Winnebago Talks Design Challenges and Its 2018 Outlook

The start of the spring selling season is a risky time for a recreational vehicle manufacturer like Winnebago (NYSE: WGO), as its new lineup of products meets its first big test with consumers. On top of that challenge, the RV giant had to deal with spiking raw material costs that threatened to hurt profitability.

Winnebago overcame those issues to post healthy growth in sales and profits in its most recent quarterly report. Following the announcement, CEO Michael Happe and his executive team held a conference call with Wall Street analysts to put the results in perspective and detail their latest thinking on the fiscal year trends. Here are a few highlights from that presentation.

Building more towables

The towable RV segment powered Winnebago's market-thumping growth this quarter, with deliveries up 31% to 2.3 million. The demand was broad-based, management said, and lifted both the Winnebago brand and the recently acquired Grand Design portfolio. These products generate far higher profit margins, too, which helps explain why gross profit is up to 14.6% of sales over the last nine months, from 13.6% in the prior-year period.

Executives said they see no impending slowdown and in fact noted that challenges are on the supply side of the equation right now. That's why the company is aggressively expanding capacity, including by launching expansion projects in both the Winnebago and Grand Design production lines this quarter.

Motorized challenges

The motorized segment wasn't as robust, with sales rising just 3.1% as adjusted profitability sank to 3.7% of sales in the third quarter, compared to 6% a year earlier. Management pointed out that growth trends edged up slightly when compared to the prior quarter, but repeated its claim that the recovery will take time. Winnebago is tinkering with its motorized RV portfolio by obsoleting brands that aren't fitting the growth strategy. While warning that these won't be "overnight fixes," executives explained that the end product should be a leaner, higher-volume portfolio.

Bright outlook

The RV market has expanded at a double-digit pace for eight consecutive years. It appears set to decelerate in 2018 while still growing at a healthy clip. And, while cautioning about potential risks like rising costs, higher fuel prices, and increased interest rates, management was positive about the short-term outlook.

The company noticed robust traffic at dealerships through the early spring weeks and noted no pressure to cut prices. Winnebago's inventory position is strong, too. Notably, order backlog was healthy on both the towable and motorized portions of the business, which executives said was due to new products -- like the 4X4 Revel -- that have resonated with dealers and consumers. The expanding industry trends should help Winnebago keep sales marching higher as it works out the kinks in its motorized fleet production -- all while working toward its goal of a 10% operating profit margin by 2020.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.