Cavco Industries Inc (CVCO) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cavco Industries Inc. fourth quarter 2010 (Operator Instructions). Mr. Joseph Stegmayer. Please go ahead.

Thank you, welcome everyone. With me today of course is Dan Urness, Cavco's Vice President and Chief Financial Officer. And first I am obligated to mention that we speak today under the umbrella of the Safe Harbor rules. Certain comments we'll make are forward-looking statements within the meaning of a number of the 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. We have a complete statement on this subject included as part of Cavco's fourth quarter news release and as filed in form 8-K yesterday, which is available on our web site as well as through many other sources. I'd like to start off by letting Dan go through the numbers of the performance for the fourth quarter, then I'll come back and make some comments and we'll take your questions.

Thank you, Joe. For the final quarter of Fiscal Year 2010, net sales were $36.3 million, 146% higher than net sale of $14.7 million in the same quarter last year. And within $100,000 of net sales in the third fiscal quarter sequentially. The fourth quarter fiscal 2010 results include the Fleetwood Homes operations which, as previously reported, were acquired during the second quarter of Fiscal Year 2010. There were 1,600 floor sales recorded this quarter, and 188% increase over the same quarter in the prior year. And a 2% increase over the December quarter sequentially.

The average sale price per floor continued to decline to an average of $22,075 this quarter, 9% lower than last year's comparable quarter average. And 2% lower than the most recent quarter's average sales price per floor. The downward movement in the average floor price compared to last year is from the impact of Fleetwood Homes operations, which produce a generally lower price point home than Cavco's traditional business, as well as consumer trends towards smaller sized homes with fewer amenities. The reduction in average sales price for the most recent quarter demonstrates how home demand continues to be concentrated on lower price point products. Our gross profit percentage this quarter was 8.8% compared to 1.6% last year, and is down slightly from 9.0% sequentially.

Increases in raw materials costs have pressured margins further this quarter. The backlog of wholesale homeowners at all factories combined was approximately $5.4 million at March 31, 2010. SG&A costs in Q4 of $4.8 million increased $2.6 million over last year's quarter from the addition of the Fleetwood Homes operations. The however, these expenses declined to 13.1% of net sales compared to 14.3% for the same quarter last year. Comparing to the most recent quarter, SG&A costs are lower by $200,000 or 0.5% of net sales.

The current quarter and full year income tax benefit is the result of quarterly tax losses which we expect to largely utilize as NOL carrybacks on our next IRS tax return. The Company currently has a $3.9 million income tax receivable on its balance sheet for federal tax loss carrybacks. Separately, $2.2 million was received during the fourth quarter for NOL carrybacks pertaining to the prior Fiscal Year's tax return.

The fourth quarter net loss is $954,000, compared to $1,023,000 in the fourth quarter of fiscal 2009. The portion of the current quarter net loss that relates the noncontrolling interest owned by Third Avenue Value Fund is $225,000 as shown separately on the P&L. The net loss attributable to Cavco stockholders was $729,000, which represents a diluted net loss per share for the quarter of $0.11 versus$0.16 last year. For the full Fiscal Year, the net loss is $3.4 million, or $0.52 per diluted share. In comparing the balance sheet at March 31, 2010, to March 31, 2009, cash and short-term investments were $75 million at March 31, 2010, which reflects no change from the reported amount one year earlier.

The majority of the other balance sheet amounts are all higher compared to the beginning of the Fiscal Year as a result of Fleetwood Homes acquisition during Q2. In conclusion, the Company continues to carry no debt consistent with its preacquisition capitalization structure. Joe?

Thank you, Dan. Not a quarter we're happy with. However, on a relative basis to the general economy and our industry specifically, we did okay. For those of you who have followed the industry, you are most likely familiar with its overall performance in recent years. Calendar 2009 produced the lowest level of manufactured housing shipments, 50,000, since statistics have been kept beginning in 1959. This followed the previous lowest level, 82,000 homes, shipped in 2008. In fact for the past seven years, 2003 to 2009, each year's shipments have been less than the home shipments for every single year for the 40 years from 1963 to 2002. Look at the longer range time periods, for the past 20 years home shipments have averaged 214,000 homes annually.

Even for the past 10 years they averaged 137,000 homes per year. I say this because we believe that industry has finally hit its trough. That is not to say that calendar year 2010 will show improvement in manufactured home building. Activity could be flat to down once again. Indeed home shipments for January and February 2010 were lower than the prior year. We're still facing three major challenges. One, the lack of mortgage financing, two, high unemployment rates and considerable under employment, and three, very weak consumer confidence. Some ancillary issues that are also of concern are excess new home inventories in our dealer pipelines, and competition from site-built foreclosures. We certainly have no real feel for when and to what extent we'll see improvement in the primary challenges I just mentioned.

As for the secondary ones, we think that new home inventories from all our distributors are heading in the right direction, downward. And site-built foreclosures of homes at price points that are truly competitive with factory-built are expected to decline as the year progresses. More significant, perhaps, and certainly what gives us reason to be increasingly optimistic about Cavco's future are the outlook for the data points on US housing and how we are positioning the company to participate in any improving trends.

According to the analyst reports and the economists we've been reading, US housing is showing more evidence it is on a path to recovery. Vacancy rates peaked more than one year ago, prices have stabilized since spring of 2009, existing home sales have moved above five million per year, and early stage mortgage delinquencies are declining. Yes, there is an excess supply of housing, but because housing starts are only running at 575,000 per year the market is absorbing the excess homes.

Some believe that housing production will begin to increase in early 2011. One could even speculate that manufactured housing could be on the early side of positive trends for two viable reasons. One is that our homes are more affordably priced, and two is that there are many sites already prepared to accept factory-built homes. Our macro picture, household formation is estimated to increase as the adult population rises because of the large growth in the 25 to 34-year-old population bracket, the so called Echo Boomers. And the 55-year-old and older population is the fastest growing segment. These two demographics have long been the largest markets for our homes. The young generation are attracted by the affordability, diversity of style, and flexibility as to location of their home.

The 55 plus population is certainly interested in the value proposition. However, they are also motivated by the low maintenance requirements of factory-built homes and by the lifestyle of many age-restricted planned communities that are designed specifically for manufactured housing. Cavco's historical presence has been in the Southwest market area. Although Arizona, California and several surrounding states have been particularly affected by the housing downturn they still offer excellent long-term opportunities. Meanwhile, with the acquisition of Fleetwood Home factories last August, as Dan mentioned, we have greatly expanded Cavco's geographic presence and product offerings.

We are now involved in the Northwest, South, Southeast, mid-Atlantic and Central regions of the country. We have positioned Cavco as an innovative, flexible builder of high quality homes, homes that we can offer at great values because of the depth of experience of our people (inaudible) to home building and a very cost efficient organization structure..

We expect this year will present plenty of challenges. However, we are confident that we are prepared to deal with them. Furthermore, we are ready to capitalize on any improvement we see in the general economy and the housing environment in particular with the way we've positioned our business. Before we take your questions, it's a privilege for us to announce that Cavco industries was recently elected Manufacturer of the Year, a recognition given to us by our peers in the Manufacturing Housing Institute, our industry's trade association. This honor has been earned by the consistent excellent efforts of our 1300 people as well as through the support of our customers and suppliers. And we're very pleased to have received it.

With that, we'll be happy to take your questions.

(Operator Instructions.) Our first question comes from Michael Corelli from Barry Vogel & Associates. Your line is open.

Good afternoon. Good morning. Did you give the backlog?

Good morning, Michael. I don't believe we mentioned a backlog.

Okay.

I'm sorry. Dan says he did mention it.

We did. The backlog, Michael, is at March 31, $5.4 million.

Okay. Now, what was it the prior quarter?

The prior quarter was about half of that number, $2.7 million.

Okay. And Joe, is there anything you're seeing in financing that would be any changes going on whether it be wholesale or retail in the industry at this point?

Michael, not really. I think from a retail standpoint it's very tight still for consumers. It takes a long time for them to get loans. Nothing has really changed significantly on the mortgage financing side. The industry is still trying to work with the GSEs to promote greater use of Fanny and Freddie and the FHA programs for manufactured housing. But so far we're meeting with pretty limited success. Although there're some indications that FHA in particular is moving forward with initiatives on the personal property lending for manufactured housing and improving those programs.

With respect to wholesale financing, no, things have not gotten any better in terms of no one has entered the industry. As you well know, Textron Financial exited about a year ago now. And we still have General Electric, 21st Mortgage, and we have a partnership also with those folks as well as Triad Financial and several other organizations that we're trying to promote wholesale financing for our dealers. And that's worked very well, in fact. Our ability to participate with lenders and offer some capital to provide lending to our distribution base has been a competitive advantage for us.

Okay. Thank you.

You bet.

(Operator Instructions) . Our next question comes from Howie Flinker from Flinker & Co.

Hi Joe.

Howie, how are you?

Good, you?

Good thanks.

I think it was a very timely acquisition. Very contrarily timely acquisition.

Thank you.

You're welcome. I've got a few questions about taxes. How come your tax credit was so low? Tax benefit?

When you say low, do you mean 34% effective rate? Or how do you mean --

Yeah. I thought maybe you could use more of the NOL of Fleetwood. Is that not eligible?

Well, it's not eligible as far as a carryback goes. Because we don't have any prior history with Fleetwood operation. But it is eligible for a carry forward.

Oh, I see. You can't carry it back. How big is that NOL? It's got to be pretty large at Fleetwood. Something that you could use --?

Well, the other clarification is we bought assets of Fleetwood, not the Company. It wasn't an acquisition, it was a purchase of assets.

Oh. So you have no benefit of their NOL.

That's correct.

Oh. I thought that you got some. That takes care of my questions about taxes. I was hoping that somehow you could gain the benefit, I guess, but if you'd have done that you'd have also had to absorb the liabilities.

And they were significant.

Sure.

And so we feel that yes, it would be nice to have those NOLs but we're much better off having done an asset purchase. We got those assets very clean at attractive values. And really with very limited and selective liabilities that we assumed.

And I forget. Please refresh me. What percentage of Fleetwood does Third Avenue own?

Third avenue has 50% ownership.

50%. Okay. That's it. Thanks.

Thank you.

(Operator Instructions) I see a conference participant requesting as a followup question. Will you allow it?

Sure.

From Michael Corelli from Barry Vogel & Associates, your line is open.

Joe, you mentioned in the press release something about sporadic improvement in sales activity. Could you just talk a little bit more about that?

Yes. Michael, as the backlog indicates, we're seeing some improvement in orders particularly east of the Mississippi, in those markets. The markets in the Southwest and the Northwest are still fairly difficult. As all markets are, but particularly back further east, in the South. We've seen some improvement in weather patterns. I don't think it's enough yet to shout about. But as we indicated, we're watching these trends closely and we're ready to move on them. I think it's a combination probably of declining inventories, hopefully some spring selling season.

There is we believe true pent-up demand. I know that's sometimes an overused cliche. But a lot of buyers have been holding off for a variety of reasons. It's hard to tell what triggers some purchasing. But certainly the improvement in the capital markets for the 55 and older buyers where they see their 401Ks and so forth improve. That can give them some confidence. We think there are a number of factors could be playing into it. But again we're not ready to declare a big upturn yet. It's very modest.

Okay. Thank you.

There are no further questions in the queue. Please continue.

Well, we appreciate those of you who joined the call, via this teleconference or via the Internet. And we look forward to speaking with you again in three months. If there are any followup questions feel free to call us here at Cavco. We appreciate your time and attention, and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program.