A strong spring selling season helped Winnebago Industries to post a 64% increase in third-quarter earnings. However, the company is preparing for a drop in demand because of inflation and higher interest rates.
The RV industry is coming off peak demand for outdoor ventures driven by COVID-19 and facing an uncertain economic future driven by higher interest rates, fuel prices and the threats of a recession.
The Eden Prairie-based company so far this year was able to raise prices to offset inflation and higher raw material and component costs while gaining market share and increasing its gross profit margin.
In the short term moving forward, though, Winnebago is projecting retail demand will take a meaningful drop.
"We believe that retail sales for calendar 2022 will likely fall in the 475,000 unit range or negative 17% versus calendar 2021," said Chief Executive Mike Happe in a call with analysts.
However, Happe told analysts on the company's earnings call that regardless of where the economy goes, the company continues to believe in the long-term growth trends of the recreational industry as consumers continue to embrace outdoor trends.
"We are seeing no decrease in outdoor participation," Happe told analysts.
For the third quarter ended May 28, the maker of motorhomes, towable recreational vehicles and boats earned $117.2 million, or $3.57 per share. Adjusted for costs associated with the recent acquisition of the Barletta pontoon boat business, EPS was $4.13 a share, up 84% from the $2.25 earned in the company's third quarter last year.
The company's gross profit margin increased to 18.7%, or 100 basis points, compared with the same quarter last year, benefiting from price increases and operating leverage.
Company revenue increased 52% to a record $1.5 billion in the quarter. After excluding the bump from Barletta, it rose 41% over the same period a year ago. Revenue and adjusted earnings exceeded analyst expectation by 20% and 40%, respectively.
"We have been successful in managing supply chain disruptions, improving dealer inventory levels, navigating cost inflation and driving manufacturing productivity to deliver consistently strong results," Happe said in the earnings release. "We expect supply chain inconsistencies and inflation pressures to continue in the fourth quarter, and into our fiscal 2023, and we are focused on continuing to stay ahead of them."
In Winnebago's towable RV segment, revenue increased 45% to $805.6 million. Backlogs in the segment decreased and dealer inventories have improved. Revenue for the motorhome segment increased 34% to $516.3 million.
The marine segment for Winnebago produced $126.5 million in revenue during the quarter, with meaningful contribution from the Barletta pontoon boat acquisition, which increased its market share during the quarter.
"We are incredibly pleased with the performance and integration of the Barletta business since the close nine months ago," Happe told analysts. "It has exceeded expectations."
Shares of Winnebago are down 35% year-to-date and have ranged from $43.05 to $80.30 over the past 52 weeks. On Wednesday, they closed at $48.38 a share, up 5.7% for the day.