Cavco Industries Inc (CVCO) 2008 Q4 法說會逐字稿

Good day everyone. Welcome to the Cavco Industries fourth quarter fiscal year 2008 earnings call and webcast. Today's call is being recorded. With us today from the Company is the Chairman and Chief Executive Officer, Joseph Stegmayer and the Chief Financial Officer, Dan Urness.

At this time, I would like to turn the call over to Joseph Stegmayer. Please go ahead, sir.

Thank you and welcome everyone to Cavco's first quarter conference call. Dan Urness, our Chief Financial Officer is with me here and before we begin, of course, we have to remind you that certain statements we will make on this call, either in our remarks or in responses, to questions may not be historical in nature and therefore generally considered forward-looking. All of the statements and comments are made within the context of the Safe Harbor rules, which we choose to take advantage of. All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. Our actual results or performance may differ materially from anticipated results or performance. Cavco expressly disclaims any obligation to update any forward-looking statements made in this call and investors should not place any reliance on any such forward-looking statements. With that I would like to turn it over to Dan as our Chief Financial Officer to cover financials and I will come back and make some other comments before we take your questions. Thank you.

Thank you, Joe. Net sales for the fourth quarter for fiscal year 2008 were $34.2 million, which is essentially flat compared to last year's fourth quarter net sales of $33.8 million. This quarter's results were characterized by improved shipment levels and a lower average wholesale sales price per home. Cavco shipped 876 homes in the fiscal fourth quarter compared to 746 homes during the same quarter last year, a shipment increase of 17%. This shipment increase was mostly offset by a 14% reduction in the average wholesale sales price per home during the further fourth quarter, which was approximately $37,500 versus $43,500 per unit for the same prior year period.

The Company's gross profit margin continues to be challenged by low wholesale sales activity. The gross profit margin for Q4 '08 was $4.8 million or 14% of net sales versus $5.3 million or 15.7% of net sales for the fourth quarter last year. Selling, general and administrative expenses for the quarter were also comparable to last year's fourth quarter at $3.4 million. As a percentage of net sales, SG&A was 9.9% in Q4 '08 versus 10.1% in Q4 '07. Interest income was lower by $138,000, primarily the result of lower interest rates and the Company's more conservative cash investment strategy. The income tax provision for Q4 '08 was approximately 31% compared to 30% for Q4 '07. Fiscal '08 fourth quarter income continuing operations was $1.3 million or $0.20 per diluted share, compared to $1.8 million or $0.27 per diluted share last year.

From a balance sheet standpoint, our cash and cash equivalents balance was $73.6 million on March 31st, 2008, compared to a $63.9 million combined balance of cash, cash equivalents and short-term investments on March 31, 2007. During the fourth quarter of fiscal '08, Cavco's liquid assets were positioned primarily into low risk U.S. treasury and money market funds. The Company's trade receivables were moderately higher compared today the beginning of the fiscal year and inventories are lower compared to March 31, 2007, as we have now adjusted to the lower level of sales. And Cavco continues to have no short or long-term debt. Joe.

Thank you, Dan. The business environment certainly remains quite challenging. Manufactured housing shipments for calendar 2007 ended up being about where we estimated on our January conference call at just under 96,000 units, down 19% from '06. Shipments for the first calendar quarter were of 2008, which coincides with our fourth fiscal quarter, were just reported this morning, a total of 20,763 homes were shipped for the three month period, down 3% from the prior year. The declines for the two states in which we do the most business, Arizona and California, although not reported yet, will certainly be significantly below the national decline probably down in the neighborhood of 35%. The New Mexico market is actually up year to year, and shipments in Texas which we recently began to anticipate are also on the upswing.

Despite all of the issues, the very tight and -- very tight mortgage lending environment and uncertain capital market, the weak existing home resale market which delays people's ability to make a housing change to a new factory-built home and the very low consumer confidence levels we are seeing today, we continue to operate solidly in the black and generate positive cash flow. Expect the next several months will be very tough. We are more optimistic than we have been for some time about the medium to longer-term outlook. Arizona has a large young population base and a large aging baby boomer population base as well, which are two demographics that are very important markets to us. First time and first move up home buyers and people looking to make a life style change as they become empty nesters or as they consider retirement are, as I say, two critical markets and very good historical markets for our Company.

With respect to the former, these people need homes in which to raise families. And while the mortgage markets will make this difficult for them near term, eventually there will be a stabilization whereby they will be able to purchase and finance a truly affordable home, not a home that's too high priced for them as they have done in recent years by buying more expensive type built homes with unusual or reckless financing. With respect to the active adult and retiree market, these folks can certainly put off a change in their life style, but they have often committed to make a change and hopefully will want their newer home with more practical features in a lifestyle setting they enjoy. So they will delay, but they will eventually make the change and that's been an important market for us. We will continue to work aggressively to prosper in these tough times and to position Cavco for the ability to benefit significantly as housing and general economic conditions improve. We have good product offerings. We're in good, long term markets. And we have very strong financial position, as Dan indicated, to rely on, both to withstand this environment and to look at expansion potential to position for even stronger growth in the years ahead. With that, we will be happy to take any questions.

Thank you. (OPERATOR INSTRUCTIONS) First to David Wells with Avondale Partners.

Good morning. Thanks for taking my questions. First off, if you could just give a little more color on what were the drivers for the unit upside in the quarter?

Sure, David. A couple of things. We have had good success in the larger size orders for housing development that have panned out pretty well for us in recent months. I think that helped us somewhat. We have also, as we indicated, improved our market share slightly. We have gained some shelf space among retailers in our distribution pipeline. So, as Dan indicated, although our price point was down somewhat, we are seeing -- we are creating, I think some additional markets in a more affordable price point. So David, it is not really coming -- we can't point any one contract or any one market. It is pretty much across the board. Even though California is challenged, we've had some successes there in certain areas with certain products. And we have gained -- we have actually picked up some new distribution in California, even though it is a challenging time, but same could be said of Arizona and, for that matter, New Mexico. So it is pretty much spread across the board.

Okay. So in terms of looking at the rest of 2008, is some of that momentum sustainable or is it too uncertain at this point to tell?

Some of it is, some of it is hard to predict because in our development business, for example, there might be an initial push to put up model homes and some initial sales and then it might taper off somewhat. On the other hand, if that development catches on well, we could see a continuation. So it is hard to forecast. But we feel, we feel reasonably good about the next couple of months and being able to maintain, not really increase, but being able to maintain these sorts of levels.

Okay. In terms of the pricing decline, if you could give any additional color there that would be helpful?

Well, I think, David it is really a function of the entire housing market, people are moving to go more affordable price point to be able to get financed and to buy a home. So, that is part of it. Part of it is our product mix. We had a higher percentage of single section units, primarily because of our park model business, which did relatively better than our traditional HUD code and modular business did. So that by nature is a lower price point product. So that also has an impact.

All right. And then kind of last question, I don't know if you provide this, but your capacity utilization in the quarter, where did that stand?

We were at 60% for the quarter.

And has that changed at all into the quarter?

No, it was fairly constant throughout.

All right. Great. Thank you very much.

Okay, David.

We go next to Michael Corelli with Barry Vogel & Associates.

Hi. I have a couple of questions. First can you tell us what the backlog is?

Sure can. Our backlog is about $2.5 million currently.

Okay. And Joe, from your commentary, it sounds like you haven't seen anything more recently that's any different from the data we have been getting on a lag basis?

That's correct, Michael. I don't think there's any up trend that would indicate a change from what we've just seen in even the most recent announcement's shipment.

Okay. And just a question about the taxes, what were your cash taxes in the past year versus the book taxes?

Well, our cash tax rate for the year hovered around 5%. Our effective tax rate for the year was right around 30.

Okay. And what should we expect for the coming year?

That's going to be a function of a couple different things. It will depend largely on the investment choices for our cash and the portion of investment income compared to earnings from operations. And if we remain with our taxable investment options, then that will apply upward pressure compared to fiscal '07.

Okay. And any thoughts on the cash uses? Obviously, it's a good problem to have with this significant cash balance, but as it keeps building here, probably people, investors would like to see the Company maybe do something positive with that cash. Any you thoughts?

Well, we would certainly like to do something positive, if positive means finding a good investment to make and primarily in, as we have said before, in our existing business, we don't intend to stray far afield from what we presently do, factory-built buildings. We will continue to look at geographic expansion and some product line expansion possibilities. But frankly, Michael, we feel good that we have not done anything in recent times, because obviously it would be struggling to just keep more factories at these low levels of utilization. So it has turned out to be really a good thing that we are in the position we are now. It doesn't, doesn't mean we will be hesitant to make an investment in the right situation, but frankly, it is difficult to pull that trigger right now, given the state of the market and the question you just previously asked, which is that we are not any signs of any change, any pick up in the near term.

Sure. Any thoughts about a dividend, considering -- I mean even under these very difficult market conditions, you continue to generate cash, so obviously, you have good sustainable cash generating business with an excellent cash balance.

Well, I'm not sure really how to answer that. We'll always consider that. We don't have any immediate plans for dividends. That's something that's discussed at the board level and I really can't give you any answer on their thinking today.

And then just lastly, any thoughts on CapEx for the new year?

Well, it will remain relatively with our -- what we call maintenance capital expenditures, which are going to remain about $150,000 a quarter. No significant capital projects in the works right now.

Okay. Thank you.

Thank you, Michael.

(OPERATOR INSTRUCTIONS) And we will go next Jay McCanless with FTN Midwest.

Hey, good morning.

Good day.

The first question I have is on the income statement, just wanted to figure out whether the roughly 3.2% increase in cost of goods sold over last year versus roughly a 1% increase in sales, was that a function of more units or was that a function of more units and increased prices on your materials and such?

I am glad you asked that question, Jay, because that's something we probably should have commented on, material prices. We have seen an increase in material prices. It seems counterintuitive as obviously residential construction is down significantly, but we are still seeing price increase in most commodities. There are a few we haven't, but by in large, everything from gypsum to carpets to vinyl products to windows, anything frankly with steel and metal in it in higher. Anything that's Petrochemical related we have seen increases in. So yes, part of that is inflation in raw materials. We've had -- we have increased selling prices to compensate for some of these cost increases, but of course there's a little bit of a lag in getting those selling prices through versus the cost increases we take. I would say that's the, that's the primary reason for that change.

Okay. And then wanted to touch on something you had discussed in the prepared comments about larger units or multi-unit sales to certain operators. Is that more of park models being sold campgrounds or is that actual HUD units going into retirement properties, can you give a little more color there?

Sure. It is actually both. You are right in that it's -- our park model does a lot of work with campgrounds and planned community operators who operate senior or age-restricted communities. And that business has been fairly good this season. The season is slowing down now, but we had a good season there. And then, yes we have been successful in getting some traditional homes, HUD codes and, to a smaller extent, modular homes in development and we have worked on a number of these developments. These are usually long-term projects and you work on them for sometimes years and some of them are just starting to come to fruition. Of course, the challenge will be how many sales they get in those communities, but even that fact that, as they kick them off and start them, that helps us at least for the time being.

Okay. And then looking at the Texas plant, where does that stand now? I know you are producing units out of there. Have you reached a full run rate at that plant yet and is it profitable? Can you give us some more color there?

No, we are not nearly to full run rate. We have a lot of room to grow that business. We are -- while we don't disclose individual plant activity or performance, I would say that -- we can certainly tell you that we feel very good that we have crossed the breakeven point in the fourth quarter and we expect going forward that operation, barring any significant change in that market, we'd expect that operation to operate profitably for fiscal '09.

Okay. And then my last question is distribution, are you seeing increasing distribution points, increasing distribution points. What is going on with your distribution at all of our different markets, park and HUD et cetera?

I would say it is fairly stable. Yes, we have seen some operations close or scale back, some operations moving back to one lot. We haven't seen a lot of that. Most of that has been done, as you well know, in the past. So the good thing is inventories are in very good shape for most of our distribution pipeline. It is not to say that some distributors, some retailers or developers don't have some aging product because they do. The way sales drop so precipitously. But fortunately they don't have a lot of it. And so while retailers are hurting many of them in terms of their performance versus even last year, they generally indicate that they have the wherewithal to withstand the slowdown and make the adjustments they need to make. We will probably see more closures in retail. I am talking about on a macro basis and Cavco will certainly could see some of that as well. But we don't expect wholesale closings of distribution at this point. We think the distributors who have remained in place are pretty strong operators and we will see them scale back perhaps a little bit on inventory, but we don't expect, as I say, a major debacle there.

Okay. Great. Thank you, guys.

Okay, Jay.

It appears we have no further questions at this time. I would like to turn the call back to our speakers for any additional or closing remark.

We thank you folks for joining us. We look forward to continuing to communicate with you in the months ahead and on next quarter's conference call, as we work through this very difficult environment, but we think we will be able to maintain our profitable stance and we're thankful for that. So thank you for calling in. We will talk to you again soon.

Thank you. Once again that does conclude today's call. We do appreciate your participation and you may disconnect at this time.