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A Smoother Ride for Winnebago


Investors snapped up the shares Thursday after the RV giant reported a growing sales backlog

Winnebago Industries (WGO) reported lower second quarter results on Mar. 15, but investors went along for the ride anyway. The reason? Brighter prospects for coming quarters thanks to an improving sales backlog.

The Forest City (Ia.) motor home maker said net income for the fiscal second quarter ended Feb. 24 was $7.5 million, 2.2% below the prior-year figure of $7.7 million. The company's earnings per share (EPS) actually climbed to 24 cents from 23 cents, though, as the number of average shares outstanding during the period decreased.

Nonetheless, the company's top line suffered during the quarter. Revenues of $199 million were down 3.6% from the prior-year period's $206.4 million, as sales volumes of motor homes decreased. The company's financial income -- garnered from loans it issues to purchaser of RVs -- increased, and its effective tax rate fell.

The company divides its gas- and diesel-powered rigs into two categories: the higher-end Class A and the less pricey Class C. The company began shipping the new Class A Winnebago Vista and Itasca Sunstar gas motor homes -- which fetch lower prices than other models in the category -- during the second quarter, boosting Class A deliveries, according to CEO Bruce Hertzke. The Class C segment was weak during the quarter, because "higher deliveries of the new fuel efficient Winnebago View and Itasca Navion were needed during the second quarter last year to provide adequate stocking levels in the dealer channel."

Investors appeared to focus more on Winnebago's prospects for coming quarters, as evidenced by improvement in its sales order backlog, which at quarter's end had increased 40% in the Class A gas segment and 60% in the Class A diesel segment, year-over-year, while the Class C segment remained flat. The company chalked up the strength in the Class A backlog to favorable dealer response to its new Winnebago Destination and Itasca Latitude motor homes.

Investors bid the shares nearly 10% higher to $33.55 Mar. 15 on the New York Stock Exchange.

Avondale Partners analyst Kathryn Thompson upgraded the firm's rating on Winnebago to market outperform from market perform on Mar. 15, citing the strong backlogs and a continued decrease in overall dealer inventories.

"We may be seeing the realization of pent-up consumer demand after a two-year downturn in motorized RV sales," she wrote in a Mar. 15 note. Looking ahead, Thompson thinks "the long-term future of the RV industry is promising as the aging baby boomer market fuels RV industry growth."

The firm also upped its 12-month target price on Winnebago from $35 to $38. (Avondale and affiliates may make purchases and/or sales as principal or agent in Winnebago securities.)


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