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Oct. 20, 2021, 4:10 p.m. EDT

10-K: WINNEBAGO INDUSTRIES INC

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(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in five sections:

Overview

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of Part II in this Annual Report on Form 10-K.

The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the fiscal years ended August 28, 2021 and August 29, 2020, unless stated otherwise. The discussion of Fiscal 2019 results and related year-over-year comparisons as of and for the fiscal years ended August 29, 2020 and August 31, 2019 are found in Item 7 of Part II of our Form 10-K for the fiscal year ended August 29, 2020.

Overview

Acquisition of Barletta

COVID-19 Pandemic

Non-GAAP Financial Measures

These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies.

Included in "Results of Operations - Fiscal 2021 Compared to Fiscal 2020" is a reconciliation of EBITDA and Adjusted EBITDA from net income, the nearest GAAP measure. We have included these non-GAAP performance measures as a comparable measure to illustrate the effect of non-recurring transactions that occurred during the reported periods and to improve comparability of our Table of Contents

Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our Board of Directors to enable our Board of Directors to have the same measurement basis of operating performance as used by management in its assessments of performance and in forecasting; (d) to evaluate potential acquisitions; and (e) to ensure compliance with covenants and restricted activities under the terms of our ABL Credit Facility and outstanding notes, as further described in Note 9 to the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K. We believe these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in the industry.

Industry Trends

Key reported statistics for the North American RV industry are as follows:

We track RV Industry conditions using these key statistics to monitor trends and evaluate and understand our performance relative to the overall industry. The following is an analysis of changes in these key statistics for the rolling 12 months through August as of 2021 and 2020:







                                                                                                      US and Canada Industry
                                                   Wholesale Unit Shipments per RVIA                                                    Retail Unit Registrations per Stat Surveys
                                                   Rolling 12 Months through August                                                          Rolling 12 Months through August
                                 2021                  2020              Unit Change            % Change                   2021                    2020              Unit Change            % Change
        Towable(1)                503,516             338,602            164,914                     48.7  %                  514,769             415,827             98,942                     23.8  %
        Motorhome(2)               54,001              38,680             15,321                     39.6  %                   56,041              49,722              6,319                     12.7  %
        Combined                  557,517             377,282            180,235                     47.8  %                  570,810             465,549            105,261                     22.6  %
        


(1) Towable: Fifth wheel and travel trailer products.

Wholesale unit shipments have experienced growth (after the initial industry-wide shutdown of RV manufacturing for a six-week period beginning the last week of March 2020) due to high levels of end consumer demand and extremely low levels of dealer inventories, most notably in the towables segment, as consumers considered RVs a safe travel option during the COVID-19 pandemic. The rolling twelve months retail information for 2021 and 2020 illustrates that retail sales remain at healthy levels relative to the industry's historical retail levels. We believe retail demand is the key driver to continued growth in the industry.

The most recent RVIA wholesale shipment forecasts for calendar year 2022, as noted in the table below, indicate that industry shipments are expected to experience growth in 2022. The retail activity is anticipated to remain at healthy levels and wholesale shipments are expected to increase further associated with dealers rebuilding their inventories and the supply chain increasing capacity to serve the growth of the RV industry.







                                                                                                Calendar Year
                                                                   2022                     2021
        Wholesale Unit Shipment Forecast per RVIA(1)             Forecast                 Forecast             Unit Change            % Change
        Aggressive                                                    614,100             587,400               26,700                      4.5  %
        Most likely                                                   600,200             577,200               23,000                      4.0  %
        Conservative                                                  586,300             567,000               19,300                      3.4  %
        


(1) Prepared by ITR Economics for RVIA and reported in the Roadsigns RV Fall 2021 Industry Forecast Issue.

The RV industry continues to experience supply shortages and shipping delays of raw material components. While we continue to manage through these supply disruptions, they have impacted our ability to increase production to meet existing demand in the current fiscal year. If these shortages and delays worsen, we could experience a negative impact on our sales and earnings in the future.







        Market Share
        Our retail unit market share, as reported by Stat Surveys based on state
        records, is illustrated below. Market share is calculated by taking our brands
        total unit sales divided by the total units sold in the motorized and travel
        trailer and fifth wheel markets. The data is used to analyze growth and
        profitability of our products and brands year over year. This data is subject to
        adjustment and is continuously updated.
                                                Rolling 12 Months through August                                 Calendar Year
        US and Canada                              2021                2020(1)                  2020                   2019(1)                2018
        Travel trailer and fifth wheels              11.7  %               10.0  %                   10.3  %                9.2  %               7.8  %
        Motorhome A, B, C                            19.9  %               20.3  %                   21.3  %               16.1  %              15.5  %
        Total market share                           12.5  %               11.1  %                   11.5  %               10.0  %               8.7  %
        


(1) Includes retail unit market share for Newmar since its acquisition on November 8, 2019.

Results of Operations - Fiscal 2021 Compared to Fiscal 2020







        Consolidated Performance Summary
        The following is an analysis of changes in key items included in the statements
        of operations for the fiscal year ended August 28, 2021 compared to the fiscal
        year ended August 29, 2020:
        (in thousands, except percent
        and per share data)                 2021                % of Revenues(1)                2020                % of Revenues(1)              $ Change             % Change
        Net revenues                   $ 3,629,847                          100.0  %       $ 2,355,533                          100.0  %       $ 1,274,314                  54.1  %
        Cost of goods sold               2,979,484                           82.1  %         2,042,605                           86.7  %           936,879                  45.9  %
        Gross profit                       650,363                           17.9  %           312,928                           13.3  %           337,435                 107.8  %
        Selling, general, and
        administrative expenses
        ("SG&A")                           228,581                            6.3  %           177,061                            7.5  %            51,520                  29.1  %
        Amortization of intangible
        assets                              14,361                            0.4  %            22,104                            0.9  %            (7,743)                (35.0) %
        Total operating expenses           242,942                            6.7  %           199,165                            8.5  %            43,777                  22.0  %
        Operating income                   407,421                           11.2  %           113,763                            4.8  %           293,658                 258.1  %
        Interest expense                    40,365                            1.1  %            37,461                            1.6  %             2,904                   7.8  %
        Non-operating income                  (394)                             -  %              (974)                             -  %              (580)                (59.5) %
        Income before income taxes         367,450                           10.1  %            77,276                            3.3  %           290,174                 375.5  %
        Provision for income taxes          85,579                            2.4  %            15,834                            0.7  %            69,745                 440.5  %
        Net income                     $   281,871                            7.8  %       $    61,442                            2.6  %       $   220,429                 358.8  %
        Diluted earnings per share     $      8.28                                         $      1.84                                         $      6.44                 350.0  %
        Diluted average shares
        outstanding                         34,056                                              33,454                                                 602                   1.8  %
        


(1) Percentages may not add due to rounding differences.

Fiscal 2020 results were negatively impacted by the unprecedented series of events related to the COVID-19 pandemic, which included the suspension of the Company's manufacturing operations as well as disruptions across our dealer network, supply chain and end consumers during most of the third quarter.

Net revenues increased primarily due to organic unit sales growth, the annualized impact from our Newmar acquisition, which took place in the first quarter of Fiscal 2020, price increases and lower discounts and allowances, partially offset by unfavorable segment mix.

Gross profit as a percentage of revenue increased primarily due to improved leverage as a result of higher revenues, price increases, lower discounts and allowances, and favorable segment mix.

Operating expenses increased primarily due to an increase in enterprise-wide variable compensation, higher selling costs and a full year of Newmar operating costs, partially offset by a decrease in acquisition-related costs compared to the prior year, a gain on sales of assets and lower Newmar amortization expense in the current year.

Interest expense increased primarily due to a higher interest rate on the refinancing of our Term Loan in the fourth quarter of Fiscal 2020 (as described in Note 9 to the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K).







        Table of Contents
        


The effective tax rate increased to 23.3% in Fiscal 2021 compared to 20.5% in Fiscal 2020 primarily due to relatively consistent year-over-year tax credits on higher pretax income in Fiscal 2021.

Net income and diluted earnings per share increased primarily due to leverage from higher revenues, partially offset by higher operating expenses and a higher effective tax rate.







        Non-GAAP Reconciliation
        The following table reconciles net income to consolidated EBITDA and Adjusted
        EBITDA for Fiscal 2021 and 2020:
        (in thousands)                                         2021           2020
        Net income                                          $ 281,871      $  61,442
        Interest expense                                       40,365         37,461
        Provision for income taxes                             85,579         15,834
        Depreciation                                           18,201         15,997
        Amortization of intangible assets                      14,361         22,104
        EBITDA                                                440,377        152,838
        Acquisition-related fair-value inventory step-up            -          4,810
        Acquisition-related costs                                 725          9,761
        Restructuring expense(1)                                  112          1,640
        Gain on sale of property, plant and equipment          (4,753)             -
        Non-operating income                                     (394)          (974)
        Adjusted EBITDA                                     $ 436,067      $ 168,075
        


(1) Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.







        Reportable Segment Performance Summary
        Towable
        The following is an analysis of key changes in our Towable segment for Fiscal
        2021 and 2020:
        (in thousands, except ASP and
        units)                                2021                % of Revenues               2020                % of Revenues           $ Change              % Change
        Net revenues                   $      2,009,959                                $      1,227,567                                $    782,392                  63.7  %
        Adjusted EBITDA                         289,007                  14.4  %                148,276                  12.1  %            140,731                  94.9  %
        Average Selling Price
        ("ASP")(1)                               33,271                                          32,607                                         664                   2.0  %
        Unit deliveries                       2021               Product Mix(2)               2020               Product Mix(2)          Unit Change            % Change
        Travel trailer                           39,943                  66.5  %                 23,184                  61.2  %             16,759                  72.3  %
        Fifth wheel                              20,163                  33.5  %                 14,706                  38.8  %              5,457                  37.1  %
        Total Towable                            60,106                 100.0  %                 37,890                 100.0  %             22,216                  58.6  %
                                         August 28, 2021                                 August 29, 2020                                   Change               % Change
        Backlog(3)
        Units                                    46,590                                          24,903                                      21,687                  87.1  %
        Dollars                        $      1,704,393                                $        747,925                                $    956,468                 127.9  %
        Dealer Inventory
        Units                                    10,126                                          10,528                                        (402)                 (3.8) %
        (1)  ASP excludes off-invoice dealer incentives.
        (2)  Percentages may not add due to rounding differences.
                                               23
        --------------------------------------------------------------------------------
        


Net revenues increased in Fiscal 2021 compared to Fiscal 2020 primarily due to increased unit sales and pricing.

ASP increased in Fiscal 2021 compared to Fiscal 2020 due to pricing actions taken during Fiscal 2021, partially offset by unfavorable product mix.

Adjusted EBITDA increased in Fiscal 2021 compared to Fiscal 2020 primarily due to operating leverage on an increase in unit sales, partially offset by higher operating expenses and higher variable compensation expense.

Unit deliveries increased in Fiscal 2021 compared to Fiscal 2020 representing an increase in organic volume growth. Our Towable segment market share increased from 10.0% to 11.7% when comparing retail registrations during the twelve-month trailing periods ended August 2020 and August 2021.

We have seen an increase in the volumes and dollar value of backlog as of August 28, 2021 compared to August 29, 2020 as a result of continued strong retail demand, as well as an increase in demand for our products reflected in our increase in market share.







        Motorhome
        The following is an analysis of key changes in our Motorhome segment for Fiscal
        2021 and 2020:
        (in thousands, except ASP and
        units)                                  2021                % of Revenues               2020                % of Revenues           $ Change             % Change
        Net revenues                     $      1,539,084                                $      1,056,794                                $   482,290                  45.6  %
        Adjusted EBITDA                           169,205                  11.0  %                 32,949                   3.1  %           136,256                 413.5  %
        ASP(1)                                    138,999                                         130,098                                      8,901                   6.8  %
        Unit deliveries                         2021               Product Mix(2)               2020               Product Mix(2)         Unit Change            % Change
        Class A                                     2,957                  27.1  %                  2,493                  30.8  %               464                  18.6  %
        Class B                                     5,431                  49.8  %                  3,351                  41.3  %             2,080                  62.1  %
        Class C                                     2,521                  23.1  %                  2,261                  27.9  %               260                  11.5  %
        Total Motorhome                            10,909                 100.0  %                  8,105                 100.0  %             2,804                  34.6  %
                                           August 28, 2021                                 August 29, 2020                                   Change              % Change
        Backlog(3)
        Units                                      18,254                                           8,463                                      9,791                 115.7  %
        Dollars                          $      2,303,504                                $      1,051,415                                $ 1,252,089                 119.1  %
        Dealer Inventory
        Units                                       1,696                                           2,761                                     (1,065)                (38.6) %
        (1)  ASP excludes off-invoice dealer incentives.
        (2)  Percentages may not add due to rounding differences.
        (3)  Our backlog includes all accepted orders from dealers which generally have
        


Net revenues increased in Fiscal 2021 compared to Fiscal 2020 primarily due to unit sales growth and pricing, including lower allowances.

Average selling price increased in Fiscal 2021 compared to Fiscal 2020 primarily due to price increases, partially offset by unfavorable product mix.

Adjusted EBITDA increased in Fiscal 2021 compared to Fiscal 2020 primarily due to improved operating leverage on higher revenue as well as increased pricing and lower allowances, partially offset by investments in the business and higher variable compensation expense.

Table of Contents

We have seen an increase in the volume and dollar value of backlog as of August 28, 2021 compared to August 29, 2020 primarily due to continued strong retail demand due to the perceived safety of RV travel and reduction in commercial air travel and cruises. These have resulted in historically low dealer inventory levels.

Table of Contents

Oct 20, 2021

COMTEX_395572079/2041/2021-10-20T16:09:38

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