Cavco Industries Inc (CVCO) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cavco Industries' first-quarter fiscal year 2017 earnings call webcast. (Operator Instructions). As a reminder this conference call is being recorded. I would now like to turn the conference over to Joe Stegmayer, Chairman and CEO. Sir, you may begin.

Thank you, Shannon, and welcome, everyone. We will start with Dan Urness, our Chief Financial Officer, reviewing the results of the quarter and we will be happy to answer any questions following that. Dan?

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 them.

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.

Net revenue for the first fiscal quarter was $185.1 million, up 14.5% compared to $161.7 million during the first quarter of fiscal year 2016. The increase was from achieving 3,395 home sales this quarter, a 17% increase from 2,902 homes during the comparable period last year.

The current quarter contained one additional month of Fairmont Homes operations as Fairmont was purchased by the Company last year on May 1, 2015.

Consolidated gross profit in the first fiscal quarter as a percentage of net revenue was 17.9%, down from 19.7% in the same period last year. The decline was primarily from higher insurance claim activity at our Financial Services group.

As reported by numerous insurance industry participants, the 2016 spring storm season in Texas was unusually severe and included significant damage from the associated hail and wind. One of the April hailstorms was the costliest for insurance providers in the state's history with hail as large as 4.5 inches in diameter.

2016 hail damage in Texas has already met the nine year average for the entire country. The storms resulted in the Texas governor declaring a state of disaster in 31 counties. The insurance losses for the first fiscal quarter were partially offset by amounts recoverable from our reinsurance contracts.

Selling, general and administrative expenses in the fiscal 2016 first quarter as a percentage of net revenue was 13.3% compared to 14.0% during the same quarter last year. The Company realized improved SG&A utilization from higher sales volumes overall.

Income before income taxes of $8.4 million this quarter was slightly lower than $8.6 million during the same quarter last year. The results of each of our business segments were diverse this quarter. The factory built housing segment realized 34.2% pretax earnings growth, although this increase was offset by financial services pretax losses from high insurance claims as previously discussed.

Net income for the first fiscal quarter of 2016 was $5.4 million, consistent with net income reported in the same quarter of the prior year. Net income per diluted share for Q1 2017 was $0.60, also consistent with last year's quarter.

Comparing the July 2, 2016 balance sheet to April 2, 2016, cash was approximately $102 million compared to approximately $98 million three months earlier. The increase was primarily from net income and cash provided by operating activities.

For other items on the balance sheet, commercial loans receivable was higher from additional floor plan lending activities during the period. Other asset and liability accounts remained relatively consistent.

Stockholders' equity grew to approximately $359 million as of July 2, 2016, up $5 million from the April 2, 2016 balance. Joe, that completes the financial report.

Thank you, Dan. We were certainly pleased with the results of our housing group, which performed very well for the quarter. Obviously the insurance business was a major drag on our performance. And as Dan pointed out, very unusual claims experience even for the industry as a whole this past year and particularly in the first six months of calendar 2016.

So one might ask why be in the insurance business? And the answer is that it has been a good performing business for us since acquisition in 2011. Notwithstanding this tough last six months we have had the business has generated returns on investment in the mid teens.

So, we can't do much, obviously, about the unusual hailstorm activity. We do would think that those were very unusual, some labeled as 1 in 150 year events. And so, we certainly expect better performance from our insurance business going forward as we have experienced with the past.

Again housing is doing well; we are still very optimistic about the longer-term for our business. Everything one reads from analysts and in the general press certainly support the fact that entry level housing is in short supply, that conventional builders do not really see an opportunity to build entry level housing and make money doing so and so are focused higher price point product generally speaking.

I think the need for affordable housing will be there and we think, again, we are very well positioned to take advantage of that over the longer-term.

Certainly short-term issues, including a typical slowdown we have seen historically in this industry during a major election cycle, the presidential election cycle, we will see if that holds true again this year. But we've typically seem a drop off in traffic during that time period.

However, our traffic figures recently have been encouraging and, again, we are very optimistic about the outlook for the balance of the fiscal year for our housing business. With that, Shannon, we will be happy to take any questions.

(Operator Instructions). Dan Moore, CJS Securities.

Good afternoon, this is actually Robert Majek filling in for Dan today. Manufactured housing shipment growth has accelerated, up 20% year to date. What are the biggest factors driving that in your view? And has financing improved or is it simply a function of pent up demand?

Well, I think it's a combination. Certainly there is -- we believe that pent up demand is there. Again, people have -- are looking for entry level affordable housing. So we think that's certainly a major part of the case.

Financing is generally available for people with a respectable credit history. Still not as robust as we would like it to be as an industry. But there are products available, FHA products for land and home, traditional mortgages on manufactured housing.

For the personal property lending or chattel lending there are a couple sources available. We would like to see more activity in that spectrum of the industry. And the challenge there is that there really has not been a secondary market for lenders to sell channel loans to. So, as a result there are very few chattel lenders in the marketplace.

And chattel lending, for those of you not familiar with it, is where the home is the only security for the loan. The home might be placed on private land that the owner does not want to place a lien on. Or they might be placed in manufactured housing communities of various sorts throughout the country.

And in those cases the land obviously can't be secured; the home owner is leasing the land and buying the home. So they do a chattel loan or personal property loan on the home. Again, that part of the lending industry, Robert, could certainly be stronger than it is. And we are -- as an industry we are working on trying to develop a secondary market for those loans.

Thank you, that was helpful. And can you tell us the organic growth in the number of homes sold during the quarter?

Say that again?

Can you tell us the organic growth in the number of homes sold during the quarter?

Well, we had a 17% increase in the number of homes sold, as we indicated. And we also mentioned that there is one month of Fairmont that is not comparable. So, while we didn't break out the specific differences there, it is only one month's worth of activity specific to the Fairmont operations.

And because we don't break out factory specific operating results, we haven't added that data. But our quarterly comparison going forward will be fully comparable for you.

Thank you. And last one from me, is it possible to quantify the impact of unusual claims volume during the quarter?

We had, as we obviously have talked about at some length here the volume, we certainly haven't broken out the exact amount. But you can see that it's by comparison pretty significant.

So no, we don't have it broken out specifically as far as the claims in any given quarter because the claims are obviously offset by various items in any given quarter including this one, it's just that the claims were excessive here.

So we don't have that broken out separately, but this is the first time we have had a loss in the financial services segment and that has been driven by the claims that we talked about.

We do carry reinsurance for catastrophic events. But obviously we have an initial portion of that in claims that we cover and then reinsurance covers in certain catastrophic events. So fortunately that reinsurance has proved helpful and we have received -- been receiving on a timely basis all our reimbursements from our reinsurance programs. But it is just the fact that the severity was so great.

In Texas alone in April the multiple hailstorms that occurred were the costliest in Texas history amounting to almost $2 billion of insured losses for the history. And then there was another catastrophic event during the latter part of April which resulted in significant windstorm damages in Texas and neighboring states like Oklahoma.

So, then there was a third catastrophic event in late May which included both windstorm and some flood damage in Southeast Texas. So, all these were a very unusual combination of events. But as Dan said, we don't necessarily report our losses incurred in that business in any given quarter.

And I would also mention, Robert, that we got the reinsurance amounts that Joe referred to included in these numbers in the quarter. There is no drag or carry over from these events into the following quarter starting in July. And then on the upside we certainly have -- we expect to be able to raise premiums and rates going forward and that would kick in in ensuing months.

Thank you.

(Operator Instructions). And I am showing no further questions at this time. I would like to turn the call back over to Joe Stegmayer for closing remarks.

Thank you very much, Shannon. Well, we will be available as usual to answer questions via phone or email. And we appreciate you being on the call and look forward to talking to you soon. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.