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Financial Analysis of Winnebago Industries Second Quarter Earnings Call

Transcript of Winnebago Industries Second Quarter Earnings Call

Operator (Operator): Welcome to the Winnebago Industries Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

I would now like to hand the call over to Joan Ondala, Vice President, Treasury and Investor Relations. Ms. Ondala, please go ahead.

Joan Ondala (Executives): Thank you, operator. Good morning, everyone, and thank you for joining us to discuss our fiscal 2026 second quarter results. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news release with our second quarter results was issued and posted to our website earlier this morning. Please note that the earnings slide deck that follows along with our prepared remarks is also available on the Investors section of our website under quarterly results.

Turning to Slide 2. Certain statements made during today's call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws. The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain, and a number of factors, many of which are beyond the company's control, could cause the actual results to differ materially from these statements. These factors are identified in our SEC filings, which we encourage you to read.

In addition, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release.

Please turn to Slide 3. Hosting today's call are Michael Happe, President and Chief Executive Officer of Winnebago Industries; and Bryan Hughes, Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our second quarter performance as well as a forward view of the market. Bryan will discuss the associated drivers of our financial results and our fiscal year 2026 guidance. Mike will conclude our prepared remarks, and then management will be happy to take your questions.

Michael Happe (Executives): Thank you, Joan, and good morning, everyone. Winnebago Industries delivered a solid second quarter, reflecting focused execution on our overarching enterprise strategies and our fiscal year 2026 first half objectives. Despite a challenging market environment, our teams performed with discipline, protecting profitability, managing controllable costs and advancing the product and operational priorities that matter most to our long-term competitive positions in the RV and marine industries. Across our portfolio of premium differentiated brands, we have built a broad and durable outdoor recreation platform that spans multiple customer segments, price points and lifestyle use cases. That breadth is increasingly valuable in a more selective demand environment and positions us well to compete for profitable share as demand conditions improve in the future.

We are introducing meaningful new products across our business lineups, especially recently in the Motorhome RV segment within the traditional C category with technological differentiation and targeted focus on affordability and value accessibility to our premium brands. We are also being deliberate about where we invest and grow. Our emphasis on driving share in higher-value segments such as Class A diesel, Class C diesel and the growing super C category reflects our strategic focus on retail dollar and profit reach through resilient premium categories. That discipline is evident in our results, even as unit share has fluctuated in certain industry segments, our RV retail dollar share has remained resilient. On the Winnebago-branded Motorhome business, we have made considerable progress in the restoration of this flagship line through the first half of fiscal 2026.

The team is on its plan through the first 6 months with much more traction planned in the back half of the year. While several initiatives are still in initial stages, and are expected to build and become more apparent over coming quarters. The prospects for this business in the future are definitely improving. The progress there really reflects the same Winnebago Industries enterprise strategies. We are applying every day across our portfolio, empowering best talent, building relevant premium brands and winning products, elevating the total customer experience, expanding digital capabilities and connections and driving portfolio synergy and excellence.

On Slide 4, our Barletta Boats business continues to hold the #3 position in U.S. aluminum pontoons, with a 9.1% retail unit market share over the trailing 12 months through January. The 3-month SSI unit retail market share is running even higher in the lower double digits range. Barletta's brand positioning and product mix remains consistent, supporting even higher retail dollar share versus the #1 and #2 competitors. However, to serve an even wider audience across the recreational boating space, we have expanded the Barletta lineup with the introduction of the Sansa series of products. Starting at $49,995 for a Triton model well equipped with 150-horsepower engine, a cover and in floor storage. The Sansa extends the Barletta experience to new buyers looking for affordable access to premium brands, while maintaining the trusted craftsmanship comfort in industry-leading customer service support that define Barletta rate.

Moving to Slide 5. In January, we released our seventh annual corporate responsibility report, outlining how we continue to integrate sustainability, safety and governance into the way we run the business. Two highlights from our most recent report. One, we have made meaningful improvements in workplace safety in the last decade and again in fiscal 2025. And two, we have now reduced our absolute Scope 1 and Scope 2 emissions by about 15% versus our 2020 baseline. Both are clear indicators of disciplined execution embedded in our day-to-day operations across the organization.

Now let me turn the call over to Bryan Hughes for the financial review. Bryan?

Bryan Hughes (Executives): Thank you, Mike, and good morning, everyone. Starting with our consolidated results on Slide 11. As Mike noted, our results continue to demonstrate disciplined execution across a diversified portfolio. even as retail demand across RV and marine remains uneven. Consolidated net revenues increased 6% year-over-year as a strong performance in the Motorhome RV segment more than offset decreases in towable RV and marine. Growth in the Motorhome RV segment was driven by Grand Design RVs continued expansion with strong growth in Winnebago and Newmar brands contributing as well.

Gross profit increased due to growth in the top line and when combined with SG&A reductions due to our cost savings initiatives, Operating income improved 51% from the second quarter of fiscal 2025, resulting in adjusted EPS of $0.27, 42% higher than last year.

Turning to our segment results, beginning with towable RV on Slide 12. Net revenues declined by 9% and primarily attributable to a shift in product mix toward lower price point models and lower unit volume, partially offset by selective price adjustments. Segment operating income margin of 4.2% for the second quarter of fiscal 2026 was down 20 basis points from prior year, primarily due to volume deleverage and product mix largely offset by selective price adjustments and cost containment initiatives. Through the first half of fiscal 2026, segment operating income is up 3% and versus the same period last year on a roughly comparable 3% increase in net revenues. Our dealer inventory increase in the towable RV segment is related to the new Thrive in the Winnebago brand and the continued success of the Transcend in the Grand Design lineup. When combined, these 2 lines explain the entire increase in the towable RV segment's dealer inventory when compared to the prior year.

Moving to Slide 13. Our Motorhome RV segment reflected a net revenue increase of 29%, with volume momentum across our Newmar, Winnebago and Grand Design Motorized brands. Net revenues are running 21% ahead of fiscal 2025 through the first half of the year. Operating income performance in this segment primarily reflects improved volume leverage, with additional support from targeted cost and operating efficiency initiatives. Segment operating income margin improved 270 basis points year-over-year to 2.4% in Q2. The same step change in profitability is evident in our first half segment performance, resulting in an operating income margin of 2.6% and compared with negative 0.8% in the first half of fiscal 2025.

Turning to Slide 14. Our Marine segment results reflect the industry operating environment we anticipated with retail demand remaining muted and dealers maintaining a cautious approach to inventory and wholesale activity. Segment net revenues decreased by 3%, primarily due to lower unit volume and product mix, partially offset by selective price adjustments. Operating income margin of 3.7% was down 300 basis points from last year's fiscal second quarter due to higher warranty expense and volume deleverage. Through the first half of fiscal 2026, Marine segment operating income margin was 5.3% versus 6.7% in the same period last year. Revenue was flat year-over-year.

Turning to Slide 15. We continue to make tangible progress on deleveraging actions consistent with the priorities we've outlined over the past several quarters. A key proof point with our February redemption of $100 million of 6.25% senior secured notes due 2028, funded through cash generation over the past several quarters. This action demonstrates our confidence in the durability of our cash flow even as market conditions remaining consistent. The redemption meaningfully reduces gross debt and contributes to reduced interest expense, reinforcing the discipline underlying our capital allocation framework. Importantly, it also preserves financial flexibility as we enter the seasonally stronger back half

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