Cavco Industries Inc (CVCO) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to the Cavco Industries fourth-quarter fiscal year 2009 earnings conference call and webcast. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Chairman and Chief Executive Officer, Mr. Joseph Stegmayer.

Welcome, folks, to our fourth-quarter conference call. I must begin today by noting that we speak under the umbrella of the Safe Harbor rules. And that certain comments we will make are forward-looking statements within the meaning of a number of the securities acts.

Cavco disclaims any obligation to update any forward-looking statements, and investors should not place any reliance on any such forward-looking statements. A complete statement on this subject is included as part of Cavco's third -- fourth-quarter news release filed on Form 8-K yesterday, and available on our website, as well as through many other sources.

With me today is Dan Urness, our Chief Financial Officer, and Dan will begin by reviewing the results of the quarter.

Thank you, Joe. Cavco's net sales for the final quarter of fiscal year 2009 were down 57%, to $14.7 million, from the prior year's Q4 net sales of $34.2 million. On a 58% decline in floors sold.

The average selling price per floor was also lower at $24,126, versus $24,984 last year, a 3.4% decrease.

The Company's gross profit margin for Q4 '09 was 1.6% of net sales, versus 14% of net sales for the fourth quarter of last year. The margin decrease is principally from lower production efficiencies, the result of current production levels.

Our backlog of home orders was under one week throughout the quarter and was no better at March 31, 2009.

We continue to reduce our selling, general, and administrative expenses for the quarter to $2.1 million, which was $1.3 million lower than last year's fourth quarter SG&A of $3.4 million.

As a percentage of our reduced net sales level, SG&A was 14.3% in Q4 '09, versus 9.9% in Q4 '08.

Interest income was lower by $433,000, mainly the result of generally lower interest rates from the Company's primary investment in U.S. treasury market -- money market funds during the fourth quarter.

The current quarter and full-year income tax benefit is the result of adjusting for excess tax expense in prior quarters, plus an upward adjustment from updating the effect of reversal rates within the deferred tax asset and liability balances.

The fourth-quarter net loss of $1.023 million compares to net income of $1.3 million for the same quarter in fiscal 2008.

The diluted net loss per share for the quarter is $0.16, versus net income per diluted share of $0.20 last year.

Fiscal 2009 net income is $458,000, compared to $6.3 million in fiscal 2008. Diluted earnings per share for the year is $0.07 versus $0.95 last year.

In comparing the balance sheet at March 31, 2009, to March 31, 2008, strong liquidity was maintained during this difficult year, with cash and short-term investments up $1.4 million to just over $75 million, compared to last year's balance of $73.6 million.

Our short-term investment balance consists of CDs, each with individual bank balances in amounts under the current FDIC limits to ensure security.

Trade receivables are down approximately $3.9 million compared to the beginning of the fiscal year, the result of lower sales volume. Inventory is lower by approximately $2 million, also from reduced production activity. The reduction is spread among each of the inventory categories -- raw materials, work in process, and finished goods.

Prepaid expenses and other current assets are up $2.3 million compared to last year's balance, primarily from a federal income tax carryback receivable balance.

PP&E is relatively flat compared to the prior year. Trade payables are $1.4 million lower from slow purchasing activity incident to sales. Accrued liabilities are down by $[40.3] million, mainly the result of a $1.4 million reduction in salary, wage, and benefit accruals, and a $1.1 million drop in customer deposits.

The warranty and volume rebate accruals are also lower by approximately $700,000 each. Joe?

The fourth-quarter results reflect the continued decline in home shipments to the entire industry. For the January-to-March period, nationwide shipments were down 45%, compared to the first three months of calendar 2008.

For Arizona and California, manufactured home shipments were off more than 55% from the previous year. In Texas and New Mexico, our next largest markets, industry shipments fared par or better; however, they were still considerably below the prior-year period.

Home retailers and developers indicate that traffic has improved somewhat in recent months, but they also report that consumers are very cautious about making a buying decision. The $8,000 tax credit provided by the American Recovery and Reinvestment Act of 2009 has generated some interest among first-time homebuyers, generally defined as those who have not purchased a residence during the prior three-year period, and the use of this program is expected to increase in the months ahead, particularly if people regain confidence in the health of the overall economy and their own job stability.

All order activity is slow. We are experiencing a reduction in inventory in the distribution pipeline as retailers make a concerted effort to lower overhead expenses and increase inventory turnover. While this inventory reduction phase heightens the challenge of obtaining orders for our factories, it also brings us closer to the time when a home sold at retail will meet an order to build one.

We mentioned in our last quarter's conference call that the inventory lending environment was changing with the exit of Textron Financial Corporation, and a general tightening of credit standards by the remaining floorplan lenders. While the true impact of reduced foreign capacity is not being realized, because of the slow sales activity, financing inventory could be an increasing problem in the future, if another lender or lenders do not enter the market.

Unfortunately, for the months ahead, we do not perceive significant improvement in our industry. In fact, we expect there will be more closings of manufacturing and retail operations. This will result in temporary disruption of the pricing environment for our homes, but longer term, rationalizing capacity to more realistic demand expectations should be beneficial.

As Dan just reviewed, Cavco's financial condition is strong, and our liquidity provides us with great flexibility. We will continue to use this strength as one of several tools to help us maintain and attract good distributors, increase market share, and pursue suitable opportunities for expansion and growth.

While the current results are not pleasing, we believe that we are positioned very well for long-term success in an industry that should benefit from more responsible mortgage financing, population growth in our markets, favorable demographics, and changing consumer interests.

And with that, Dustin, we'll now take the callers' questions.

(Operator Instructions). [Michael Carelli, Berry, Vogel & Associates.]

Just a couple of questions. First, as far as the floorplan situation is concerned, are you considering using your balance sheet at all to get involved in any ventures or to provide floorplan lending at all to help yourself to gain some shelf space during this period of shortage of that financing?

As a matter of fact, we are. And we are already in the process of doing that. It's very minimal at this point, but we are prepared, through partnerships with several inventory lenders, to participate with them in lending to Cavco retailers and distributors.

When would you expect that to have an impact, or is it having an impact already?

I think it's very having a very positive impact from a marketing standpoint. Our distributors, retailers, across the spectrum, are very pleased that we are providing that support for them.

We are also seeing interest from non-capital retailers in doing business with us, because the floorplan is available. There are some manufacturers who don't have the wherewithal to get involved in the floorplan industry, and so I think that will provide some advantage to, as you say, increase shelf space and perhaps market share.

As far as traffic, I'd heard also from another company that that was -- had some improvements recently. I guess it's -- I know you mentioned the tax credit for first-time homebuyers is obviously a positive. There's also been the increase in the FHA loan limits. Do you think that that's having any impact at this point?

We don't think that the increase in the FHA loan limits for home-only lending has had a significant impact yet. But we think it will, as the year goes on, and more banks are utilizing that program.

We are seeing some signs, as I mentioned, and as you have heard, retailers indicate that traffic is up somewhat. We also hear that retailers are able to move some of their older inventory, so this will clear the pipeline somewhat, as I mentioned, for future orders.

We have a lot of projects that we're working on. But they seem to move very, very slowly, either because of slow financing issues for the developers, or because of general caution, or any number of other typical reasons, zoning and so forth. But the projects seem to be moving unusually slow.

But we do have a lot of -- a number of projects working that could benefit us later in the year.

Okay. And then, as far as taxes, how should we look at that going forward? If you had losses, would you be booking a credit against those losses?

I'll turn that over to Dan.

Sure. We would -- if we did have losses in any future quarter, we would record a [LL] carryforward at the 38% rate.

Okay. Any thoughts on CapEx for this year?

It should be very minimal. We don't have any projects planned at this point. Our plants are in very good shape. And I don't see anything more than the typical maintenance CapEx. Certainly, we don't expect it to be above our depreciation level.

And then, just lastly, the backlog. Is there any backlog at this point, or is it pretty much just minimal?

I think, as Dan indicated in his comments, it's minimal. There is -- it depends on the plant, but suffice it to say that it's less than a week overall.

Okay. Thanks a lot.

Jay McCanless, FTN Midwest Securities Corp..

Good morning, everyone. Wanted to ask if the decrease in gross margin year over year, if that had anything to do with these new floorplan arrangements that you all are entering, or if that was simply volume-driven.

No, it did not. That's really volume-driven, and the impact -- the negative impact on margins, of course, are several things. But the inefficiencies in the plant on -- when we run at very low volume levels, favors inefficient factory overhead, obviously -- as factory expenses are less efficient, indirect labor's less efficient.

So there's a number of factors that contribute to that. There's some issue of pricing in there, that is it's a very price-competitive environment now, and so certain orders are low margin to begin with. And then, on top of that, the issues I just mentioned. But the floorplan has not been a factor.

Do you believe that there is going to be any effect on gross margin because of any of these sales -- I mean, are any of the contracts that you're entering into going forward, where potentially you all may provide extra funds up front for floorplan or anything like that?

We don't expect that the floorplan will be an expense item. That is, it will not decrease our gross margin.

There is an issue of revenue recognition, which I'll let Dan explain.

When we provide financing, or a significant portion of the capital for a dealer's purchase of one of our homes, we would defer recognizing the revenue until such time as all the components of that sale were complete, which would typically include the final retail sale through to the ultimate customer.

Okay. And are the ones that you set up already, are most of these already presold units, or are you doing some that are stock units?

It's mostly presold. Most dealers right now are not stock units. But in some cases, where we are picking up market share, we are picking up shelf space, there are stock units.

In other words, a dealer might say, yes, I am interested in starting to carry the Cavco line, and I'll replace -- sell off some other inventory and gradually replace it with Cavco. So there's a modest amount of stock; most of it is for customer sold business because, again, dealers are trying to reduce inventories.

Besides 21st, I think has been most vocal about offering these new floorplan arrangements. Are you seeing any new lenders potentially getting into the space, or people who may have been on the consumer side before now wanting to do floor plan?

Not yet. We've heard talk, and we've heard people -- that people are looking at it, but we have not had any solid indication that there is anyone really seriously considering entering the floorplan business.

And we -- not that we have all the information, but that's just what we have heard or have not heard. So -- and I don't, frankly, hold out any great hope.

My personal opinion, that we will see a lender enter the floorplan business in the short term. I think, over time, it should attract some attention.

But short term, I think the banks and lending institutions have a lot of other things on their plate, and I just don't see this as a high priority for them. Again, that's just my opinion.

Last question. Did you all repurchase any shares in the fourth quarter?

No, we did not.

Did not. Okay. And that authorization is still outstanding, correct? The prior authorization?

It is.

Great. Thanks, guys.

(Operator Instructions) Dax Vlassis, Gates Capital.

My first question is how much are you getting back from the government with this tax carryback? How much cash do you think you will get?

We anticipate about $2.3 million. And that will be incident to the filing of our next tax return for the fiscal year that just concluded.

So maybe get that later this year?

Yes, we are going to file that as soon as we can.

And then, have you -- Joe, have you guys thought about, as far as some sort of idea of what the ultimate amount that you'd be willing to use of the cash on your balance sheet for the floorplan financing sort of arrangement?

We have some ideas where that could go. I'm not prepared to share all our details there, but I think, in the near term, that number is not going to be substantial. I think ultimately it could be in the $10 million to $10 million-plus range.

Depending on how the industry goes and whether any other floorplan lenders do come in or don't, it possibly could go higher. Our existing disclosed floorplan contingent liability is about --

It's about $19 million is our contingent liability right now, outstanding.

So that gives you some flavor for the amount of floorplan that is currently being used. Obviously, if business increases, that would increase as well. We would not expect to have to do all the floorplan, of course, but that's why I say $10 million is probably a conservative, on the high side, kind of number for this year.

Got you. And the pricing environment, it sounds like it's pretty weak out there with people going out of business. Has that gotten worse as the quarter has gone on, and are you seeing continuation of that now?

The pricing environment has not gotten worse. It's, I guess, what you'd call stable.

It's just that, as you say, there are some manufacturers that are closing plants, and some actually have gone out of business completely. That inventory generally -- what little inventory they might have, that's usually not too much, [ask] get absorbed.

The more significant factor, of course, is the fact that retailers are trying to move inventory, including some retailers that might be exiting the business. And so, in a move to move that inventory, they can often heavily discount their display models and their spec homes that are out on site locations. And that disrupts the market.

I think once we get through some of that -- there's also the possibility of repurchases on the part of the floorplan lenders. That is, if a dealer defaults and the floorplan lender or the manufacturer has to repurchase the homes, those homes have to get re-marketed. There has been some of that going on.

Could be possibly more of that, but on the other hand, I think the inventory liquidation phase will be slowing down, so that might mitigate the repurchase impact somewhat.

I guess, overall, we'd expect the pricing environment to continue to be somewhat challenging in the months ahead, but I don't think -- we don't, at this point, see it to be increasingly so.

Got you. And then, my last question, do you have any plans contemplated for your manufacturing capacity? How do you feel about the footprint right now, and -- are you going to do anything more on the manufacturing side to mitigate some of the losses that we are seeing from the business? Thanks.

Yes, we will look at all possible avenues to adjust our expenses and our production to current levels of demand.

As you probably heard with other companies that didn't have to make these decisions, there's a number of factors you have to consider. But we have had plans on the table for some time, contingency plans, in the event of this continued slowdown.

And we may well look backward -- we're studying a plan right now to look at consolidating two of our plants here in Phoenix. To one. Of course, we have three plants here in this area, so that would -- if we pursue that, that would take us down to two plants as opposed to three in this area.

We have one large plant here in town that has actually two production lines. So we have -- fortunately, we have the flexibility to consolidate one of our smaller plants into the larger plant, with really no issues at all.

And that would -- the reason we would do that, obviously, is to reduce overall overhead expenses in gaining some inefficiencies, and to keep our people working full weeks. So that's a plan that we are looking at very seriously and could well implement this quarter.

Is there any significant closing costs with that, if you decided to consolidate facilities in the area?

No, we don't anticipate that. Again, we will look at that in the analysis, but we do not anticipate any impairment costs or any significant charges for moving out.

Because it's really -- it's not a shutdown of a facility. It's just taking that production and moving it over to another facility. So, unlike some operations you've heard about, where they have to shut down a plant, you have a lot of expenses that continue to go on.

Here, we are continuing to business as normal. We are just consolidating the production line. So it's no different, really, than slowing down an individual plant.

Thanks a lot.

At this time, there appear to be no further questions. I'd like to turn the conference back over to Mr. Stegmayer for any additional or closing comments.

We appreciate your being on the call. We, again, expect to do whatever we need to do to mitigate the challenges in this current environment.

We feel very good about where we are positioned. Notwithstanding the challenges, we feel that we will come out of this as a stronger and better Company. And we appreciate your support. Thanks for joining us today. Have a good day.

That does conclude today's conference call. Thank you for your participation.