Winnebago(WGO) - 2024 Q3 - Quarterly Report

PART I Item 1. Consolidated Financial Statements Winnebago Industries' unaudited consolidated financial statements show decreased revenues and net income, stable balance sheet, and debt restructuring Consolidated Statements of Income Net revenues and net income significantly decreased in Q3 and the nine-month period of fiscal 2024, partly due to a $32.7 million loss on note repurchase Consolidated Statements of Income Highlights (in millions, except per share data) | Metric | Three Months Ended May 25, 2024 | Three Months Ended May 27, 2023 | Nine Months Ended May 25, 2024 | Nine Months Ended May 27, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $786.0 | $900.8 | $2,252.6 | $2,719.7 | | Gross profit | $118.2 | $151.4 | $339.3 | $458.6 | | Operating income | $43.5 | $80.5 | $118.0 | $243.2 | | Net income | $29.0 | $59.1 | $42.1 | $172.1 | | Diluted EPS | $0.96 | $1.71 | $1.40 | $4.95 | - A loss on note repurchase of $32.7 million was recorded in the nine months ended May 25, 2024, which was not present in the prior year, significantly impacting income before taxes[7] Consolidated Balance Sheets Total assets slightly decreased, while total liabilities increased due to long-term debt changes, leading to a decrease in total shareholders' equity Consolidated Balance Sheet Summary (in millions) | Metric | May 25, 2024 (Unaudited) | August 26, 2023 | | :--- | :--- | :--- | | Total current assets | $983.7 | $996.7 | | Total assets | $2,425.0 | $2,432.4 | | Total current liabilities | $401.8 | $396.0 | | Total liabilities | $1,106.6 | $1,064.3 | | Total shareholders' equity | $1,318.4 | $1,368.1 | Consolidated Statements of Cash Flows Net cash from operating activities decreased due to lower profitability, while net cash used in investing activities significantly decreased, and financing activities remained stable Cash Flow Summary (in millions) | Activity | Nine Months Ended May 25, 2024 | Nine Months Ended May 27, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $103.2 | $156.4 | | Net cash used in investing activities | $(36.4) | $(154.4) | | Net cash used in financing activities | $(58.6) | $(58.3) | | Net increase (decrease) in cash | $8.2 | $(56.3) | - Financing activities in the first nine months of fiscal 2024 included the repurchase of $240.7 million of 2025 Convertible Notes, funded by the issuance of new 2030 Convertible Notes, resulting in a net cash inflow from these specific transactions[10][79] Notes to Consolidated Financial Statements Notes detail accounting policies, segment performance, and debt refinancing activities, including new convertible notes issuance and repurchase, resulting in a significant loss Segment Net Revenues (in millions) | Segment | Nine Months Ended May 25, 2024 | Nine Months Ended May 27, 2023 | | :--- | :--- | :--- | | Towable RV | $1,001.8 | $1,073.9 | | Motorhome RV | $971.8 | $1,242.4 | | Marine | $245.0 | $373.3 | Segment Adjusted EBITDA (in millions) | Segment | Nine Months Ended May 25, 2024 | Nine Months Ended May 27, 2023 | | :--- | :--- | :--- | | Towable RV | $101.8 | $129.4 | | Motorhome RV | $60.7 | $119.6 | | Marine | $20.1 | $50.2 | - On January 23, 2024, the company issued $350.0 million of 3.25% unsecured convertible senior notes due 2030. Proceeds were used to repurchase $240.7 million of the existing 1.5% convertible notes due 2025[61][79] - The effective tax rate for the nine months ended May 25, 2024, was 34.5%, a significant increase from 23.4% in the prior year, primarily due to the non-deductible loss on the note repurchase[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes declining revenues and profitability to challenging macroeconomic conditions and softened consumer demand, while detailing segment performance and inventory management - The business is challenged by macroeconomic conditions like inflation and elevated interest rates, leading to lower consumer spending and reduced short-term demand for RV and marine products[104] - Dealers are exercising caution in managing inventory levels, but the company anticipates that as consumer demand stabilizes, ordering patterns will also stabilize[104] Results of Operations - Three Months Ended May 25, 2024 Q3 2024 saw consolidated net revenues and gross profit margin decline, with varied segment performance including a slight Towable RV revenue increase and significant Motorhome/Marine declines Q3 2024 vs Q3 2023 Consolidated Performance (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $786.0 | $900.8 | (12.7)% | | Gross profit | $118.2 | $151.4 | (22.0)% | | Operating income | $43.5 | $80.5 | (46.0)% | | Net income | $29.0 | $59.1 | (51.0)% | Q3 2024 Segment Revenue & Adjusted EBITDA (in millions) | Segment | Net Revenues | % Change (YoY) | Adjusted EBITDA | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Towable RV | $386.3 | +0.6% | $41.9 | (22.0)% | | Motorhome RV | $299.0 | (20.1)% | $13.4 | (50.2)% | | Marine | $87.9 | (31.8)% | $8.5 | (50.9)% | Results of Operations - Nine Months Ended May 25, 2024 Nine-month fiscal 2024 consolidated net revenues and net income significantly decreased, impacted by a note repurchase loss, with sharp revenue declines and reduced backlogs across segments YTD FY2024 vs YTD FY2023 Consolidated Performance (in millions) | Metric | YTD FY2024 | YTD FY2023 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $2,252.6 | $2,719.7 | (17.2)% | | Gross profit | $339.3 | $458.6 | (26.0)% | | Operating income | $118.0 | $243.2 | (51.4)% | | Net income | $42.1 | $172.1 | (75.5)% | YTD FY2024 Segment Revenue & Backlog (in millions) | Segment | Net Revenues | % Change (YoY) | Backlog (Dollars) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Towable RV | $1,001.8 | (6.7)% | $153.1 | (35.1)% | | Motorhome RV | $971.8 | (21.8)% | $354.9 | (55.7)% | | Marine | $245.0 | (34.4)% | $62.0 | (57.6)% | Analysis of Financial Condition, Liquidity, and Resources The company maintains strong liquidity with substantial cash and an undrawn credit facility, while also executing share repurchases and approving quarterly dividends - As of May 25, 2024, the company had $318.1 million in cash and cash equivalents and a fully available $350.0 million ABL Credit Facility[144] - In the nine months ended May 25, 2024, the company repurchased approximately 989,000 shares for $60.0 million. As of the end of the period, $240.0 million remained available under the share repurchase authorization[148] - On May 15, 2024, the Board of Directors approved a quarterly cash dividend of $0.31 per share[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, currently minimal due to an undrawn ABL Credit Facility, with deferred compensation plan risk borne by participants - The company's ABL Credit Facility is its only floating-rate debt instrument and was undrawn as of May 25, 2024, minimizing interest rate risk[156] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of May 25, 2024, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the evaluation date, May 25, 2024[157] - No changes in internal control over financial reporting occurred during the third quarter of Fiscal 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[158] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings not expected to materially adversely affect its financial position, results of operations, or liquidity - The company is involved in various legal proceedings considered ordinary and routine, which are not expected to have a material adverse effect on its financial condition[91][160] Item 1A. Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company repurchased 319,523 shares for $62.85 per share, as part of its $350.0 million share repurchase program with $240.0 million remaining Q3 2024 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 2/25/24 - 3/30/24 | 357 | $72.01 | | 3/31/24 - 4/27/24 | — | — | | 4/28/24 - 5/25/24 | 319,166 | $62.84 | | Total | 319,523 | $62.85 | - As of May 25, 2024, $240.0 million remained available for repurchase under the board-authorized program[162] Item 5. Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter ended May 25, 2024 - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter[163]