differently during.
Speaker Change: Similar periods of the cycle, but.
We anticipate that as marine cycle comes back not only will barletta.
Speaker Change: Grow as we indicated with our long range target of 13% market share.
Speaker Change: But we also anticipate that that Chris craft business.
Speaker Change: We will grow going forward as well.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. This concludes our question and answer session. At this time I would like to turn it back to Ralph <unk> for closing remarks.
That is the end of our second quarter earnings call. Thank you everyone for joining US we look forward to keeping you updated on our progress in the future. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating and you have now disconnect.
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Speaker Change: Good day and thank you for standing by welcome to the second quarter fiscal 2020 for Winnebago Industries financial results Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to turn the call over to Ray Posadas, Vice President of Investor Relations and market Intelligence you may begin.
Raymond Posadas: Good morning, everyone and thank you for joining us to discuss our fiscal 2024 second quarter earnings results call is being broadcast live on our website at Investor <unk> Dot net and a replay of the call will be available on our website later today. The news release with our second quarter results was issued and posted to our website earlier this morning.
Raymond Posadas: Please note that beginning this quarter, we will be using an earnings slide deck that follows along with our prepared remarks.
Raymond Posadas: May access the deck on the Investor Relations section of our website under quarterly results.
Raymond Posadas: Turning to slide two let me remind you that certain statements made during today's conference call regarding Winnebago industries and its operations may be considered forward looking statements under securities laws.
Raymond Posadas: Company cautions you that forward looking statements involve a number of risks and are inherently uncertain and a number of factors many of which are beyond beyond the companys control could cause actual results to differ materially from these statements. These factors are identified in our SEC filings, which we encourage you to read it.
In addition on today's call management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to comparable GAAP measures are available in our earnings press release.
Raymond Posadas: Please turn to slide three.
Raymond Posadas: Joining on today's call are Michael happy the President and Chief Executive Officer of Winnebago Industries, and Bryan Hughes, Our senior Vice President and Chief Financial Officer.
Michael J. Happe: We will begin with an overview of our performance during the quarter.
Bryan L. Hughes: Brian will discuss our financial results and the primary drivers Mike will share our future mid cycle organic growth targets and underlying assumptions that management will be happy to take your questions now.
Bryan L. Hughes: Now please turn to slide four as I turn the call over to Mike.
Mike: Thank you Ray good morning, everyone and thank you for joining us to discuss our second quarter fiscal 2024 financial results.
Mike: I want to start by thanking the teams across our business with vagal Grand design, RV, Newmar, and Chris craft, Barletta and lithium ion X.
Mike: I am incredibly proud of your dedication and commitment to executing on our growth strategy.
And delivering exceptional outdoor experiences for RV and marine customers every day.
Mike: Before diving deeper into our results I would like to emphasize the three main points that we want you to take away from our call today.
Mike: First.
Mike: We performed in line with our expectations during the second quarter of fiscal 2024.
Mike: <unk> demonstrated resilient profitability.
Mike: Second we anticipate industry softness in fiscal Q3, particularly on the motor home RV and marine side amid continued dealer caution.
Mike: And third as we move beyond the near term market dynamics, we remain confident in our ability to grow our business ex.
Mike: <unk> market share and substantially increase our profitability and free cash flow.
Mike: This optimism is reflected in our new future mid cycle financial targets.
Mike: Now, let me expand on our fiscal Q2 results.
Mike: The December through February period is typically a seasonally lighter retail quarter ahead of what historically has been a sequentially stronger spring selling season.
Mike: As anticipated dealers continued to closely manage inventory levels in Q2 in the face of a higher interest rate environment and seasonal demand trends.
Mike: Despite the macroeconomic challenges.
Mike: We continued to demonstrate resilient profitability and an unwavering commitment to operational discipline.
Mike: Net revenues for the second quarter were $703 6 million, reflecting the anticipated.