Happe: Winnebago Ind. is Exercising Production ‘Discipline’

Mike Happe

Amid a “volatile environment,” Winnebago Industries is exercising “an ongoing sense of discipline and shipments,” according to President &CEO Michael Happe.

“For example, we continue to manage towable RV production levels to align with ongoing consumer end market demand, while our Motorhome RV and marine businesses work to replenish dealer inventories carefully. Responsibly producing and maintaining appropriate field inventory levels remains a priority, and we are working closely with each of our dealer partners to sustainably ensure they have the supply they need,” he said.

Speaking to investment analysts following the company’s Fiscal 2023 first quarter earnings report Dec. 16, Happe said the past year “has ushered in a new landscape.”

“Inflation and rising interest rates are reshaping the economy on a macro level. These trends are certainly impacting the strong retail demand environment that Winnebago Industries has been so successful at capitalizing on. However, we feel confident that our business is positioned to continue to perform well through economic cycles,” said Happe, who was joined on the conference call by Senior Vice President and CFO Bryan Hughes and Vice President, Investor Relations & Market Intelligence Ray Posadas.

As far as market expectations for 2023, Happe said the company continues to monitor challenging macroeconomic conditions to make sure Winnebago adjusts its operations appropriately.

“All things considered and knowing that there are numerous factors that can impact forward-looking estimates materially, we are generally aligned with RVIA’s recently released data and are projecting a range of 490,000 to 500,000 in shipment units for calendar year 2022,” Happe said. “Concerning calendar year 2023, we believe industry RV shipments will likely trend closer to a range of 400,000 to 410,000 units for that period, slightly lower than the latest RVIA forecast. For retail, we estimate 450,000 RV units for calendar year 2022 and retail units equivalent to wholesale shipments in 2023.”

What follows is an edited account of the question-and-answer portion of the conference call.

On the business activity at the late September Elkhart RV Open House event:

Happe: I thought we had a really good open house event. And I’ll start, first and foremost, with the quality of the product lines that we showed during Open House. In fact, several industry trade magazines in some of their future additions will be awarding many of our brands.

Secondly, we had great discussions – honest discussions – with our dealers. Open House had not been held since 2019. It was good to see a majority of the country’s dealers show up in Elkhart County and spend time with not only our brands, but I’m sure all of the other OEM brands that displayed. Any time you have a chance to spend quality time with one of your customers, you get the chance to share perspectives and talk about the future in a productive manner.

As I said at our investor event that morning in Elkhart, our programming and pricing for the 2022 Open House was candidly very similar in terms of discounts or promotions as it had been in the past. We stated very clearly that we were not showing up in Elkhart that week to offer steep discounts in order to incentivize dealers to take product that, in some cases, they shouldn’t take. Especially on the towable side, inventory in the field continues to be at a healthy level.

And, while we would love to collect record-breaking levels of orders at an event like Open House, this was not the year to do that – particularly on the towable side.

So, our teams walked away with a solid amount of orders. But more importantly, we walked away with better alignment with our dealers about how we’re going to work with them on a daily basis going forward.

On production levels in motorized, towable and the marine sector:

Happe: I’ll talk in terms of relativity. We continue to maintain that our two marine businesses (Chris-Craft and Barletta Pontoon Boats) are in the healthiest position, both in terms of the industry dynamics and the runway that they have with their dealers. Chris-Craft’s field inventory is the lowest it’s been candidly in the time that we’ve owned the business.

The motorized RV segment has certainly been working its way back to a field inventory position that is healthier. There are pockets of the motorized RV segment where the dealers still need inventory, and there are candidly some pockets where they’re probably reaching where they want to be in terms of a turn level.

We continue to see very solid profitability, particularly on the Class B product line, and some of our Class C. I’ve been very pleased as of late with the way Newmar has been running their business on the Class A side in terms of profitability yield as well. So motorized margins will probably settle a bit as field inventory normalizes to a full extent over the course of fiscal year ’23. But, as we’ve intimated, we sincerely believe that motorized profitability yield on the bottom line will maintain a double-digit position within our portfolio.

As far as the towables segment, timing is the biggest element of what you saw in fourth quarter. We made a very conscious decision to take our fall programs to the market ahead of Open House, and that pushed some expense into the month of August, specifically. And, candidly, the inflation pricing dynamics also played a role just overall in terms of timing.

We believe that towable margins will maintain an industry-leading position and that you will likely see them stabilize at historically normal levels as we travel through the rest of fiscal ’23. That will be a gradual development, but we have confidence that that will happen.

On how internal costs and external conditions have impacted the cost of RVs:

Happe: I’ll speak first to what we’re seeing in terms of some of our cost inputs. I certainly won’t get into some of the specifics.

The good news is on many of our raw materials – particularly steel, aluminum and lumber – we have seen a significantly better environment over the course of the last calendar year. Steel is candidly probably 50% cheaper than it was at its peak. Aluminum is probably 30% cheaper than it was at its peak. And lumber candidly, is probably 60%, 65% cheaper than it was at its peak.

Now, that doesn’t mean that we or our suppliers are always able to acquire those commodities exactly at the right time to take full advantage of some of those drops. But the reality is the raw material market has definitely improved. And that is going to be of some benefit, I think, to our suppliers, which hopefully trickles to us.

We are, however, continuing to see some cost pressure in areas where the supply chain is still constricted. Motorized chassis is a good example of that because of the semiconductor situation and the automotive capacity limitations, in many cases, they’re putting on themselves.

Now on the flip side, the retail environment is a little tougher. Therefore, our pricing power is going to look a little bit differently in fiscal ’23 than it did in fiscal ’22.

I’ll comment very carefully on dealer margins. Dealer margins is a topic that we care deeply about. We want dealers to be financially healthy. And, candidly, we want our brands – both on the RV and marine side – to be near the top of the list with our dealers not only in terms of turns and retail, but also profitability by brand. And we think, in many cases, we are.

That being said, dealers have stated to us and to other sources that they’re not operating their business at the peak margin status they were in during the height of the retail demand. In many cases, though, dealers are operating at levels that we’ve heard that are closer to pre-COVID levels – so, relatively normal historically.

The affordability of RVs particularly is something that I think is important generically to the industry. We are often not the opening price point brands in most of our dealers. We tend to be the brands that people step up to. So, we pay more attention most likely to the premium price differential that we ask consumers to pay for our brands versus the value brands. Our job is to keep that gap manageable for consumers to make that step up.

So, I think dealers are financially healthy right now. They’d like to run their business at slightly higher turns. And we’re fine with both those. We want the dealers to be in great position when the winds return behind our sales in the future.

Source: https://rvbusiness.com/happe-winnebago-ind-is-exercising-production-discipline/