Winnebago posts counter-intuitive profits

Oddly enough, the higher oil prices rise, the more people want to buy a top of the line motor home. That seems to be the conclusion investors can draw from Winnebago Industries, Inc. (NYSE: WGO) recent 4Q and FY 2007 earnings report. Winnebago has introduced a Class C value-priced line of motor homes, but that's not where the sales and profits are. Sales of the top of the line Class A motor homes increased by volume, leading to a 16% increase in revenue in 4Q 2007 and a whopping 59% increase in net income, to just under $15 million, for the quarter. The Class A motor homes have a much higher profit margin, and Class A deliveries are up 48%. Seems like when people are ready to buy a rolling second home, they do not want to do so on a budget.

Despite the good news for the quarter, investors should not start revving their engines just yet. Motor home sales are still soft across the board, and the industry is entering its slowest part of the sales year. Dealers will not boost inventories due to soft demand. Gas prices continue to rise while consumer confidence levels continue to decline.

Winnebago is doing all it can to make the stock attractive to investors. The company repurchased 1.5 million shares of stock during the quarter, at a cost of $44 million. The company will pay a regular quarterly dividend of $0.12 per share. These are, however, actions with a short term impact and do not replace a company's need to increase its profits through organic growth, not real likely for Winnebago under current circumstances.

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