Winnebago 2Q Profit Drops 67 Pct

DES MOINES, Iowa (AP) -- Motor home manufacturer Winnebago Industries Inc. said Thursday its second quarter profits fell nearly 67 percent as consumer confidence in the economy helped drag down sales of recreational vehicles.

High fuel prices hurt too. Filling up the tank of one of Winnebago's largest motor homes would cost more than $400 at Thursday's prices, about 47 percent more than a year ago, for example. It could cost about $244 to fill up a smaller one.

The earnings results were below Wall Street expectations, and its shares dropped 8 percent in midday trading.

The Forest City-based company said it cut employment by 9 percent, or about 300 people during the quarter to bring production in line with slowing sales.

As a result, the company reported one-time severance related costs of about $500,000.

Company officials told industry analysts Thursday that the reductions are expected to save the company about $1 million in the last half of the year.

Net income fell to $2.5 million, or 9 cents a share, for the three months ended March 1, down from $7.5 million, or 24 cents a share a year ago.

Sales fell 17.5 percent to $164.2 million from $199 million for the same period a year ago.

Analysts polled by Thomson Financial had expected earnings of 23 cents a share on sales of $178.3 million.

Its shares fell $1.61, or 8.1 percent, to $18.25 in midday trading after sinking to a 52-week low of $17.29 in earlier trading.

President Bob Olson said sales were down across the industry in the double digits for each of the last three months. Recent interest rate cuts should have a positive long-term impact, but they have not yet reached retail customers, he said.

"Many economic factors are negatively affecting consumer confidence, resulting in a very soft retail motor home market and reduced demand from our dealers," he said.

He told analysts that the usual spring uptick in sales likely will be muted because of concerns over the economy. Olson said he hopes to see a turnaround after the November general election, meaning the next few quarters could be challenging.

Record high fuel prices are one of the factors depressing sales.

Filling up the fuel tank of a smaller motor home built on van chassis with a 75-gallon tank would cost $244.50 at Thursday's average retail gas price. It would have been $192 a year ago.

The cost of filling up one of the largest, such as the Winnebago Vectra, would be $403 at Thursday's average diesel fuel price versus $274 a year ago. The Vectra carries a manufacturer suggested retail price of $291,000.

Analysts from RBC Capital Markets concluded that Winnebago "is better positioned than most to weather a sharp downturn that shows no signs of abating." They said in a note to investors that the company is a safe long-term investment, but noted: "investors with shorter-term time horizons should look elsewhere."

For the first six months of the fiscal year, the company reported net income of $12.5 million, or 43 cents a share, a 19.3 percent decrease from $15.5 million, or 49 cents a share a year ago.

The company began delivering a new class of motor homes during the quarter and said it was well received at a national trade show in Louisville, Ky., in November when it was unveiled. The company said 50 dealers have signed up to carry the new ERA brand motor home and more are expected as production is ramped up.

The motor home, priced at just over $90,000, is built on a Dodge Sprinter van chassis equipped with a six-cylinder turbodiesel engine with an estimated fuel mileage of about 22 miles a gallon.

Winnebago said it holds about $54 million worth of tax-exempt auction rate securities, most of which are collateralized by student loans guaranteed by the federal government. Others are backed by insurance companies.

The securities have been classified as short-term investments. Such investments are routinely sold at auction and have been considered liquid, however in February a number of auctions failed when there was not enough buyer demand. As a result the assets have been reclassified as long-term investments and the company is evaluating whether they are appropriately valued. It expects to report more information in regulatory filing due April 10.

Winnebago said the investments are not believed to have a material impact on the company's business plan and it expects to eventually recover the money invested.

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