Winnebago (WGO) has been making a big move of late. Investors may not always think about the company this way, but WGO is a big beneficiary of falling interest rates. The Fed did not cut rates at the June meeting, but it sounds like a cut is on the table for the July meeting.
RV purchases are high dollar decisions for consumers. Lower rates not only make RVs more affordable, but they also lead to a rising stock market. Consumers feel more comfortable making a big ticket, highly discretional purchase decision when they feel they can comfortably afford it, so a rising 401K balance helps in that regard. Buying an RV is not like buying a car, which is seen as a must-have. RVs fall more into the category of want-to-have. As such, interest rates and affordability play a bigger role in the purchase decision for RVs than they do for cars.
This dynamic was evident in WGO's Q3 (May) earnings report this week. The report presented a slight beat in terms of EPS, although revenue fell 5.9% yr/yr to $528.9 mln, which was a good bit shy of expectations. It's pretty rare for a company to report revenue downside but EPS upside. This is a business with very thin margins, making margins are a closely watched metric with WGO. This dynamic of downside revenue and upside EPS tells us that margins were much better than expected overall.
WGO confirmed that in its Towables segment, adjusted EBITDA margin jumped 200 basis points yr/yr to 16.5%. This was driven by higher selling prices and higher unit sales and managing input costs. The Motorhome segment did not fare as well, as adjusted EBITDA margin fell 460 basis points, primarily due to "deleverage, an unfavorable mix due to the decline in sales of our most profitable products, and continued discounting in the marketplace." Also, its Motorhome segment was hit with a supply interruption of Class B chassis.
Probably one of the more interesting aspects to the MayQ report was WGO saying that its North American RV retail market share is approaching 10%, up from 3% just three years ago. We have been following the name for years and have been watching it grow. But it's interesting to hear how its numerous acquisitions over the years have resulted in a pretty impressive market share.
In sum, the stock has made a strong move in recent months; it briefly dipped below $20 in December but has been steadily rising since then to around $40 currently. It has made a big move in June, up 24%. What's interesting about this recent move is that the company's Q3 (May) results were decent but not great. It seems that investors are focusing more on the macro level of low rates, good economy, rising stock market, etc. than on quarter-to-quarter upside.