Winnebago's Quarterly Earnings Failed To Impress

Winnebago (WGO) delivered quarterly earnings last week. The company reported revenue of $245.3 million and eps of $0.42. Winnebago beat on revenue by $13 million and beat on eps by $0.10. I had the following takeaways on the quarter:

Organic Growth Not Much To Write Home About

Winnebago designs, manufactures and markets motorized and towable recreation products along with supporting products and services. Motorhomes generally provide living accommodations for up to seven people. Towables are used as temporary living conditions for recreational travel. The company's quarterly revenue was up 15% Y/Y, which was impressive. The company's Towable segment benefited from three weeks of sales from Grand Design which was acquired for $500 million in November. Grand Design added $25.8 million during the quarter. Progress in the Towable segment was slightly offset by a modest decline in Motorized revenues.

Excluding the contribution from Grand Design, the company's organic revenue growth would have been about 2.8%. This was dismal considering that RV sales for the entire industry are growing in the high single digits.

Deliveries were up 47% Y/Y. Motorhomes showed single digit growth by Towables' 147% growth was assuaged by contributions from Grand Designs. Of note is that the average sales price ("asp") for Towables increased 42% Y/Y while asp for Motorhomes fell 2% from $92 thousand to $91 thousand. This still compares favorably to Thor's (THO) asp for Motorhomes which are slightly above $80,000. That's a long-winded way of saying that [i] asp for Motorhomes could fall further and [ii] provide headwinds for Winnebago going forward.

The Backlog Is Impressive

For the fiscal quarter ended November 2015, Towables were about 30% of total deliveries. With the Grand Designs acquisition, they were slightly over 50% this quarter. That said, the company's backlog is impressive. Winnebago has one-quarter worth of deliveries for Motorhomes already in its backlog; it has over three-quarters' worth of deliveries in backlog for Towables. Assume the asp holds firm, the company has another $245 million in quarterly revenue practically in the bag. Organic growth might not be robust, but the company could potentially provide consistent earnings for the foreseeable future.

Conclusion

I expect the contribution to revenue and EBITDA from Gand Designs to fully impact next quarters' earnings. Winnebago trades at over 21x EBITDA which includes the debt from the acquisition but not all of the earnings. For now, WGO is a sell. If company can grow earnings consistently and the EBITDA multiple is in the single-digits I might change my stance.