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Winnebago Ind. Reports Record First Qtr. Revenues/Earnings
Revenues for the first quarter of fiscal 2005 were a record $266.1 million, a 4.4 percent increase compared to revenues of $254.9 million for the first quarter of fiscal 2004. Net income for the first quarter was a record $19.5 million, a 7.7 percent increase compared to net income of $18.1 million for the first quarter last year. On a diluted per share basis, the Company earned a record 57 cents a share for the first quarter of fiscal 2005, a 14 percent increase compared to net income of 50 cents a share for the first quarter last year.
Winnebago Industries is the top-selling motor home manufacturer in the U.S. According to Statistical Surveys, Inc., an independent retail reporting service, Winnebago Industries leads the industry with 19.3 percent of the combined Class A and Class C retail market for the first 10 months of calendar 2004 compared to 19.0 percent for the same period last year.
Hertzke continued, "Dealer reaction to Winnebago Industries' new products at the RVIA show in Louisville, Kentucky in early December was extremely positive, particularly to the brand new Winnebago View and Itasca Navion high-mileage Class C diesel models. Orders taken at the show were 53 percent ahead of those taken at last year's Louisville show, of which a significant portion were for the new View and Navion, scheduled to be delivered to our dealers in the latter half of fiscal 2005. Also during the recent Louisville Show, Winnebago Industries accepted the prestigious Quality Circle Award for the ninth consecutive year from the Recreation Vehicle Dealer Association. Winnebago Industries is the only company to receive the award every year since its inception nine years ago. Hertzke noted, "Our employees work extremely hard to ensure that Winnebago Industries' motor homes and services meet or exceed the high quality expectations of our dealer partners and retail customers, so we are extremely honored to receive this award on their behalf." Coachmen Ind. Posts Robust 2004 Results 4th Quarter Sales Up 9%
Coachmen’s fourth quarter results included the sale of its RV dealership, Colfax Country RV, LLC in North Carolina, consistent with the Company’s goal to streamline when possible to better focus its human and financial capital on the Company’s core strengths. As part of the sale, which closed on December 31, 2004, Coachmen recognized a gain on the sale of assets of approximately $1.7 million after tax. The operating results of Colfax, as well as the gain, are classified as discontinued operations, resulting in net income from discontinued operations of $1.9 million, or $0.12 per share. Prior periods have also been restated to reflect the reclassification of Colfax into discontinued operations. In the fourth quarter, gross profit margins were 13.4% compared to 14.1% in 2003, which is primarily attributable to the effect the slowdown in the RV industry had on plant operations. Operating income decreased by 0.7%, while operating margins fell 0.1 percentage points to 1.1% of sales. For the full year, gross profit margins fell slightly to 14.4% from 14.6% last year. General, selling and administrative expenses improved by 0.8 percentage points to 12.4% of sales versus 13.2% in 2003. Operating income for 2004 increased 83% to $19.1 million, while operating margins improved 0.7 percentage points to 2.2% from 1.5% in 2003. Claire C. Skinner, Chairman and Chief Executive Officer, remarked, “Our total EPS of $0.99 was above our most recent guidance of $0.88 to $0.93 outlined in our third quarter release. Our EPS of $0.87 from continuing operations is slightly below this range, but we are nevertheless pleased with our operating performance, given the normal seasonality of the fourth quarter, coupled with the challenging environment in the RV industry late in the year. We continue to monitor the market closely and are making adjustments to our RV production levels as needed to respond to shifting demand. On the Housing and Building side of our business, we are very pleased with top line growth, as well as the recent progress made towards improving profitability. Despite numerous challenges, the Company has made great strides in delivering much needed improvements, and we are confident that these gains will continue to mount in 2005.” In the fourth quarter, management adjusted its method for allocating corporate expenses to better reflect the actual use of corporate resources by the divisions. Historically, corporate expenses were allocated based on revenues. The new methodology allocates the expenses based on three dimensions: revenues, subsidiary structure and number of employees. The segment data discussed in this release have been adjusted to reflect this change in corporate expense allocation, as well as the reclassification of the results of the Colfax Country RV, LLC operation into the discontinued operations section of the Statement of Operations. Recreational Vehicle Segment The Company’s Recreational Vehicle Segment reported sales of $135.7 million during the fourth quarter of 2004, up 6.9% from the $127.0 million reported for the comparable period last year. RV Group wholesale unit shipments for the fourth quarter increased by 4.6% to 4,227 units. Gross profit for the segment was $10.3 million, or 7.6% of sales, compared with $10.6 million, or 8.4% of sales in the same period last year. Production levels were adjusted in the quarter to reflect lower demand, which adversely affected gross margins due to lower overhead absorption and labor variances. Group operating expenses rose 18.3% to $12.2 million, or 9.0% of sales compared with $10.3 million, or 8.1% of sales last year. RV Segment pre-tax income fell to a loss of $1.8 million compared with pre-tax income of $0.4 million for the year-ago quarter. For the full year, RV segment sales increased 27.5% to $606 million, from $475 million in 2003. Gross profit for the segment was $60.1 million, or 9.9% of sales, compared with $45.1 million, or 9.5% of sales last year. The Group leveraged its operating expenses by reducing its percentage of sales to 8.0% from 8.7%. These efficiencies were gained even while funding the Company’s growth initiatives. RV Segment pretax income more than tripled to $11.6 million, or 1.9% of sales from $3.8 million, or 0.8% of sales in 2003. RV Group wholesale unit shipments increased by 10.1% in 2004 to 20,633 units. Compared with 2003, shipments of motorized products grew 28.5% to 6,533 units, with Class A motorhomes rising 23.5% to 3,659 units and Class C motor-homes increasing 35.4% to 2,874 units. Within the Class A vehicle category, shipments of Rear Diesel motorhomes increased 46.8% to 1,042 units, demonstrating the strong continued acceptance of the Company’s diesel product offerings. Shipments of non-motorized products increased by 3.2% to 14,100 units, with Travel Trailers down 0.7% to 7,230 units and Fifth Wheels down 11.2% to 1,873 units, while Camp-ing Trailers increased 16.9% to 4,997 units. During the quarter, the RV Group faced an industry-wide slowdown in retail activity, and resulting high dealer inventories. The Company believes this slowing of retail activity was based on a variety of factors such as economic and geopolitical uncertainty, higher oil prices and weaker consumer confidence. Following the presidential election, oil prices eased from record highs and consumer confidence improved somewhat. Despite this mixed climate, the RV Group enjoyed remarkable success at the annual RVIA National Trade Show in Louisville. Dealer orders at the Louisville Show the previous year had set new records for the Company, in terms of both units and dollars of sales. Dealer unit orders this year surpassed 2003 by 4.9%, with impressive gains posted in Class A’s, Class C’s, Travel Trailers and Fifth Wheels. However, sales dollars increased by 53.3%, due to the dealers enthusiastic response to the more expensive motorized products, especially rear diesel Class A’s. Based on the strength of orders at the Louisville Show, many of which contributed to strong shipments in December, the RV segment currently has a backlog of $101 million. Though this is down by approximately 35% from a year ago, the Company considers this to be a healthy level for current conditions. A number of factors during the year affected the RV Segment’s current backlogs. At the beginning of 2004, the Company had exceedingly high levels of backlogs given the improving market fundamentals in the second half of 2003. As the year progressed, the Company increased production rates to meet demand and reduce backlogs and associated lead times to more acceptable levels. These activities, combined with the RV market that began softening in the third quarter, reduced backlogs to $61 million at the end of the third quarter. As a result of the dealers’ enthusiastic response at the Louisville Show, current backlogs have increased 65% over the backlogs at the end of September. As mentioned in previous earnings releases, Coachmen embarked on two strategic growth initiatives within the RV Segment in 2004. The most significant investment was the purchase, tooling and staffing of a business unit dedicated to the new Coleman® brand of recreational vehicles pursuant to our licensing agreement with The Coleman Company, Inc., which was entered into in January 2004. Unfortunately, this exciting initiative has been derailed by legal entanglements. Before Coleman granted Coachmen its license, Coleman was in litigation with its former licensee, Fleetwood. Coleman had obtained several rulings that Fleetwood had no rights to the name and was not entitled to an injunction prohibiting its use in the recreational vehicle market. In November 2004, the trial judge reversed his prior rulings and granted Fleetwood’s request for an injunction prohibiting the Coleman Company from using the Coleman name within the RV industry. In order to protect our rights under the Licensing Agreement, Coachmen has now sued Coleman, seeking either specific performance or damages. While these issues are being resolved, the RV Group is endeavoring to market the new travel trailer and folding camper lines under alternate brand names. On a brighter note, during the fourth quarter the Company successfully opened its new West Coast Service Center in southern California to better serve its customers in the western states. The Company estimates that the efforts surrounding these two initiatives resulted in a decline of approximately $2.1 million in pre-tax income for the RV Group in the fourth quarter, which accounts for approximately $0.09 in EPS. For the full year, the Coachmen Licensed Products Group and the West Coast Service Center accounted for a $3.4 million decrease in pre-tax profits, which translates to approximately $0.15 in EPS. Housing and Building Segment The Company’s Housing and Building segment reported sales of $68.5 million, up 12.3% from $61.0 million during the fourth quarter of 2003. Gross profit for the segment was $17.1 million, or 24.9% of sales, compared with $16.0 million, or 26.2% of sales in the same period last year. The Group leveraged its operating expenses by reducing the percentage of sales by 2.0 percentage points to 20.8% from 22.8% in the fourth quarter of 2003. The Housing and Building segment’s pre-tax income increased 36.7% to $2.8 million versus pre-tax income of $2.1 million in 2003. Order flow remained strong during the seasonally slower fourth quarter. Wholesale unit shipments were flat compared with the prior year’s quarter, but backlogs rose 23.1% to $47 million, compared with $38 million at December 31, 2003. For the year, the Housing and Building segment sales increased 16.1% to $259 million from $223 million last year. Gross profit was $64.4 million, or 24.9% of sales compared with $57.0 million, or 25.6% of sales in 2003. Operating expenses improved as a percentage of sales from 22.3% to 21.8%. Pre-tax income for the segment rose $1.0 million, or 14.2% to $8.3 million compared with $7.3 million last year. “After facing a number of challenges in 2004, we are pleased with the progress of our Housing and Building segment, and especially with the progressive improvements in margins and costs leading to the performance in the fourth quarter” noted President and Chief Operating Officer Matthew J. Schafer. “We have also made progress in our All American Building Systems business unit, with new multi-family projects completed in Detroit and Evansville, Ind. in the fourth quarter. We are excited about the potential of this unit, and we are beginning to see some positive returns on our investments this year.” As discussed in previous releases, the Company incurred costs for marketing initiatives, including the All American Building Systems (AABS) business unit throughout 2004. The gestation period for larger commercial and multi-family projects at AABS is much longer than at our traditional single-family business, in some cases taking well in excess of six months from bid to construction. The Company has completed a number of projects in the fourth quarter, and has begun to see increasing bid activity, as well. Due to the length of time required for the start-up of a business such as AABS, the costs incurred resulted in a reduction of the Housing and Building Group’s pre-tax profit. The Housing and Building Group’s marketing initiatives resulted in a reduction of pre-tax profit of approximately $0.3 million, or $0.01 per share in the fourth quarter, and approximately $2.6 million, or $0.11 per share for the full year. Balance Sheet/Cash Flow As of December 31, 2004, the Company had cash and securities of $16.7 million and shareholders’ equity of $224.4 million. As a result of the increase in working capital required to support the Company’s considerable growth in revenues, operating cash flow for the full year was a negative $20.8 million. Capital expenditures were $3.2 million for the fourth quarter and $16.5 million for the year. Depreciation was $2.4 million for the quarter and $9.4 million for the full year. Joseph P. Tomczak, Executive Vice President and Chief Financial Officer, said, “While supporting our earnings and growth objectives for the year, which entailed investments in accounts receivable and inventory, our cash flow from operations was negative. The Company’s balance sheet was strong enough to withstand this pressure, being mainly equity- financed, and remains healthy at this time. However, there are clearly opportunities for improvement in receivables and inventories, the latter of which increased significantly when the RV market softened. Our focus is firmly placed on working capital reductions, and we expect meaningful cash flow improvements in 2005.” 2005 Outlook Chairman Skinner said, “2004 was a gratifying year for Coachmen Industries, as we successfully delivered an improvement of 94% in net income from Continuing Operations. This was accomplished despite significant costs that were incurred in executing upon our growth strategies, as well as several unanticipated challenges including significant raw material cost inflation, interference with our plans to bring the Coleman brand to market, and an industry-wide softening in the RV industry during the latter part of the year. Although we have seen some improvements in recent weeks, RV dealer inventories remain high, so sustained improvement in the market will depend on the results of upcoming winter and spring retail shows.” “Looking to the first quarter of 2005, we expect a small loss or minimal earnings, due to the continuing market conditions in the RV industry, and the seasonal factors that typically impact our Housing and Building segment during these months. However, with respect to the full year, we are optimistic about both of our business segments. On the RV side, the latest forecasts from Dr. Richard Curtin of the University of Michigan call for a 3% decline in RV unit shipments this year. Nevertheless, we are forecasting a small increase in our RV segment sales, due to the strong response to our new product offerings in all categories, as well as the continued market share growth of our motorized products. In our Housing and Building segment, we are encouraged by the improvements we’ve seen at AABS, and we expect our continued focus on reducing costs and increasing productivity to yield revenue and earnings growth this year. In light of these factors, as well as currently anticipated economic conditions, we are forecasting sales growth for the year of 5% to 8%, and earnings growth from continuing operations in the range of 25% to 30%, or $1.09 to $1.13.” “In summary, 2004 was a successful year for Coachmen Industries,
and we fully intend to deliver even stronger results in 2005 and
beyond.”
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