Cavco Industries Inc (CVCO) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cavco Industries, Inc. second-quarter fiscal year 2016 earnings call webcast. (Operator Instructions). As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Joe Stegmayer, Chairman and CEO. Sir, you may begin.

Thank you, Torea, and good morning, everyone, good afternoon. We are pleased to speak to you today about our second-quarter results and we will begin with Dan Urness, our Chief Financial Officer, covering those results.

Good day, everyone. Before we begin we respectfully remind you that certain statements made on this call, either in our remarks or in our responses to questions, may not be historical in nature and therefore are considered forward-looking. All statements and comments today are made within the context of Safe Harbor rules.

All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. Our actual results or performance may differ materially from anticipated results or performance.

Cavco disclaims any obligation to update any forward-looking statements made on this call and investors should not place any reliance on this. More complete information on this subject is included as part of our earnings release filed yesterday and is available on our website and from other sources.

Reporting on the financial results this quarter, net revenue for the second fiscal quarter was $192 million, up 38% compared to $139 million during the second quarter of fiscal year 2015. The increase was from higher sales volume from core or existing operations and a full quarter of home sales activity from the new factory operations purchased during the first quarter of fiscal 2016.

Consolidated gross profit in the second fiscal quarter as a percentage of net revenue was 20.6%, down from 22.7% in last year's second fiscal quarter. The decline was largely from lower gross margin homes sold during the quarter within normal product mix fluctuations.

Selling, general and administrative expenses in the fiscal 2016 second quarter as a percentage of net revenue was 13.8% compared to 16.0% during the same quarter last year. The improvement was from SG&A utilization on higher sales volumes in the quarter.

The effective income tax rate for the second fiscal quarter was 35.4% compared to 37.2% from last year's second quarter. The lower effective tax rate was positively impacted by adjustments arising from manufacturing specific deductions.

Net income for the second fiscal quarter of 2016 was $8.1 million compared to net income of $5.5 million reported in the same quarter of the prior year. Net income per diluted share for the second quarter was $0.89 versus $0.61 during last year's second fiscal quarter.

Comparing the balance sheets for September 26, 2015 to March 28, 2015, cash was approximately $93 million at the end of the second fiscal quarter compared to approximately $97 million six months earlier. The decrease was primarily from cash paid on acquisitions completed during that period partially offset by net income and cash provided by operating activities.

Most of the balance sheet account increases are mainly from the new factory transactions last quarter. Commercial loans receivable also grew from additional inventory for planned lending activities during the period.

Finally, stockholders' equity grew to approximately $335 million as of September 26, 2015, up nearly $15 million from the March 28, 2015 balance. Joe, that completes the financial report.

Thank you, Dan. There are a few observations we would offer today. One is that the new home sales in the US have been positive so far over the past year. Although September's new home sales were down compared with August they were up slightly 2% from the prior year.

The number of new homes sold in the US priced $400,000 and above has increased 25% over the past year. However, the pace of new homes sold under $400,000 has dropped almost 11% during the same period. We believe this is likely due to the greater challenges facing lower income households in obtaining mortgage financing and the fact that conventional builders are focusing on higher value, higher margin new home segments.

Also development and construction costs put downward pressure on the profitability of on-site homebuilders, making the economics of lower-priced product much more difficult for them. The median value of a new single-family detached home in the US is up 13.5% September 2015 compared with just one year ago. Obviously new home prices are far outpacing inflation.

Apartment rents are increasing. More millennials are entering the peak home buying age group. And at just over 500,000 new home sales annually, including about 68,000 manufactured homes, the industry is operating well below its 50-year average.

Building homes in a controlled environment, as is our business model, enables more effective use of raw materials, better and more efficient quality control, more favorable conditions for employees and other advantages all of which ultimately create a better value for the consumer.

This is not to say that there are not challenges, primarily job growth and full-time gainful employment being among them. So is consumer confidence. And there will certainly be seasonal swings in our business.

Overall, however, we remain optimistic the demand can continue to increase in the coming years, that we are well positioned to benefit from such growth and are investing in our business accordingly. With that we will be glad to take any questions, Torea.

(Operator Instructions). Daniel Moore, CJS Securities.

Joe and Dan, wondering if you are willing to provide any additional color on how much of the improvement year-over-year in revenue and in cash generation you saw was from the acquired businesses of Fairmont and Chariot Eagle versus kind of your organic improvements.

Well, I think I would sum it up by saying that while the acquired operations certainly did contribute for the quarter, our what we might call legacy business, the units we had prior to those recent acquisitions, were up significantly from the prior year.

So I think we would have done well on our own, certainly the addition particularly of our Midwest operation, Fairmont Homes, certainly aided our improvement this quarter versus last year. I am not sure we can get more specific than that, Dan. But as I say, we would have had an excellent quarter without the acquisitions.

That is definitely helpful. And in terms of average selling price, the trends had been down a bit in terms of mix, ticked up again this quarter. Is there any pattern to be seen? Anything you are seeing that could drive improvement going forward? Is it still sort of a quarter-to-quarter phenomenon?

I think it is the latter. I think we will continue to see some fluctuations in average selling price depending. I would say generally speaking lower price point product still dominates. We are seeing some trend, modest trend of demand for more expensive larger units with more amenities.

But I am not saying it is a groundswell; I think it is been quite gradual. And the lower price point product for lower income individuals and people who are trying to qualify to get a mortgage are still predominant.

That is helpful. And switching gears a little bit. Financial Services operating or cash flow rebounded nicely after that challenging fiscal Q1. You know -- expectations as we move forward and what is sort of -- how should we think about the growth outlook in that piece of your business?

Right, good point, glad you brought that up. And to remind those of you who were not on the call last time who are not familiar with this, last quarter we did -- were impacted by the severe weather in that quarter in Texas. And as a result our insurance company, which insures manufactured homes, throughout that state and other states suffered inordinate losses.

And we did not see that this quarter. We saw much better claims expense in this current quarter we just reported. As a result the insurance part of our business did better -- as did our mortgage Company. We will still see fluctuations from time to time in that business; they are generally kind of one-time events that sometimes we'll have good quarters in claims and sometimes we won't.

But right now, for example, we have some claims in Houston, some of you might be -- might have read about some of the storm activity in the Houston area, but not nearly to the extent that we saw from the hail and rainstorms we saw in Texas earlier this year. So we don't expect nearly the impact.

But as we have mentioned before, the insurance business has been good long-term for us and even just in the four years we have owned it has done well. And I think we can handle the ups and downs of that business; overall it is a small part of our total operation.

The mortgage Company continues to do well and we are very proud of how that is performing. We continue to look for more sources of capital to provide personal property lending, [channel] lending because that securitization market still has not opened up to that product. But we still do a very good level of business in traditional land home mortgages where the home and -- the land is security for the loan and we are very active in that market.

Very helpful. And, Dan, it almost sounded apologetic regarding gross margins despite the really significant operating leverage you saw in the quarter. Talk about the levers you can pull and what are your sort of -- if there is not a goal directionally speaking what is the opportunity set for gross margins as we move forward?

Well, as Joe mentioned, we have got a fairly competitive environment that we are still operating in. The average sales prices still continue to be on the lower price point side, although we do see some increase in some demand growing for larger more amenitized homes. And I think that is where our largest potential is.

Certainly on the home side -- homebuilding side of the business, and certainly as we are able to sell larger square footage homes with more amenities and options built into them, we can have the greatest [spec] on our gross margins.

That also can be increased by volume. As volume improves we can gain production efficiencies. We have seen that in our model in the past and that is certainly still there. So we have good operating leverage in the model as well.

Very good. And one morning and I will jump back in queue. But you mentioned the financing environment remains very tight. Any updates of potential legislation or other -- anything else on the horizon, good, bad or otherwise that you see in terms of the general financing environment?

We have had some modest successes [as] industry in that Consumer Financial Protection Bureau has adjusted some of the rules that will help our industry in the lending environment.

But the biggest issue we still need to address is the hope it triggers, the interest rate levels at which our manufactured home loans in this industry, particularly the chattel lending -- specifically the chattel lending I should say -- trips those -- hope it triggers and creates considerably more liability for the lender, the investor in those loans.

And it's not fair, it's not right, it was a so-called unintended consequence of legislation that was done during the Dodd Frank era and we are still struggling to try to get legislative relief. We think we have gained some momentum in that regard and we are hopeful. But trying to predict what Congress might do is well beyond our capability.

But the industry is making good effort to -- and it is had good receptivity on the part of legislators to understand the problem and that this -- these rules are only hurting the affordable home buyer. So I guess stay tuned on that, Dan. I think we are moving in the right direction but no great relief yet.

Good color and congrats on a great quarter. I will jump back in queue. Thank you.

Thank you. And at this time I am showing no further participants in the queue. I would like to turn the call back to management for any closing remarks.

Well, I think that sums it up. If any of you have questions you would like to ask, don't want to ask them on the conference call we will obviously be available and we look forward to talking to you in the months ahead. Good day.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone have a great day.