Winnebago net tumbles; CEO warns on price war

By James B. Kelleher

CHICAGO (Reuters) - Winnebago Industries Inc (WGO.N) said on Friday that quarterly earnings tumbled 73 percent as tight credit, rising fuel prices and the housing slump discouraged consumers from buying its pricey motor homes during the key spring selling season.

The company's new head also warned that the industry downturn, which has already forced several motor-home makers out of business, might lead rivals to launch a "discounting war" that could put further pressure on Winnebago's shrinking margins.

"If this thing doesn't get fixed here pretty soon, you know, desperate times bring desperate measures for some people that are just trying to keep the doors open," Bob Olson, Winnebago's chairman, chief executive and president, told Reuters in a telephone interview. "That kind of concerns me a little bit."

The motor home industry is in the middle of what is shaping up to be its fourth straight year of sales declines and its worst year since 1991.

Winnebago shares tumbled as much as 7.5 percent to their lowest level in more than five years following the release of the quarterly results and a company conference call with analysts.

"Industry conditions remain grim," said Craig Kennison, a Robert W. Baird & Co analyst. He called Winnebago's gross margins -- down 9.50 percentage points to 1.9 percent during the quarter -- "dreadful."

The Forest City, Iowa-based company reported net profit of $3 million, or 10 cents a share, for its fiscal third quarter ended May 31, down from $11.3 million, or 35 cents a share, a year earlier.

Sales tumbled 39.7 percent to $139.7 million.

While earnings were better than the 3 cents per share analysts had expected, sales fell well short of the average Wall Street forecast of $163.1 million, according to Reuters Estimates.

Excluding one-time tax benefits that added about 24 cents a share to earnings, Winnebago had a pretax loss of $5.9 million, or about 14 cents a share -- double what analysts like Kennison had expected.

INDUSTRY SLUMP

Since peaking in 2004, total industry shipments of the two best-selling categories of motor homes -- so-called Class A and Class C vehicles -- have fallen 42 percent as the U.S. economic downturn has eroded consumer confidence and kept buyers out of showrooms.

In April, the latest month for which data is available, sales of Class A motor homes -- the big, bus-like behemoths that provide recreational vehicle (RV) makers with their fattest margins -- fell nearly 40 percent, according to industry watcher Statistical Surveys.

Overall sales of the two most important types of RVs are down 26.1 percent so far this year, with sales decreases accelerating in March and April.

Earlier this month, Winnebago said it was closing a plant in Charles City, Iowa, idling 30 percent of its capacity and laying off 270 salaried and hourly workers, to deal with what it called "extremely challenging" market conditions.