Traveling the Economic Landscape with Winnebago

October 28, 2009

In the wake of 2007’s credit freeze and 2008’s $4.00+ per gallon gasoline prices, we thought that Winnebago’s (WGO) filings yesterday (an annual report here and a proxy here) might be interesting.

Winnebago, which manufactures the iconic —mobile dwellings that lumber along America’s interstates, has indeed taken a financial hit. Yet the filings also contained some optimistic news that surprised us.

Winnebago makes three classes of motor homes: The huge ones, Class A RVs that are branded either —Winnebago or —Itasca, can sell for as much as $312,000. Class B models, branded “ERA”, are about the size of panel trucks. And Class C models (also branded —Winnebago or —Itasca) are —mini motor homes built on van-type chassis. They start at more than $66,000. Whereas in 2005 almost 63% of consumers bought the big Class A models, now nearly 56% prefer the less expensive Class C models.

Besides the relatively steep price to purchase a new RV, the company said that tight credit markets, low consumer confidence, the recession, and high gasoline costs have all hurt sales. On page 14, the report said: —The RV industry saw substantial reductions in wholesale motor home shipments (down nearly 50 percent) and retail registrations (down nearly 40 percent) during Calendar 2008 as compared to 2007. The trend has worsened thus far in Calendar 2009, with motor home shipments down nearly 70 percent and retail registrations down over 40 percent—.

But — as promised — there’s some encouraging news, too. First, page 17 of the Proxy reviews the —numerous cost reduction initiatives that the company imposed in Fiscal 2009 (it made a —substantial reduction to the CEO’s salary and also imposed several other freezes and cuts). Not only were the measures reaffirmed as being —appropriate for 2009, the executives retained them for 2010.

The company also noted on p. 4 of the annual report that several of its competitors either sold or filed for bankruptcy in the past year. Winnebago’s opinion is that —…we believe that we have unique opportunity in the current market environment to increase our market share, shelf space and points of distribution.

And this article notes that Winnebago just hired 134 new employees, its stock price is up from a year ago, and it has a lot more cash on hand. It quotes Chairman/CEO/President Bob Olson as saying, —we are finally seeing signs of a turnaround.

Finally, p. 15 includes the optimistic point that with more available credit and improved consumer confidence, the company expects that dealers will increase the number of RVs they order. So who’s going to plunk down that kind of cash for a hotel on wheels? The filing states: “A longer term positive outlook for the recreation vehicle industry is supported by favorable demographics as baby boomers reach the age group that has historically accounted for the bulk of retail RV sales.” If that’s the case, who knows how high sales might soar if the company throws in a new copy of “Born to Run” with every sale?

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