CEO Happe maps new route for Winnebago
Company acquires towables firm, adds new products
Michael Happe is leading a resurgence of one of the most famous names in the recreational vehicle industry.
When Happe became CEO of Winnebago Industries in January 2016 after a nearly 20-year career at Bloomington, Minnesotabased Toro Co., he said the board was receptive to establishing a new direction for the company.
In short order, Happe orchestrated the largest acquisition in the company’s history, increasing Winnebago’s stake in the biggest and fastest growing RV segment, towables. He also introduced several new products and built a new leadership team. “Seven of the nine direct reports that I have are either new to the company, or new in their positions,” Happe said.
The company, based in Forest City, Iowa, also moved its executive offices to Minnesota, first in a small space in Burnsville and now in Eden Prairie, where the company plans to have 100 employees by the end of 2018.
Analyst Craig Kennison of RW Baird said Happe is conducting “a leadership driven transformation” of one of the most recognized brands in the recreational vehicle industry.
Happe “brings a fresh perspective and has a mandate to rethink what Winnebago can be,” Kennison said.
Company’s foundation
While Winnebago Industries was founded in 1958 to make travel trailers, it has become synonymous with gas- and diesel-powered motor homes.
The company produced its first motor home in 1966, a 19-foot model built on a Ford chassis called the F-19.
Later that year, the company — and the industry — was transformed when it introduced the D22, built on a Dodge chassis. The D22 design made RV travel more affordable and was a standard design for years.
The company almost exclusively started concentrating on motor homes. As recently as fiscal 2015, Winnebago’s product mix was 89 percent motor homes and 7 percent towables.
Yet the industry had shifted to towables. Towable units now make up 87 percent of RVs sold and 65 to 75 percent of revenue in the industry.
That means that Winnebago has been nearly absent from the largest and fastest-growing segment of the RV industry. So as Happe was coming into the company, Winnebago had less than 1 percent of the towables market share.
Key acquisition
A year ago, Winnebago paid $500 million for Grand Design, based in Middlebury, Indiana. Grand Design, which was founded only five years ago, had become one of the fastestgrowing companies in the RV industry.
The Grand Design acquisition increases the towables portion of Winnebago’s portfolio to more than one-third and improves the company’s profit margins.
The Grand Design acquisition also put Winnebago in the heart of the RV industry, which revolves around Elkhart, Indiana. Manufacturers clustered in and around Elkhart account for nearly 85 percent of the total RV production in the U.S.
In September, at the Open House trade show in Elkhart, Winnebago introduced several new products, including the Revel, a four-by-four RV designed to take outdoors enthusiasts deeper into the wilderness. Also displayed were the Horizon, a class A diesel motor home that brings new deluxe finishings to the class, and the Minnie Plus fifth-wheel, a new towable model. The Grand Design unit showed its latest Reflection unit, the 320 MKS, featuring a rear kitchen and large office area.
Geographical moves
With the Grand Design acquisition and Happe’s appointment, Winnebago has quickly stretched beyond Iowa in the past few years, adding manufacturing and service centers in Oregon and Indiana as well as the executive offices in Eden Prairie.
Happe said the proximity to the Minneapolis-St. Paul International Airport helps the team stay connected to all its facilities, plus suppliers and dealers.
The move to the Twin Cities also has helped the company recruit talent, including new Chief Financial Officer Bryan Hughes, who started in May.
Hughes is a longtime Ecolab executive who has 25 years in financial management roles at the St. Paul-based industrial manufacturing company.
Yet Happe and his team are no strangers to the twohour drive to the company’s Forest City, Iowa, anchor. He said he has added about 40,000 miles to his car since he started in January 2016.
“We’ve had zero discussions with our board of directors about whether the headquarters of the company should change formally,” he said. “The soul of the company is in Iowa.”
The location of Happe’s office doesn’t alone define the company headquarters, said Myles Shaver, professor at the Carlson School of Management at the University of Minnesota who has studied corporate headquarters strategies.
Where the CEO resides really raises the issue of how nuanced a corporate headquarters is. “It can be misleading just looking at the formal address,” Shaver said. “Most big companies have multiple headquarters.”
Moving forward
Winnebago last month released results for its fourth quarter ended Aug. 26 and its fiscal year.
The company exceeded analysts’ sales and earnings expectations, reporting annual revenue of $1.55 billion, a 59 percent increase from the previous fiscal year, and earnings of $71.3 million, or $2.32 per share. Analysts expected the company to report revenue of $1.53 billion, and a 33 percent increase in earnings to $2.23 per share.
The addition of Grand Design and the organic growth from Winnebago’s existing towables business boosted full-year revenue from the towables segment to $685.2 million, an increase of $595.8 million from fiscal 2016.
“Our contacts expect an even better year next year,” Kennison wrote in a research note before the release of year-end numbers. “Still, the industry is cyclical and eventually will correct — perhaps when the credit cycle peaks.”
There may be more acquisitions in Winnebago’s future.
“We will be careful. This is a cyclical business,” Happe said. “But we do believe that you can make smart investments using the balance sheet if needed to grow your company profitably.”
The industry is in year eight of an expansion, the longest in industry history. Stable macro economic trends including interest rates, availability of credit, stable fuel prices and the wealth effect have contributed to a positive outlook.
Those secular trends include more than baby boomers ready to retire, younger generations who are leading more active lifestyles, increased digital connectivity and people finding extended uses of their RVs beyond long road trips.
“This industry will always be susceptible to certain things beyond our control that could slow the industry down,” Happe said. “But every time it comes out of cycle it mostly rebounds to a new high; we think in the next 20 years it will be similar. More and more people will be attracted to the RV lifestyle.”