Cavco Industries Inc (CVCO) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Cavco Industries Incorporated first quarter fiscal year 2011 conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host today, Joe Stegmayer, President and CEO. Please begin.

Thank you, Shawn, and good morning everyone. First, I'm 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 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. The complete statement on the subject is included as part of Cavco's third quarter news release filed on Form 8-K yesterday and is also available on our website as well as through many other sources.

With me today is Dan Urness, our Chief Financial Officer. I'd like to begin by stating that it's certainly more pleasing to report to you this quarter. While our financial results are still not where we need to be, it is clear that our people have done an admirable job in a very difficult environment. During our last call in April, we indicated that we felt the industry had finally reached its trough. We also cautioned that we did not mean that the industry would exit the trough in calendar 2010, but simply that shipments of factory-built homes appeared to have stabilized, albeit at record low levels. While it's still early to tell if our assessment will prove correct, it is encouraging to note that following the slow start in January and February, industry shipments of homes built to the federal HUD code have shown consistent gains in March through June. The latest reported data indicate that shipments for the first six months of this year stand at 26,402 homes, compared with 24,395 homes in 2009, a year-to-date increase of 8.2%.

This of course is not a particularly high percentage increase, especially considering the low base from which it is calculated. However, the improvement may demonstrate some progress in several areas we have discussed in these calls previously. Namely, inventory levels in our distribution pipeline are declining, and so some retailers of manufactured homes -- that is, developers and planned community operators -- are beginning to order new homes to sell to consumers as opposed to selling from their existing inventories. Excess levels of new site built homes have shrunk and deep discounting by those builders has diminished, reducing the impact of that segment of competition. And thirdly, in some geographic areas, apartment vacancies have declined and rental rates have stabilized or increased, making manufactured home ownership a more attractive alternative to renting.

On the other side of the ledger are the challenges presented in the economy as a whole, including high unemployment and underemployment, and weak consumer confidence levels. Joining these are specific issues within the housing industry, the most significant of which is a shortage of mortgage financing. This void is particularly acute for factory built homes, because historically a large percentage, upwards of 60% of the homes our industry builds, are financed as personal property, and such loans are in very short supply. Our industry continues to work with the government sponsored agencies as well as with FHA to address the need to provide financing for truly affordable homes to consumers who demonstrate the ability to pay for them. Unfortunately, the GSEs are mired in problems with site built home loans and it's difficult to get them to focus on what is one of the most affordable forms of home ownership for moderate, low, and very low income households.

Looking to longer term, our optimism stems from several tangible facts including very favorable population demographics; the baby boom and echo boom generations, typically our largest markets, are growing fast; high quality innovative product line offering; and custom building capabilities that Cavco offers; a diverse geographic coverage, via our 10 factories, producing system built homes in many of the major markets; the Company's experience in operating in difficult environments; and finally, our strong financial position.

With that, Dan will now discuss the financial results and then we will take your questions. Dan?

Thank you, Joe. In reviewing the current quarter results, it should be noted that the comparisons are to the first quarter of the last fiscal year, which was a low point of quarterly results for the Company since becoming a publicly held entity seven years ago. It is also important to maintain the perspective that the prior year quarter results preceded the acquisition of the Fleetwood Homes factories, and the inclusion of their financial results in our financial statements.

For the first quarter of fiscal year 2011, net sales were $47.5 million, which was $33.9 million higher than net sales of $13.6 million in the same quarter last year. The increase was mainly from the Fleetwood Homes purchase. This quarter's sales were $11.2 million higher than the most recent quarter sequentially, driven by improved sales order volume and corresponding higher production levels. Order backlogs grew through April and May beyond the $5.4 million mark at March 31, 2010. However, we experienced a slowdown in order volume in June, possibly a result of the expiration of the Homebuyer Federal Tax Credit on April 30th. As a result, backlogs began declining in June and ended the quarter at $9 million, which is a 67% improvement from three months earlier.

There were 2,049 floor sales recorded this quarter, compared to 512 floors sold in the same prior year quarter, and compared to 1,600 floor sales during the recent March quarter. The average sales price per floor remained low at $22,459 this quarter, 11.3% lower than last year's comparable quarter average. The downward movement in the average floor price compared to last year is from the impact of Fleetwood Homes's operations, which produce a generally lower price point product than Cavco's traditional business as well as consumer trends towards smaller sized homes and fewer amenities.

Our gross profit percentage this quarter was 13.6%, compared to 0.7% in last year's first quarter and up from 8.8% sequentially. The increased gross margin is the result of higher production rates and the related benefits of improved manufacturing efficiencies. With respect to raw material costs generally, prices peaked during the quarter and began to decline toward the end of the quarter.

SG&A costs in Q1 of $5.2 million increased $2.8 million from last year's quarter, based on Fleetwood Homes related growth, but declined as a percentage of net sales to 11%, an improvement compared to 18.2% of net sales for the same quarter last year. The current quarter effective income tax rate is 38.6%. The Company currently has a $3.9 million income tax receivable on its balance sheet for federal tax loss carry-backs, which is expected to be received from the IRS in late 2010, after the federal tax return for the fiscal year ended March 31, 2010 is filed.

First quarter net income of $850,000 is compared to a net loss of $1.449 million in the first quarter of last fiscal year. The portion of the current quarter net income that relates to the noncontrolling interest owned by Third Avenue Value Fund is $332,000, as shown separately in the statement of operations. The net income attributable to Cavco shareholders was $518,000, which represents a diluted net income per share for the quarter of $0.08 versus a net loss per diluted share of $0.22 during the same quarter last year.

In comparing the balance sheet at June 30, 2010 to March 31, cash and cash equivalents were $75.6 million, slightly higher than the $75 million balance at 3/31/2010. The majority of the asset balances are relatively flat compared to March 31, with the exception of inventory financed notes receivables, which grew approximately $4.4 million this quarter to $17.3 million in connection with floorplan financing demand from our independent retailer base in all of our markets. The liability and stockholders' equity accounts are also consistent with March balances, except accrued liabilities, which increased primarily from higher payroll accruals of $1.4 million from the timing of payments and profit based bonuses and generally higher accrued balances overall.

In conclusion, the Company continues to carry no debt and was cash flow positive for the quarter. Joe?

Thank you, Dan. And Shawn, we'll now take any questions.

(Operator Instructions). Our first question comes from Michael Corelli with Barry Vogel and Associates.

Hi. Good morning.

Good morning, Michael.

Just a couple of questions. You talked about your backlog was $9 million at the end of the quarter. Is there any way of knowing how much of that backlog is tax credit related orders? Because I know there was a deadline of June 30th which has been extended.

No, Michael, there really isn't. We positioned the backlog. We don't really have an idea of the impact of tax credit orders prior to this, prior to the expiration of the tax credit. So there's no real good data on how many home sales have been generated by that act.

Okay. And how would you characterize the business currently versus last quarter? I mean, just trying to get a feel for how much of the improvement was really tax credit related versus if you're seeing any other real improvement in the business?

Well, as Dan indicated, we did see a slowdown in orders following the end of the -- towards the end of the quarter, and more recently, and so -- and our backlog has declined somewhat. So I -- we certainly can guess that the tax credit had some impact. It also -- you had the typical spring selling season and you had -- we typically see some improvement anyway in any given year after people file their tax returns and get some refunds. So combination of those things -- typically that quarter tends to be a stronger period for us, those months, but we don't really know going forward what the lack of that tax credit will do. We do have some concerns about the immediate term outlook because of the decline in incoming order rates, but we're holding our own.

Is it fair to say the backlog has continued to decline here in the second quarter?

I think that's a fair statement, yes.

Okay. And as far as capital expenditures, how should we be looking at that for this year?

About $500,000 a quarter, Michael, is a reasonable number.

Okay. All right. Great. Thanks a lot.

You bet.

Our next question comes from Howard Flinker with Flinker & Co.

Hi, Joe.

How are you?

Good, how are you, Joe?

Good.

How big is your NOL? Or was it -- I forget the details of the acquisition. Was it an asset purchase or was there some aspect of the NOL that you could -- where you could capitalize?

The former. It was an asset purchase, so we did not obtain any tax losses.

Okay.

So what Dan was referring to I think in his comments where you may be getting confused is the losses we had to use, Cavco.

Is that $3.9 million found in current deferred income taxes?

No, it's not. It's actually -- because it's a receivable, it's in the prepaid and other line item on the balance sheet.

Oh, prepaid and other. Okay. Great. And finally, when you made the acquisition, do I recollect properly that you basically bought it for working capital?

Well, we bought it basically for -- at a discount to -- what we felt was a discount to the asset values themselves, the fixed asset values. So we feel we bought the facilities at a very attractive price. And, yes, we did -- we bought existing work in process and inventory as well, of course. But the real value I think we obtained was to get the dealer base, the distribution base that we had, their good name, that sort of thing. We really did not pay any goodwill as such for any of that. That was the attractive part of the deal.

You say you paid a discount from what you thought the plant and equipment were worth or whatever plant and equipment you did take?

Right, kind of in our opinion. We feel what we felt the value of those units for us -- yes, we felt we got a very attractive price.

Okay. That's all I wanted to know.

Okay.

Thanks, guys.

Thanks, Howard.

You're welcome.

(Operator Instructions). I'm not showing any other questions in the queue at this time.

Okay, Shawn. I'll take that as an indication everybody's very pleased with our results and -- well, we thank you for joining us and we look forward to talk to you next quarter. In the meantime, feel free to call us if there's any follow-up questions. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.