Cavco Industries Inc (CVCO) 2010 Q1 法說會逐字稿

Good day everyone and welcome to the Cavco Industries, Inc. first-quarter fiscal year 2010 earnings call and webcast. This call is being recorded. With us today from the Company is Chairman and Chief Executive Officer, Joseph Stegmayer. Please go ahead, sir.

Good morning everyone. With me today is Dan Urness, our Vice President and Chief Financial Officer.

First, of course, I am obliged to mention that we speak today under the umbrella of the Safe Harbor rules. Certain comments we will make are forward-looking statements within the meaning of a number of security acts. Cavco specifically disclaims any obligation to update any forward-looking statements, and investors should not place any reliance on any such forward-looking statements.

The complete statement on this subject is included as part of Cavco's third-quarter news release filed on Form F yesterday and is available on our website, as well as through many other sources.

We mentioned during the last conference call that we do not perceive significant improvement in the industry in the months ahead. Unfortunately, the industry experienced virtually no improvement. This is clearly demonstrated in the nationwide shipments of manufactured homes for the January through May period, which were down 45% compared to the first five months of calendar 2008. The percent change has been in the negative 45% range consistently for each month of the year to date.

For Arizona industrywide shipment were down 62% from the comparable five months of 2008. California shipments were down 55% from last year.

So while we can take pride in our people and the competitiveness of our product lines, both of which performed well, we are all disappointed in the results of the first quarter.

Mortgage financing continues to be a big challenge for homebuyers. The availability of mortgage loans is tight. Underwriting is more complicated and takes much longer than normal. And appraisals are an obstacle because of more stringent standards and the falling prices of comparable sales.

When the banks decide to lend again, and when the investor appetite for loan securitization improves, sales of our homes will increase. In fact, the affordability of systems built homes should prove to be an attractive alternative and what is expected to be a more fiscally responsible and value conscious environment in the years ahead.

Meanwhile in the face of these market conditions we have been able to increase our homes' shelf space among home retailers. And indications are that our marketshare is growing. While this is not particularly impactful today because of slow retail sales, it bodes well for us as consumers begin to shop for and buy homes again.

The housing industry, including the factory-built segment, is in an inventory liquidation phase. Although progress is slow, the levels of homes in retail inventories continue to decline, which is a very good sign.

The manufactured housing industry has also experienced a gradual rationalization of production capacity. This does result in some pricing aggressiveness and instability temporarily as factories phaseout. However, the closings should help to increase plant utilization in the future.

I would like to turn it now to Dan Urness, who will cover some of the numbers for the first quarter.

Cavco's net sales for the first quarter of fiscal year 2010 were down 62% to $13.6 million from the prior year's Q1 net sales of $35.5 million, on a 60% decline in floors sold. The average selling price per floor was also lower at $25,324 versus $26,441 last year, a 4.2% decrease.

The Company's gross profit margin for Q1 2010 was less than 1% of net sales versus 12% for the first quarter of last year. The margin decrease occurred mainly from production inefficiencies that are inherent in these low production levels, as well as labor inefficiencies and minor asset write-downs relating to the move of our specialty products operation to a nearby factory that had excess capacity.

The move has gone smoothly overall, and there has been no disruption of service to our specialty home products customers.

Average capacity utilization at Cavco's factories during the quarter was apparently 25%. Our backlog of wholesale home orders was approximately one week at June 30, 2009, a slight improvement compared to the start of the quarter, which began with minimal backlog.

Selling, general and administrative expenses for the quarter were $2.5 million, which was $600,000 lower than last year's first-quarter SG&A of $3.1 million. However, as a percentage of our reduced net sales level SG&A was 18.2% in Q1 versus 8.7% in Q1 '09.

Interest income was lower by $276,000, mainly the result of generally lower interest rates from the Company's primary investment in US Treasury money market funds during the first quarter.

The current quarter income tax benefit is a result of current quarter operating losses. The Company currently has a $2.6 million tax receivable on its balance sheet for federal taxable loss carrybacks. The first-quarter net loss of $1,449,000 compares to net income of $853,000 for the same quarter in fiscal 2009.

The diluted net loss per share for the quarter is $0.22 versus net income per diluted share of $0.13 last year.

In comparing the balance sheet at June 30, 2009 to March 31, 2009, strong liquidity was maintained during this difficult quarter, although cash and short-term investments are down $2.9 million to $72.1 million compared to $75 million at 3/31/09.

Trade receivables are flat compared to 3/31/09 as well. Inventory is lower by approximately $600,000, mainly from reduced sales activity. PP&E is relatively flat compared to the prior year amounts. Trade payables and accrued liabilities are also lower with reduced operations.

The Company carries no debt, and maintains stockholders equity of $146.6 million.

As Dan indicated, our financial condition remains strong. We use it to develop new product offerings and to support our retail distributors. Our liquidity also enables Cavco to consider many opportunities for expansion and growth.

Currently we are actively pursuing one such possibility. As reported in our press release yesterday, we have submitted a bid for seven operating factories owned by Fleetwood Enterprises Inc. The Fleetwood Homes division of the company has been an important part of the manufactured housing industry for decades, and is the second largest participant based on the most recently published rankings.

While we are not able to predict if our bid will be successful, we are prepared to work with the fine Fleetwood people at these operations to achieve long-term growth and stability.

We will also continue to look at other opportunities for growth. And with that, we would be glad to take any questions.

(Operator Instructions). Paul Nouri, Noble Equity.

Concerning the Fleetwood transaction, I know it would be a separate joint venture, but would you be manufacturing Cavco homes out of these factories or would it strictly be Fleetwood?

We are buying the -- in our bid we have offered to buy the Fleetwood brand names, trade names and trademarks, so we will be producing Fleetwood homes out of these factories.

Okay. Concerning working with retailers, has a lot of the floorplan financing been pulled out already, or is it gradual and you're going to have to work with them as the lenders are sort of reducing the availability of credit?

Could you explain that question once again?

I guess I was just wondering the significance of -- I guess, last year Textron announced that they were pulling back their floorplan lending. And I was wondering if they totally went through with that, or if they were doing it over a period of months or quarters, and how you guys manage that?

Okay, thank you. I understand. Textron did gave a notice period, but it has since expired, and they are completely out of the floorplan lending business. They're basically just managing their existing portfolio, but they're not making any more inventory financed loans to this industry.

How we manage that, well again, we have worked with our retailers. We have established partnerships with several other floorplan lenders, whereby they are offering special programs to retailers of Cavco homes. And we support some of those programs with some capital to various degrees. And you will see that commitment of ours increasing over time if floorplan lending does not return from other outside sources.

We don't expect, by the way that there will be any new floorplan lenders entering the market in the near term. We certainly expect it would happen one day, but we don't expect, for example, it to happen this year. So our floorplan -- our internal partnerships with floorplan companies will be an important part, and a big advantage, I might add, for as in the marketplace, because retailers need inventory financing. Very few retailers can afford to buy all their inventory outright. And some do have other bank sources. We sell a lot of customers that have their own bank lines. But there are many dealers who rely on these floorplan finance companies.

I think investors and some people in general are getting a little excited, because the stock market has picked up a little. And I am wondering if you have seen any recent -- the past 30 to 60 days, any recent pickup in orders or if it has been business as usual over the past quarter or two, nothing much has changed?

Well, we have seen some improvement. We have to be a little cautious because we are not exactly sure why yet. And it is not significant improvement, but it is modest improvement in terms of incoming orders. So things are looking a little better. We think the months ahead will be somewhat better than the months we have just left.

However, some of this can be just the fact that retailers have depleted inventories and now that a customer comes to them to buy a home they actually need to order one, as opposed to selling one out of inventory. That could be part of the reason we are seeing some increase.

It could be other reasons. It could be that lending is improving a little bit. It could be that consumers are shopping more. We hear various reports, but all of them are anecdotal. We hear that traffic is up in some areas. But we also understand that a lot of customers are having difficulty obtaining the loan, obtaining the credit they need to buy the homes.

So it is kind of a mixed bag, the reports we get. Certainly industry shipments don't suggest that business has improved. But they are lagging, of course, we only have them through May. June's will come out soon. We don't expect those numbers to improve dramatically, but we do see some improvement. I will leave it at that.

All right. Thank you.

Paul Nouri, Noble Equity.

I am done asking questions. Thank you.

Dax Vlassis, Gates Capital Management.

Can you tell me the production capacity of the seven facilities that you're bidding on?

We can give you an idea that most -- a general rule of thumb for most manufactured housing factories is that they can produce about 1,000 homes per year, depending on product mix and so forth. And that is generally the case here.

Can you explain the rationale for bringing Third Avenue in on this? It seems like there is quite a bit of cash on the balance sheet right now, and I am just wondering what else they bring to the table besides just capital. Are they currently creditors in the Fleetwood bankruptcy and they are going to contribute some knowledge of the bankruptcy process, or can you help me out a little bit reason why you would have an investment company as a 50% partner?

No, they are not involved in the Fleetwood bankruptcy at all. We think that it is a prudent approach. We do have a strong balance sheet, as you mentioned, and we utilize some of that balance sheet funds for this project. But by bringing in an investing partner it also brought quite a bit of flexibility.

Floorplan inventory financing will continue to be a challenge, as I mentioned a minute ago. And so we want to preserve capital and have it available to inventory finance our distributors. And we don't know how long that might continue, but we have to be prepared for it to continue for some time, given the current state of financial markets.

So this provides the opportunity to leave our balance sheet in very pristine condition, and at the same time provide capital in the Fleetwood Home subsidiary for Fleetwood to also offer a floorplan to its distributors, which has been a problem for them heretofore, because again the lack of floorplan lenders and their inability to provide capital to their dealer base.

Thanks, Joe.

Paul Carter, Point Defiance Capital Management.

Hi, just back to the Fleetwood facilities, are they all operating now?

The seven we have bid on are all operating, yes.

At what capacity are they operating at relative to the ones that you have now?

They are basically operating at the same kind of levels as we are, and probably the industry is in general. So there is substantial capacity utilization available.

Great. Should you not be successful at auction next week, do you have an immediate backup plan for that cash?

Well, we don't feel we need to do anything immediately, but, yes, we are always looking at other -- and have to look at other opportunities as well, and have several projects that we have been looking at. This is at the top of the list right now. We don't feel though compelled to -- if we are not successful here, to have to do something the next day. But, yes, we have other plans and other operations we have been taking a look at.

Great. Sorry, maybe I missed it, but are you still anticipating somewhere in the neighborhood of $10 million or so for floorplan financing?

That is the correct guesstimate, I guess you might say, for this year. It is hard to tell; it depends if business picks up. It could be at the upper end of that range. If business doesn't, it would probably wouldn't reach that level. But we think that is a good estimate at this point in time.

Great. Finally, CapEx, you are still expecting that to be minimal for the year?

That's correct.

(Operator Instructions). Jay McCanless, FTN Equity.

What is going to see, Joe, if you could give us a timeline on the potential Fleetwood deal, what dates we should be looking for, and if you are the successful bidder when we will know about it?

As of now, the dates that we are aware of are August 8 for submission of bids by other parties. And then August 12 would be the actual hearing in the court to approve whoever the successful bidder is. Those dates are subject to change at the court's discretion, but those are the dates we have at present.

If you all end up being the successful bidder, would it be a fairly fast transfer of the assets from Fleetwood to Cavco?

That is the debtor's intent, yes, that they would have a fairly fast closing schedule, and we would take over the business in fairly short order.

With the closing of the plant in Phoenix, is there going to be any charge next quarter that we need to be looking for?

No, there will not be any charge. We did -- as Dan indicated, we did suffer some cost this quarter as a result of that move, but there will be no charges going forward that we foresee. And, in fact, we obviously expect to get some efficiencies in the quarters ahead as a result of doing this.

If you gave it, I apologize, but how much in the way of charges did you incur this quarter to close specialty?

The charges we took this quarter were in the form of, A., inefficiencies -- labor and moving. And then we had some small asset and inventory write-downs, but they were under $250,000 this quarter.

Great. Thanks guys. I appreciate it.

(Operator Instructions). You have no further questions at this time. Mr. Stegmayer, I will turn the call back over to you for any additional or closing remarks.

Thank you all for joining us today. We look forward to speaking with you again. And if you have any follow-up questions, feel free to call us. Thank you very much.

Once again, this does conclude today's conference. Thank you for joining us.