Cavco Industries Inc (CVCO) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Cavco Industries first quarter fiscal year 2013 earnings call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host for today, Mr. Joseph Stegmayer, Chairman and CEO. Sir, you may begin.

Thank you Mary and welcome everyone. I'm going to ask Dan Urness, our Vice President and Chief Financial Officer, to begin the call and we will go over some financial information, some general information and then take your questions. Dan?

Thank you Joe.

First, we are obligated 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 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 more complete statement on this subject is included as part of Cavco's news release filed yesterday and found on Form 8-K and available on our website, as well as through many other sources.

Net sales for the first quarter of fiscal 2013 were $119 million compared to $99 million during the same quarter last year, an increase of 20%. The increase is primarily from the timing of the Palm Harbor transaction during the same quarter last year, with a closing date of April 23, 2011. The prior-year quarterly results include only 75% of the quarter's activity for Palm Harbor Homes. The Company sold 2,239 homes during the first fiscal quarter, up 21% compared to 1,851 homes in the prior-year quarter. Included in net sales this quarter was revenue of $10 million from our financial services segment.

Consolidated gross profit as a percentage of net sales this quarter was approximately 20.3% versus 16.3% in last year's Q1. The percentage increase arose mainly from the retail and finance businesses obtained in the Palm Harbor transaction, which had inherently higher gross margins and the timing of the Palm Harbor purchase last year. Higher home sales enabled us to benefit somewhat from product overhead leverage in our manufacturing business that produced homes at a capacity utilization rate of approximately 40% this quarter. Partially offsetting these benefits was a larger proportion of lower price point homes and product mix.

Quarterly selling, general, and administrative expenses were $20 million, an increase of $3 million compared to $17 million in Q1 last year. Greater leverage of fixed costs reduced SG&A to 16.8% of net sales this quarter, down 0.4% from 17.2% during the same quarter last year. Other income was primarily comprised of interest earned from inventory financed notes receivable.

Net income attributable to capital stockholders in the first quarter of fiscal 2013 was $860,000, compared to last year's first quarter net income of $10.2 million, with diluted earnings per share of $0.12 versus $1.48 last year. Net income attributable to capital stockholders last year included one-half of the bargain purchase gain recognized, consistent with Cavco's ownership percentage of Palm Harbor.

At June 30, 2012, order backlogs stood at approximately $20 million which is fairly consistent with the backlog this time last year. Comparing the balance sheets for June 30, 2012 to March 31, 2012, cash was up approximately $6 million primarily from operating profits and a lower inventory balance at the end of the quarter, as our plan to reduce home inventory levels at each Company-owned location was completed.

Consumer loans receivable and associated securitized financings were both lower, in connection with ongoing runoff of the underlying securitization loan portfolios. Construction lending lines were lower from reduced utilization as a finance subsidiary has increased the use of internal funds for construction lending needs during the loan origination process. And finally, retained earnings grew by Cavco's (inaudible) portion of net income.

Joe?

Thanks Dan.

We are pleased again we remained profitable for the quarter as we have all through this past two years; they been very tough for the industry. It's encouraging to see shipment increases for the industry in total that's now carried for 11 consecutive months shipment increases versus the prior year comparable month. For 2012 year-to-date, industry production now totals 27,715 homes, up nearly 20% from cumulative industry production of 23,152 homes for the same period in 2011. We continue to see strength in states such as Texas, Louisiana, Alabama, and as we have mentioned in the previous call, North Dakota has basically come out of nowhere to be among the top 10 states for manufactured housing shipments in the country, largely driven, of course, by the oil and petroleum boom going on in that state.

We have mentioned before that our business is really dependent upon job growth and consumer confidence. It was good to see in this morning's news that job growth was 163,000 for the month of June, much higher than was expected by most analysts. And that's after three straight months of less than 100,000 jobs per month. These are good signs if they continue. There's some economists that state that job weaknesses largely due to a company's willingness to hire until after the US presidential election in November.

If they are right, probably employment gains will stay weak for some more months and then pick up again. In any case, we are glad to see job growth and that will be key to seeing buyers coming back to the housing market, particularly, manufactured housing. People simply won't buy a home or not consider buying a home if they don't have a job or if they are underemployed and they are not making enough money to qualify.

Secondly, consumer confidence is largely driven for those who are [gainfully] employed by the price of gas and the stock market. We're certainly seeing some relief in the price of gas across the country, and that trend seems to have some ability to continue. We're not sure about the stock market of course, but one might ask how does that affect our buyers? Well, we have many buyers who are in the 55-plus category and they are either empty nesters, considering retirement, or are in the process of retiring. These folks have 401(K)s, personal investment portfolios, and if they are not confident about the stock market or about their 401(K), or even about Social Security, they might hesitate to make a home purchase or a second home purchase for winter living in destination areas such as Florida, Arizona, California, and so on.

Well, these folks are and continue to move slowly to make those purchasing decisions. We think again they will eventually choose a new lifestyle in a planned community for 55-plus age group where they can have activities. They have generally very nice amenities, and they will move out of their older site-built home. But that's not going to happen until what I just mentioned occurs, and in fact, they have a better opportunity to sell their existing site-built home. That, too, seems to be improving. The pricing on home sales in general has been increasing so perhaps these folks will be in a better position to sell their existing home, let's say in the Midwest, get a more appropriate price, or more of a price they feel is more appropriate for it and move to Sun Belt area.

All this has been [hampered] and slowed in recent years by these uncertainties. Housing starts rose nearly 7% in June which is another good sign, in line with our manufactured housing shipment increases. So we do think there is a lack of inventory out there, and it's been reduced dramatically in recent years, including this past year. So if consumers start to come back to look at buying houses, retailers, developers, and community operators will have to buy homes to fulfill those these. They will have the opportunity to sell from inventories they have in these past years. So once again, we think things are aligned properly. We just need help from the economy. What can we do in the meantime as we try to work on the things we can control? And that [thickens] the things we have worked on, we have told you about in past calls.

We will work on gaining market share, getting shelf space among the retail distribution, work on new home designs, price points, introducing a variety of price points to meet different needs and different geographic areas in the country. Things like Aging-In-Place, we are designing new homes for people who are senior and want a home that's fully capable -- when they're fairly capable to live in but as they age it's a more -- easier lifestyle for them. Some of the statistics are pretty impressive for the opportunities in this particular market. A lot of sick seniors presently lives alone, either widowed or single and 38% of seniors over the age of 78 years of age live alone that have grandchildren come to visit them frequently.

And 35% of Americans over the age of 68 rely mostly on Social Security payments for income and the average monthly Social Security benefit for a retired worker in 2011 was $1,177 per month. So this is a prime candidate, this group, are prime candidates for manufactured housing. It's affordable, it's energy-efficient, it is low maintenance, and we have designed units that make it easy for them to live in as they grow older and perhaps less capable. Such things as the light switches being at the proper height; electrical receptacles being higher up so they don't have too bend down as much; countertops being at certain levels; bathrooms to accommodate people who need assistance with walking, with walkers; larger hallways and doors; these are things that we have done over the past couple of years to address that market. That's one example of how we try to adapt to capture different markets that are developing in housing.

We're very pleased, too, that we can continue to strengthen our balance sheet. As Dan mentioned, we did generate cash for the quarter. Our cash position was higher at the end of this quarter than it was last, and we expect cash to continue to increase as our earnings grow. So we have a strong balance sheet, a lot of flexibility; we have opportunities to continue to work on and improve our most recent acquisitions performance which we are doing. So we feel pretty good about where we are. We can't do much about the economy, but we think we're certainly in a position to take advantage of any improvement in that economy in the months and years ahead.

I think with that, we will be happy to take any of your questions. So Mary, if you would like to bring those on. One last comment I would like to make, Mary, before we begin is that for those of you listening, either on the call or on the website, we will be in New York, Dan and I, in September 11, 12, 13 to be exact. If anyone on this call would like to meet with capital management during that time period in New York City, please contact us. Mary, please open it up for questions.

(Operator Instructions)

Greg Cole, Sidoti.

How much further do you think single units can go as a portion of your sales? I mean, do you see that continuing to make up a larger portion?

Greg, it may well. It really, again, depends on the economy. The single sections have been driven -- single-section increases have been driven by a couple factors. One, of course, is the economy, people buying less house, the house they can afford; single sections by nature are generally somewhat smaller in square footage so therefore less cost. They are easier to deliver and to install at the consumer site, so there's less expense in that portion of the equation.

The second reason, of course, is that some of the single sections, driven by the activity in North Dakota, where the oilfield housing is often done in single section format. But it's primarily the former reason that single sections are increasing. So if the economy remains in the condition that it is now, we probably will see continued emphasis on single-section homes. Perhaps not increasing so much as maintaining this 50/50 relationship, which is somewhat unusual for us. And then as the economy improves, and the financing picture improves in general, including more availability of financing, better appraisal process, I think the multi-section homes willing increase and probably will get to a slightly higher weighting of multi-sections to single sections.

Okay; and are gross margins pretty much similar on single section versus multi-section?

They can be. However, I hesitate because, again, in this economic environment, if people are buying a very basic home for their shelter, they are not going to buy the larger home or the home with more amenities. And so, by nature then, the margin is going to be somewhat lower. A multi-section buyer might have a little bit more to work with, and might put more amenities in the home. So both models, I would tell you -- single section and multi-section -- are both challenged by this economy. That is, both product lines are generally smaller than they have typically been, with less amenities. But I would say probably the shortest answer to your question -- they are generally similar. The single section might have slightly lower margin, typically, than the multi-section.

Okay; and were there any spikes in either direction from Financial Services? When you see insurance subsidiary, do they do much better or worse than any of the previous quarters?

They are pretty consistent. They fluctuate based on claims activity and premium growth, but all in all, those two subsidiaries we have that operate in our Finance segment have been fairly consistent. So the ups and downs between the two have been offsetting, so segments have been pretty consistent. We don't break those two subsidiaries out separately, as you are aware.

Right. Okay. And do you know how much -- do you know when the Standard Casualty should have its call reports online? When do those need to be filed?

They have a statutory reporting deadline that occur in the middle of the summer. The other regulatory reporting deadlines we would have to check on.

Okay. All right. And CapEx was pretty small this quarter. Are you expecting this to meaningfully increase throughout the year? Or is this a good level?

Well, we are anticipating that it will be a little bit higher than this throughout the year. I would say about $1.5 million a year in CapEx, on a maintenance, a little below depreciation.

(Operator Instructions)

Howard Flinker, Flinker & Company.

How much was your interest or investment income in the quarter?

Our investment income for the quarter was $395,000, if you are referring to our investment in inventory financed for wholesale home buyers.

On the abbreviated version of your quarterly statement, Other Income -- I see it, I was reading the wrong line. I saw a zero; the $395,000; I misread the lines. All right. And remind me of what the seasonality is? Are your second and third quarters your strongest? Or your first and second quarters your seasonally strongest?

Our fourth quarter historically has been our strongest. It does change somewhat in recent years because of these acquisitions, and we are more geographically diverse. The fourth quarter used to be fairly significant to us, because in the Southwest markets, it would have, in addition to the normal spring selling season, you would also have the winter visitors coming in, and buying homes, either second homes or retirement homes.

That has been mitigated somewhat, as I said, by the fact that we are in so many other states now, with the Fleetwood and Palm Harbor acquisitions. So I would say we don't have a strong bias for one quarter seasonality over the other at this point.

So roughly equal all four quarters give or take?

With the exception of the December quarter, where things tail off, typically.

Thank you.

(Operator Instructions)

I show no further questions at this time and would like to turn the conference back to Mr. Joseph Stegmayer for closing remarks.

Thanks, Mary.

We really appreciate you joining. We will be, as I say, in New York here in about a month, and would be happy to meet with any of you folks who are up in that area. If you choose to, please call either Dan or me. And we appreciate you being on the call and we look forward to talking with you once again. If you have any follow-up questions, feel free to call us. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.