Winnebago posts profit, boosted by towable aquisition

Winnebago Industries, Inc. (NYSE: WGO), a leading United States recreation vehicle manufacturer, last week reported financial results for the Company’s second quarter of Fiscal 2017.
Second Quarter Fiscal 2017 Results
Revenues for the Fiscal 2017 second quarter ended February 25, 2017, were $370.5 million, an increase of 64.2 percent, compared to $225.7 million for the Fiscal 2016 period. Gross profit was $49.3 million, an increase of 95.1 percent compared to $25.3 million for the Fiscal 2016 period as gross profit margins expanded 210 basis points driven by the favorable inclusion of Grand Design products within the overall sales mix. Operating income was $28.4 million for the current quarter, an improvement of 110.1 percent compared to $13.5 million in the second quarter of last year. Fiscal 2017 second quarter net income was $15.3 million, or $0.48 per diluted share, an increase of 63.3 percent compared to $9.4 million, or $0.35 per diluted share, in the same period last year.
President and Chief Executive Officer Michael Happe commented, “Our second quarter results reflect our progress in transforming Winnebago into a larger company with greater scale, a more balanced portfolio, increased profitability and better positioned to compete effectively across the entire RV market. In our first full quarter with Grand Design as part of our organization, we continued to deliver significant wholesale and retail growth in our Towable segment, enabling us to reach our highest level of consolidated gross margin in nearly a decade. In addition to delivering improved profitability, we also made significant progress in further strengthening our balance sheet by reducing our debt by $13 million in the quarter. As we move into the second half of 2017, we intend to build on this momentum by further expanding Towable market penetration and working diligently to improve future results for our Motorized business by strengthening product value and leveraging our reputation for industry leading customer service.”
Significant items impacting income before income taxes in the second quarter of Fiscal 2017:
Postretirement health care benefit income: as previously disclosed, the Company’s decision to terminate its postretirement health care plan effective January 1, 2017 positively impacted the quarter by $12.0 million or $0.25 per diluted share, net of tax, compared to prior year postretirement health care benefit income of $1.6 million or $0.04 per diluted share, net of tax. All of the benefits of this plan termination have now been recorded in the financial statements and there will be no further impact on a prospective basis.
Grand Design acquisition related expenses:
 • additional transaction costs related to the Grand Design acquisition were $0.5 million, or $0.01 per diluted share, net of tax
 • a full quarter of amortization expense of $10.4 million was recorded related to the definite-lived intangible assets acquired, or $0.22 per diluted share, net of tax. We expect that there will be a similar level of amortization expense in the third quarter of Fiscal 2017 as the remaining backlog-related intangible assets are amortized. Starting in the fiscal fourth quarter, we expect amortization expense will be approximately $2.0 million per quarter through Fiscal 2021.
• a full quarter of interest expense of $5.2 million was recorded related to the debt established to fund the acquisition, or $0.11 per diluted share, net of tax.
Excluding these items as well as depreciation expense, consolidated adjusted EBITDA (a non-GAAP measure) was $29.1 million compared to $13.3 million last year, an increase of 118.5 percent.
Motorized
Revenues for the Motorized segment were $198.9 million for the quarter, down 3.0 percent from the previous year. Although unit deliveries were up 3.6 percent over the prior year same quarter, the average selling price of product sold decreased 5.2 percent, due to a shift in product mix. Segment Adjusted EBITDA was $9.1 million, down 22.3 percent from the prior year. Adjusted EBITDA decreased 110 basis points, primarily driven by product mix, pricing pressures and acceleration of West Coast operations.
Towable
Revenues for the Towable segment were $171.6 million for the quarter, up $151.0 million over the prior year, driven by the addition of $143.6 million in revenue from the Grand Design acquisition and continued strong organic growth from Winnebago-branded Towable products in excess of 36 percent. Segment Adjusted EBITDA was $20.0 million, up $18.4 million over the prior year. Adjusted EBITDA increased 400 basis points primarily due to the inclusion of Grand Design’s products within this segment.
Balance Sheet
As of February 25, 2017, the Company had total outstanding debt of $329.5 million ($340.0 million of debt, net of debt issuance costs of $10.5 million) and working capital of $142.1 million. The debt to equity ratio was 81.8 percent and the current ratio was 1.9 as of the end of the quarter. Cash from operations improved by $14.0 million compared to the same period last year.