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Fleetwood Reports Second Quarter Fiscal 2007 Results for RV Group

RV Group Results

The RV Group incurred an operating loss of $14.9 million for the quarter on revenues of $364.6 million, compared with an operating loss of $0.7 million on revenues of $393.5 million for the same quarter of the prior year. In the first six months of fiscal 2007, the Group reported an operating loss of $28.2 million on revenues of $735.8 million, versus an operating loss of $5.8 million on revenues of $816.7 million in the comparable period last year. Group operating results were impacted by a 7 percent decline in sales in the motor home division and a combination of significantly lower volume and more competitive pricing in the travel trailer division. Production efficiencies for travel trailers were negatively impacted by a more complex mix of products built in the quarter compared to the large number of emergency living units very efficiently produced last year.

The motor home division incurred an operating loss of $1.1 million in the second quarter, compared with operating income of $2.9 million in fiscal 2006, and the travel trailer division's operating loss increased to $14.4 million from $3.8 million in the prior year period. Operating income for the folding trailer division improved to $0.6 million from $0.3 million.

"We are optimistic that if recent positive trends in fuel prices, interest rates, and consumer confidence extend into spring, motor home sales will recover next year. This is true particularly for Fleetwood, as we believe our product offering is now among the best in the industry," Smith said. "Recently, the more affordable and fuel efficient motor home segments have been relatively strong, and we have not been adequately represented. We are adding products to address these categories, and will have lower-cost Class C units ready for the spring selling season. We will also introduce more fuel-efficient models and lower-cost Class A units mid-year. Overall travel trailer division sales were down 13 percent, but, excluding FEMA unit revenues of $30 million last year, sales of travel trailers to dealers actually increased by 17 percent this year. Our travel trailer retail market share has modestly improved in recent months after a lengthy period of decline, and our own dealer inventory statistics indicate that our shelf space at dealer lots has improved as well. The travel trailer division is undertaking a plant and product rationalization initiative that is intended to capitalize on this progress and generate greater production efficiencies by the fourth fiscal quarter. The folding trailer operation is responding well to our decentralized structure, and its sales, market share and operating income have been improving in recent quarters.

"Enthusiasm was apparent at last week's national RV trade show in Louisville, Kentucky," Smith continued. "Most of the dealers we spoke to seem to think that conditions are in place for a good selling season in 2007, particularly in motor homes. We don't expect dealers to take on much additional inventory at this time of the year, especially given higher floorplan interest rates than in recent years. We do believe, however, that our products are positioned to perform well in the coming season. We were especially pleased with the reaction to our Class A motor homes, our new more affordably priced Class Cs and our lightweight travel trailers."

"We continue to make significant changes to improve Fleetwood's operations, balance sheet and future financial results," Smith said. "We believe our cost-cutting initiatives, combined with improvements in the way we develop, manufacture, and service our products, position us well for improved performance. While we are optimistic about the prospects in all of our businesses, the winter months are typically a very slow period for the RV and housing industries.

This seasonality is aggravated by the current environment of discounting by competitors, especially in travel trailers and manufactured housing. Accordingly, we expect operating results in the third quarter to be weaker than in the just completed quarter. Last year's third quarter results were enhanced significantly by volume and efficiencies from the sale of a large number of emergency living units in both the Housing Group and the travel trailer division, so comparisons will not be meaningful. Looking into our fourth quarter and beyond, we believe that our ongoing corporate revitalization, continued focus on products and customers in both of our industries, improved travel trailer efficiencies, and excellent consumer demographics will enable us to post consistently better results."

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