We are pleased to have the team from Winnebago for a group presentation. It'll be a fireside chat. We've got CEO Michael Happe and the Director of Investor Relations, Raymond Posadas. Winnebago also had news this morning, pre-releasing recent results. I think we're going to get into that as well. Before we do, Michael, I thought I'd just take an opportunity to ask you to introduce Winnebago and your portfolio to this group of investors.
Great. Thank you, Craig. Good afternoon, everybody. Craig, to you and Alice, Kevin, and the Baird team, thank you for the opportunity to spend the day with you all. Most of you know this, but Winnebago Industries is a premium branded manufacturer in the outdoor recreation space. We have three RV brands: our flagship Winnebago brand, Grand Design RV, and Newmar. We also have two marine brands: Barletta Boats on the pontoon side and Chris-Craft on the high-end luxury runabout category. We also made a small acquisition of a strategic technology vertical in Lithionics batteries a couple of years ago. Let me just jump, Craig, right into the business update, if you do not mind.
Absolutely.
As Craig said, we did offer a pre-release today to the market. I've been at Winnebago Industries for nine and a half years. I think this is the first pre-release we've done. We felt it was really important to obviously give the market a heads up on some of the Q3 results that we are seeing from our recently completed period ending in May. There were three messages in the pre-release. One is we are generally seeing continued in here later in the spring, early summer, increasing softness in the outdoor arena. I wouldn't say it's dramatic, but since April 2, things have certainly gotten a little tougher and tighter with consumer demand and with our dealers' appetite to take product in significant volume levels.
That being said, we remain optimistic in our ability to compete for share, and I'm sure I'll talk about that with Craig here a little bit. The second message was that there is a particular business in our portfolio that is having a disproportionate impact on especially the profit contributions, and that would be our Winnebago branded motorhome business. I've been pretty public in past earnings calls that the Winnebago flagship brand remains incredibly important to us, that on the towable side, under our Grand Design leader, Don Clark, we put the Winnebago towables business there to try to create a stronger second brand of towables under the Winnebago flag to complement our strong Grand Design presence. On the Winnebago motorhome side, that's our iconic business, started way back in the late 1950s.
That business has been struggling as of late due to, candidly, some product vitality issues that we have not addressed strongly enough and some operational challenges, both efficiency, but also product quality. That business has a new leader as well, an almost nine-year veteran of our company who was leading enterprise operations, and Chris West and a team there are leading the turnaround there. In Q3, we made some very difficult decisions halfway through Q3 to essentially ship less product to the market, lower production dramatically, thereby trying to make sure that we maintain healthy inventory in the field, but we are also addressing any excess inventory on our campuses in North Iowa in that business. We also made some significant cost structure changes, both on the hourly side, but continued to look at the salaried side as well.
We're working on product quality and trying to improve, again, the strength of the product line there going forward. The last message in the press release is that while we're seeing some struggles, certainly in that Winnebago business that impacted Q3, I'm really confident about the rest of the portfolio. We continue to have strong brands across the portfolio. We are seeing Grand Design towables regain share here in the last three to six months, particularly on travel trailers. Our Newmar RV business is continuing to increase share, particularly in Class A diesels, where they're now above 30%. On the marine side, Barletta Boats continues to take a good share as well. Now the number three player in aluminum pontoons, we're right on the heels of the number two player, Bennington in that space. We've had some product introductions on some of these newer revenue streams.
Grand Design Motorized just introduced its third product in its fresh lineup. We had introduced a Class C product, a Super C product, and now just within the last two weeks, a VT van on the Ford Transit platform. The Winnebago towables turnaround, we have recently introduced a product called the Thrive on the travel trailer side, receiving very strong feedback from the dealers we are targeting for that business. Three messages: general market softness that we continue to navigate, a Winnebago branded motorhome business that, again, disproportionately impacting our profitability right now through some intentional decisions we have made. Third, we are still confident and proud of the rest of the portfolio and the progress we are making in several areas.
Thanks a lot. Again, if you have a question, feel free to ask or shoot me a question on the device. I'll try to ask it. Mike, you touched on this in your comments, but maybe just step back and give your assessment of the overall state of the RV industry today at retail and then in terms of dealer health.
Yeah, I'll go back to the general election last November. I think generally the industry felt pretty good about the outcome of that election, that it could potentially bode well for our specific industries. I know most of our dealers were pretty excited about that outcome. If some of you recall, we were seeing some positive retail in some of the fall, early winter months late in calendar year 2024. We expected stronger momentum on the retail side, I think, as an industry. We all did. We had hoped 2025 would be sort of that recovery year that we've been waiting for here recently. We just haven't seen retail results at the pace that I think the industry, nor certainly our company, had hoped for. Now, conversely, the industry has been shipping at a little bit higher level in the January through April timeframe.
I think wholesale unit volumes are up double digits there, even as retail has been a little bit lower than anticipated. There has actually here recently been some restocking when traditionally you see destocking as we get into the selling season. At Winnebago Industries, we're really committed to trying to target that two-turn level in the market. That is what we're striving for with our brands as we try to balance shipments and retail. The RV Industry Association came out with a revised forecast here recently. I think their midpoint was around 337,000 units. Thor announced good results yesterday, and I believe in some of their commentary, they were in that general neighborhood as well. I know Thor will be up here soon and they'll speak for themselves. I think the industry is settling for now around that probably 320-335, 340 neighborhood from different sources.
We'll see where that ends up. If that's true, the back half of calendar year 2025 would probably be a little bit softer shipment-wise than certainly the first four months. On the marine side, I would say we're not seeing a significant change in demand from where it's been really sort of running. I'm not sure what the Malibu guys said in the last session, but dealers continue to be very disciplined in our pontoon business. We did a lot of heavy lifting around inventory right-sizing on the Barletta business about a year ago. We've actually been seeing Barletta hold its inventory roughly flat here in this fiscal year to date. I think that's a byproduct of some of the work we did a year ago to make sure the quality and quantity of the inventory.
Craig, I'm not seeing really probably great inflection points right now in terms of consumer demand on either industries. The dealers continue to be consistently pretty measured and disciplined with what they choose to stock as well.
That's helpful. Given that market condition, what are the expectations for market share opportunities or any other self-help through share gain?
Obviously we're going to do our best to try to grab share where we have the weapons to do it. I talked a little bit earlier. We're very pleased to see our Grand Design towables share stabilize and begin to actually go the right direction on travel trailers. Grand Design's been on such a historic run, its first dozen-plus years in the industry. We've been under some fierce competition on the lower side of the travel trailer business from companies like Forest River and Thor. On the fifth wheel side, we've seen some new competition there in the last three or four years. The travel trailer momentum on share appears to be coming back in that business. We're also seeing good stability on the high end of the fifth wheels and the toy haulers with Solitude and Momentum.
I would say there's a pretty good battle in the market going on right now around those lighter weight, lower priced fifth wheels where we have brands like Reflection and Influence that we're trying to compete with. Grand Design Motorized, we're already capturing a couple of points of share in the motorized segment there with the three products that I talked about earlier. Two of them are in the market retailing right now, the Class C and the Super C. The van will be coming to the market here very shortly. Newmar, as I said, continuing to gain share in Class A diesel, four straight years in a row now, over 30%. We've recently expanded Newmar's product line with more Super C product and then a high-end luxury premium Class C announced at their dealer meeting back in April.
I will say on the Winnebago branded side, we have seen some share gains on the Class C side, particularly around this Echo product that's been quite popular the last couple of years. I mentioned marine, both marine businesses. Chris-Craft is a very small business. It's a wonderful brand, small business, but it's picked up 10-20 basis points of share recently. Barletta now is in double-digit share territory on pontoons. Remember, this is only a seven-year-old company. We acquired Barletta in the fall of 2021, and it continues to chase down market share from the top two players, Tracker and Bennington. We're really proud of the Barletta business.
We see opportunities, Craig, and if we can get the Winnebago branded businesses turned in the right direction, get some healthier product into the market, get the right dealers behind us, we have confidence that there is share runway there, especially on the Winnebago towable side, where we think we can take a 1.2-1.4% share business to somewhere in the 3-5% range over time.
There's market share and then there's margin. I know Winnebago portfolio tends to focus on that core to premium customer. The market has gone towards that value customer as affordability really becomes the primary feature in this particular market. How do you balance your aspirations for market share with also your strong discipline around margin?
I would say on the margin side, we have to control the controllables first. We've had some headwinds that we've created for ourselves here in some of the past quarters. We've not seen product quality be where we wanted it to be in a couple of different places. That's created some more warranty expense in the business. Some of the share battles we've been having where we're on the negative side of that, you see some deleverage in the production side. Margin is certainly something we're sequentially and year over year trying to improve. I would say on the towable side and the marine side, we're in the trough with acceptable profitability, but we've got to get both of those businesses as we start to grow again here in the future at a little bit higher levels.
The motorized side is where our margin has been under significant pressure, partly because of obviously our Winnebago branded challenges, but also because the motorized category continues to be under consumer demand pressure. There is intense competition there in the market by a number of our competitive brands. At times we have to choose or decide whether to match those competitive sales promotions and discounts as well. We still believe very much in a mid-cycle margin profile that's probably approaching that 18% range. Right now we're probably battling here at the end of Q2, I think we're in the high 13% here in the trough. There is significant opportunity to improve in quarters going forward.
Maybe just to dig in on that on the towable side, I believe not looking at your model now, but you had double-digit EBITDA margins at one point. What are the levers you can pull to drive better margin in that very important business?
Yeah, right now in a transitional way, the Winnebago towables business is having a disproportionate impact on profitability of margin in that business as we try to clean up the market and clean up some of our operation side as we pivot to the new Winnebago towables business model under Don Clark's leadership there. There is some, I would call non-structural pressure in the short term there that we're working through. There is nothing structural on the towable segment side that I think prevents us from getting to double-digit margins. Again, we've got to get some better warranty spend lower. We've got to clean up some of those quality issues we've been battling on Grand Design specifically.
I think as we regain share and get some pricing power back and get some model mix coming back to where we think it needs to be, you'll start to see some other levers help elevate gross margin and EBITDA on that business as well.
Could you address your production footprint, some of which is in Iowa, some of which is in Indiana, the RV capital of the world? What are the advantages of the footprint as it's aligned today?
As most of you know, Elkhart County, Indiana, is the capital of the RV industry, and you've got probably 85% of the industry there. Your suppliers are very close by, the Lippert Components and the Patrick Industries and others who can deliver daily shipments. You've got an available labor pool where, as the cycle goes, you can ramp up and respectfully ramp down volume. You have built-in experience, almost generational experience in some cases within a lot of the, especially the Amish community there, that's such a big part of the labor pool. North Iowa is where our Winnebago branded motorhome businesses are today. That's where our legacy headquarters was as well. We've got Chris-Craft and our Lithionics business down in Florida with our executive offices, small executive offices in the Twin Cities. That's our footprint. We're vertically integrated in a few businesses more than others.
Winnebago motorhomes, Newmar, and Chris-Craft is probably where we're a little bit more vertically integrated. The towables businesses, the pontoon businesses tend to be assembly businesses for the most part.
Could you give us an update on the balance sheet and plans to improve financial leverage?
Yeah, Ray, why do not you chime in here as well and just fact-check me. We have been working now on debt management as probably short-term-wise our number one capital allocation priority besides obviously serving the day-to-day needs of the business. We have taken $100 million here recently.
Retired 100 million.
Retired 100 million on the 6.25% senior secured note. I think that the rest of that matures in 2028. We had a 2025 convertible maturity that we essentially renewed and upsized into one that ends in 2030. There was $59 million remaining on that that we recently retired. In the last nine months, if not shorter, we've retired about $160 million of debt. We've really got to get the EBITDA going on the bottom line to improve that leverage ratio. Our net leverage ratio has been unfortunately a little bit stubborn around that four times range. That's not where we want it. That will repair itself as the business is run effectively and as the market recovers a bit. We're also going to make sure that we're intentional with any, again, debt management opportunities that we see in the future.
Our leverage ratio has been a function of just EBITDA coming down given the environment because our debt has actually been coming down quite a bit as well, as Mike pointed out.
Yeah, that's a great point. Eventually we have to ask about tariffs. Now is that moment. What's the message from Winnebago on tariffs?
Yeah, I just happened to be in, excuse me, Washington, DC yesterday. I sit on the executive committee for the National Association of Manufacturers. You should look at the NAM website today. NAM just announced an interesting proposal to the administration on a manufacturing investment accelerator that the EC supported and approved yesterday that would incentivize the US companies maintaining and growing investments in US manufacturing. That being said, as you guys know, the trade policy environment is very dynamic. Our last quarterly earnings were late March. So that was before April 2nd. We're doing what everybody else is doing. We're trying to mitigate tariffs as best we can. That involves serious discussions with our suppliers on cost sharing. That could be resourcing your supply chain a little bit, either the suppliers themselves or the countries in which some of those goods are made.
There's some recontenting or redesign that could be happening, obviously. When all of that is completed, we look at pricing as a lever to try to manage the remaining net pre-pricing risk. We have put out model year 2026 pricing on most, if not all, of our businesses here recently. When the tariff from China was 145%, that was a really significant magnifier on a very small part of our bill of materials that actually comes from that country and/or from outside the U.S. Less than 10% of our bill of materials comes from outside the U.S. to begin with, but we still get enough goods and in some cases, some things we can't source in the U.S. that we've been having to manage.
On our June 25th earnings call, I think we'll put some more meat on the bones, Craig, about maybe the annualized exposure gross-wise and/or net-wise that we've been seeing on the business. We believe that in the RV and marine industries, you'll generally see low to mid-single-digit price increases across different OEMs and different product categories to try to manage the tariff cost input pressure on their P&Ls. It will vary. In some cases, it'll be a little higher. In some cases, it'll be a bit lower. In the short term, working capital helps us from a timing standpoint. We've got some inventory to work through in raw materials and components and even some finished goods or WIP. The field, if you recall, has in most cases, it's a two-turn industry.
They have half a year of inventory as well that they can work through with consumers here. Really, anything with model year 2026 pricing, probably from especially today forward, is coming with higher input costs. It is a day-to-day battle. We are trying to be very respectful and agile with our dealers as to how we pass some of those costs on in the future. We also do not want to impair volume and demand in an industry that has already had affordability pressure over the last couple of years post-COVID.
Yeah, maybe if I could just probe your meetings in DC, what exactly is the goal of the proposal that your committee approved?
What you see is you have a lot of manufacturers that are U.S.-based with most of their production in the U.S. In many cases, they have limited foreign import competition. Yet, we're still being tariffed similarly to other types of companies. I think the goal of this latest proposal from the NAM is to try to potentially provide an opportunity for those manufacturers that are absolutely committed to American manufacturing to try to get some incentives or rebates to make sure that we offset some of the costs of those tariffs and keep and grow manufacturing investments here in the U.S. It is really targeted for those companies that are absolutely committed. The great thing about the RV and marine industry is 98% probably of the products that are sold in the U.S. are made in the U.S.
We have some components, all OEMs do, that maybe either have tier two or tier three supply outside of the U.S. or tier one outside of the U.S. We are all trying to mitigate that as best we can. This is just, Craig, I think a creative framework by the NAM, 12,000 plus members, to try to provide a path forward for those manufacturers that are absolutely committed and already engaged strongly in U.S. manufacturing, not looking to move plants overseas or outside of the country. How do we give them some relief on the critical supplies or components that they have to get from outside the country to keep their businesses going?
On that policy front, I think this is an issue. You can confirm if it is. Years ago, when they wrote policy around floor plan interest deductibility, they sort of forgot to include towables. Dealers who finance that inventory do not get to deduct that interest as part of their business model. There has been an industry-wide effort to get that changed, just no opportunity to do it. Is that part of your DC discussion and could that happen?
The RV Industry Association also this week had their advocacy day on the Capitol on the Hill. That was on Wednesday. I was not able to be a part of that because of the NAM meetings. That was on their agenda for Wednesday. There has been a lot of discussion about whether that can be included in the one big beautiful bill that is being discussed on the Hill right now. That remains a priority. We believe that was just an inadvertent, unintentional omission back in 2017, 2018, when the first sort of jobs and tax cut act was passed. We have bipartisan support, particularly from the RV caucus of policymakers to try to get that done. We think there may be a window here to try to get it done.
That will really help our dealers be more comfortable with carrying the amount of inventory that they think is correct going forward without having unintended consequences on the tax side.
I guess the other policy topic that has come up would help consumers, which at least in the automotive space, there's been talk about if it's an American-made vehicle, maybe that interest on the consumer side would be deductible in some way. Has there been any discussion of that policy helping RV products made in America?
Yeah, we're a little bit of the tail on the dog there. As you know, on the motorized side, obviously we buy a lot of chassis from those auto manufacturers. We would certainly and carefully appreciate any tailwinds that could be available to the American consumer to make entrance into the lifestyle more affordable. We want to be, I think in this day and age, we want to be very careful with having your hands out as an industry for subsidies and the like. There is no doubt at this current time that Americans are uncertain about some of these bigger priced, highly priced consumer discretionary items. To create some urgency in the buying process, items like that certainly could be interesting and helpful for the industry. Long term, we have to be able to sustain and operate, I think, in the absence of those as well.
We are confident that that demand will come back over time.
Mike, I know when you joined Winnebago, you kind of reimagined the company from being focused on motorhomes to really having more of an outdoor lifestyle approach, not just RVs, but outdoor lifestyles. Currently, we're going through a cycle, so you're probably focused on operations and portfolio as it is. Take this moment to explain what your vision is more broadly in outdoors and where you can take Winnebago.
On almost an emotional basis, we're big fans of family and friends creating great memories in the outdoors. We compete with some really great companies in the outdoor recreation space. We really want to create a premium branded differentiated company around quality, innovation, and customer service. There's a lot of great competition in the value space, the lower cost, higher volume space for sure. We want to be able to be one of those manufacturers that provides discerning consumers, especially those better, best choices in the market besides just good. All of them are important to have a healthy industry, but premium brands. The RV and marine markets, while certainly not identical from a cyclicality standpoint, have a lot of similar characteristics from a cyclical standpoint. We believe the value chains are very similar.
Candidly, our Barletta business is probably better because we're in the RV business. I think our RV businesses are getting a little bit better because we're in the pontoon business. There are some synergies there a little bit on the dealer side, a lot more on the supplier side. There is great synergy around brand management and channel management and service and parts and marketing that we can work together. We are focused on that North American outdoor recreation space. Listen, we'll invest in the future when the balance sheet is in the right place on inorganic growth when and if it makes sense to either deepen the existing portfolio we have today with RV and/or marine brands and/or add some potentially really interesting things like what we did with Lithionics on the battery side.
We invested in Lithionics because we believe house power will be increasingly electrified in the future. The ability for us to play in that portable power space instead of relying on a few other select players, we believe, will be a profitable differentiator in the future. There is a whole host of companies and industries we can sell those products to as well as a supplier. It comes with a higher profitability profile too. Over time, we aspire to get our gross profit to something that starts with a two instead of a one. We have to get through the trough in the cycle, be very disciplined, fix some of these businesses that are not firing on all cylinders, and position the rest of the portfolio to run when the market starts to recover in a positive way. I think that is the case.
I think there's a lot of potential in this portfolio. We bought Newmar in 2019, Barletta in 2021, Lithionics in 2023. We really haven't been able to put all the pieces together yet with an upcycle to see the full potential of the portfolio. That is our job, to be a stronger company in the next cycle than we were in the last one.
That's right on time, Mike and Ray. Thank you so much.
Thank you, Craig. Appreciate it.