Winnebago (WGO) not quite rolling along

Motor home manufacturer Winnebago Industries Inc. (NYSE: WGO) is currently being squeezed by numerous factors, only some of which are under the company's control. To the surprise of no one who has recently been hit in the wallet at the gas pump, demand for gas guzzling behemoths remains soft. Costs for labor and raw materials continue to rise. Consumers who do buy motor homes are price conscious so Winnebago must offer cheaper, lower profit margin models, even though selling expenses due to incentives continue to rise. Thus, no one should have been shocked at Winnebago's recent 3Q 2007 earnings report, which indicated that 3Q profits fell 14% to $11.3 million even though overall revenues were up 5.2% to $231.7 million. Just like with taxes, it is not always about how much you earn. It's about how much you get to keep. And Winnebago is not getting to keep all that much. Revenues have decreased by 4% over the previous three quarters, but net income has decreased by a hefty 24.6% over that same period.

To its credit, the company is responding to concerns over the cost of fuel by introducing a line of more efficient diesel engines in 2008 models. Sales order backlog has increased substantially due to the newer models, although the cost of those sales has also increased. Winnebago repurchased $20 million of its stock during 3Q 2007, but the stock has still lost almost 10% of its value since the beginning of the year. Winnebago stock recently closed at $30.00, up $1.34. While Winnebago's EPS are significantly above industry average, its P/E is as well.