In a sign of a looming economic downturn, Winnebago Industries’ top executive said Wednesday that the company will slow production for the rest of the year — even as it reported record quarterly earnings.
“We have identified certain days or weeks that we will be taking off or down, through especially the summer months,” CEO Michael Happe told analysts on a call after releasing the earnings report. “And we will continue to evaluate that as we get into the September-through-December period as well.”
Minneapolis-based Winnebago, which has a heavy manufacturing presence in Iowa, has benefited from record demand since the beginning of the COVID-19 pandemic in spring 2020. With flying restrictions, closures and safety concerns about crowded destinations like cities and theme parks, families took to recreational vehicles as they flocked to state and national parks for vacations in the supposedly less-infectious great outdoors.
But with gas prices rising across the country, averaging $4.695 a gallon in Iowa on Wednesday and $4.995 nationally, according to AAA, dealers have reported a drop in demand in recent months, Winnebago disclosed to investors. Executives also pointed to rising prices for food and other goods and the Federal Reserve’s interest rate increases as reasons would-be customers are becoming pessimistic.
Happe told analysts that the company projects 530,000 recreational vehicle sales for the entire industry in the United States this year, down 20% from 660,000 last year. The projection is significantly worse than what the company expected during its last analyst call in late March, when Happe said the industry should see sales decline this year “in the low-to-mid single digits.”
“The numbers that we’ve stated in the past have now proven to be too optimistic,” Happe said Wednesday. “We just have to continue to keep an eye on consumer sentiment in the retail environment. If those numbers worsen and 2023 looks worse, we will have to continue to adjust.”
Winnebago’s outlook is another bad sign for the rest of the US economy
Economists view Winnebago as a strong barometer for the country’s economy, as its recreational vehicles and boats are discretionary purchases consumers make when they feel good about their future incomes.
“We probably tend to lead the economy into a downturn,” Happe said. “And hopefully we’re one of the earliest businesses to lead the economy out of a downturn. I think directionally, we’ve been signaling where the US economy is headed for a long time now.”
Despite the company’s overall decline in production this year, Winnebago may not need to cut back hours for Iowa workers. It reported that demand for the motorhomes that employees make in Charles City, Forest City, Lake Mills and Waverly has not declined as fast as demand for its travel trailers.
According to Winnebago’s filings, the backlog of dealership orders for trailers declined by 33% from the end of February to the end of May. The backlog of motorhomes declined by 12%.
Wall Street sends Winnebago’s stock price up after another strong quarter
The news of declining sales came despite Winnebago’s report of a strong quarter for the period ended May 28, as the company caught up on dealers’ earlier orders. Revenues were a record $1.46 billion, up about 41% over the same period last year.
Winnebago’s net income was $176.7 million, up 64%. The company also was more efficient, with a profit margin of 18.7%, up from 17.7% at the same time last year
Investors feel the company’s stock price up nearly 6% in Wednesday trading.
Executives credited the company’s ability to pass increased costs on to consumers. As of the end of May, the company valued its backlog of trailers at about $41,500 per sale, up from about $32,600 at the same time last year.
Winnebago is valuing its backlog of motorhomes at about $150,000 per unit, up from about $120,000 at the same time last year.
But Happe warned investors that the company’s ability to raise prices has “peaked.”
“Our ability to pass pricing on to the market — as an example, because of inflation — continues to be more challenged with consumer demand softening significantly,” he said.