Cavco Industries Inc (CVCO) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter Fiscal Year 2017 Cavco Industries Earnings Call and Webcast. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to introduce your host for today's conference, Mr. Joe Stegmayer, Chairman and CEO. Sir, you may begin.

Thank you, Bruce, and welcome, everyone, to the phone conference and on the web. Glad to have you today.

With me as usual is Dan Urness, our Executive Vice President, Chief Financial Officer, and he'll begin with the disclaimer and our financial report, and then I'll come back and make a few comments and we'll be happy to take your questions. Dan?

Thanks, Joe, and 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.

For our fourth quarter financial report, net revenue for the fourth fiscal quarter was $198 million. That's up 12% from higher home sales volume compared to $177 million during the fourth quarter of fiscal year 2016.

Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 21.3%, up from 20.7% in the same period last year. Operating leverage, mainly from the increased home sales volume, improved gross profit as a percentage of net revenue.

Selling, general and administrative expenses in the fiscal 2017 fourth quarter as a percentage of net revenue was 12.7% compared to 14.2% during the same quarter last year. The improvement was from better SG&A utilization and higher sales levels.

Net income for the fourth quarter of fiscal 2017 was $10.9 million compared to net income of $7 million reported in the same quarter of the prior year. Net income per diluted share for Q4 '17 was $1.19 versus $0.77 in last year's fourth fiscal quarter.

Comparing the April 1, 2017, balance sheet to April 2, 2016, cash was approximately $133 million compared to $98 million last year. The increase was from net income and cash provided by operating activities. For certain items on the balance sheet, total consumer loans receivable increased from further development of home-only loan programs and additional mortgage sales volume. Prepaid expenses increased from the timing of quarterly income tax payment activity.

Accounts payable grew from more home sales as did most accrued liability categories, including warranty and customer deposits as well as unearned income premiums from higher policy counts at our insurance subsidiary. Other asset and liability accounts remained relatively consistent.

Stockholders' equity grew to approximately $394 million as of April 1, 2017, up $41 million from the April 2, 2016, balance.

Joe, that completes the financial report.

Thank you, Dan. Well, we're pleased with the results, and more importantly, we're very pleased with the outlook for our industry and for Cavco in particular. It's interesting to note that in recent surveys, including one just recently by USA TODAY, those who link homes with the American dream are greater than nearly 60% in every age category. And at the 18 to 34 age cohort, it's over 65% of those people who still want the -- to own their home, own home.

And that's a very important statistic for us because many of our buyers come from that millennial group as well as the empty nester and retiree group, 2 major markets for us. In both these markets, home ownership is still very important.

However, the median price, the average price of a site-built home is greater than $350,000 today. So that presents a challenge because of the households aged 25 to 54, studies show that only approximately 40% can qualify for a typical mortgage of the average site-built home that I just mentioned. Yet 80% can qualify for a $200,000 price point home. Now 80% of what our industry sells is less than $150,000. So we think we're in the right spot, right place.

Manufactured housing accounts for about 9% of housing starts. We look to increase that as an industry over time, and we also expect the housing industry in general to increase. In fact, most analysts expect it to increase. So as we look out over a few years, we should see industry growth in line with housing in general, and we also, of course, will work towards gaining greater share of housing starts in total.

We'll do that by trying to reach out to more people. We'll do it with new product introductions. We're looking at new classes of manufactured homes. Most of you who follow the industry know that we build our homes generally to the federal preemptive code called -- generally called the HUD code. The homes can be placed anywhere in the country, but they do have certain restrictions because we transport them over highways.

So we're looking at different ways to change the elevation of the home. We'll try to work with HUD to get some regulatory help to allow us to do more to the homes on site, which allow us to do things such as higher pitched roofs and add garages to make them more compatible or competitive with home construction on-site. We'll still have the major advantage of the efficiencies of building in a factory, whether that be with material supplies coming to one location, labor and more efficient use of labor and stringent quality control. So we'll have all the benefits of a systems-built construction process within an enclosed environment, the factory, but we'll also have the advantages of more creative product.

So the industry, and we in particular specifically, are working towards that end. In the meantime, we're not going to abandon the truly affordable price point home we have, the HUD code home, which is doing very well and should do, I think, better in the future. So overall, we're quite pleased with the way things are working out so far, and we are relatively or cautiously optimistic, you might say, for the future. I think as the economy continues to grow and jobs are created, we should benefit. With that, I think we'd like to, Bruce, take any questions that these folks may have, if Bruce is there.

(Operator Instructions) And our first question comes from Daniel Moore from CJS Securities.

So there's a little bit of -- there's been a little bit of talk at the start of the year about industry growth certainly has accelerated or reaccelerated, in part due to government assistance or FEMA homes. Wondering any sense of the impact in the quarter that you saw from shipments to FEMA. And then as a follow-up, average selling price is down a little bit. Wondering if that was due to mix or any color you might have on that.

Well, I'll let Dan address the price point, the average selling price. I'm actually in -- traveling. I'm in West Virginia today speaking to people within our industry, our distribution base in Virginia and West Virginia, but Dan's in Phoenix. However, I would comment on the FEMA product. For those of you who are not familiar with it, the industry has typically built emergency housing for the Federal Emergency Management Agency, FEMA, over the years for various catastrophes and did so this past year and in particular, this first quarter calendar '17. We don't know the specific number of homes, hasn't been, that we've seen anyway, hasn't been publicly disseminated, Dan. We did build some, a fairly modest amount from our factories for FEMA. We'd expect to do so again in the future if the need arises. You actually bid for those products, and then we've been involved in the bidding process. And we expect -- we've had good performance for them, and we expect to be able to participate again. It's hard to say how much an impact that's had on industry shipments, but it definitely had an upward impact in the first quarter this calendar year in terms of industry shipments. And I'd really be guessing, Dan, to guess the number, but it would probably take that 24% or so in shipment levels down, probably into the high teens, perhaps, maybe 20%. And again, that's just a guess. Dan, if you want to address the average selling price?

Sure. And the average selling price, I'd just note here, as you mentioned, it's a little bit lower than it has been in recent quarters, but it's not lower than the range it's been running in over the past several quarters. It's -- the average selling price this quarter was $49,894, and that's with, kind of on the lower end of the range, but within the range, it's been running, $49,000 to say, $55,000. And it's a result really of the fluctuation in the mix of products that we build each quarter. There are quarters where we get bulk orders, similar to, you could call this FEMA business we did this quarter a bulk order, and would have a slightly lower average sales price than what would be typical because it's wholesale. It's not retail, as you know. Our home sales include retail sales prices to consumers, and that has the effect of raising a portion of the model mix every quarter. So there's a fluctuation. This isn't unusual, and I wouldn't characterize it otherwise.

Very helpful. And then I know April shipments for the industry are up 7%, 8%. Maybe just give us some sense of what you're seeing now that we're kind of halfway through June in your fiscal Q1 in terms of growth rates.

Well, the -- I'm sorry, Dan, you're saying in fiscal Q1?

In the just kind of what you're seeing this quarter. So far, we have just 1 month of data from the industry. I think April was up 7.5% roughly.

Right.

And wondering if that's sort of in line with what you're seeing trending for the full quarter at this stage, given what visibility you do have.

I think so. I mean, we've, of course, not made predictions generally, but I think for MH industry shipments, we would look for a 10% increase or so this year. It could be better than that, but we think we're certainly on track to do that number. There's some forecasts that show that the industry shipments will grow about 28% through, I think, calendar 2019, to about 100,000 units. We don't find any fault with that kind of prediction. And so a 28% move from the 78,000 the industry did in 2016 to 100,000 in '19 would be attractive, and certainly, it would benefit, I think, all the players in the industry. And certainly, with our 20 factories in our country, I think we participate in that and hopefully be working to gain some share above that level. Dan, that's, of course, just HUD numbers. We're also, as you know, producing modular homes, a much smaller sector of the industry, but we're a fairly significant factor in the modular home business. So we'd expect that to show continued improvement. The modular homes are built to local and state codes and can have several different characteristics to them, generally -- they're generally a little bit larger and have things like garages and other amenities that make them actually more competitive with site-built. So we have that as well.

Very helpful. I'll ask one more, a couple of parts on one more question and then jump back in queue. But Lexington, the recent acquisition, any sense for the number of units they have produced annually over the last year or 2? And maybe just any color around average sales price, margin profile, et cetera, would be helpful.

Well, I don't want to be smart, but we do have those exact numbers, but we're not prepared to disclose them, sorry, because, of course, we don't generate -- we don't disclose our individual plant performance. But suffice it to say, I think that we felt very good about acquiring an established operation in a market we have not really been able to participate in to any extent, mainly because of our geographical location of our other plants. So we've been looking at that Deep South market, Mississippi, Alabama, Louisiana and even some of the border states to those states for some time. We just never found the right opportunity, and we believe we found it in Lexington. They are a one plant operation, fairly modest in scope, I guess you might say, but they build a good product. We think we can bring some things to the table there in terms of product design. We can expand its product line somewhat, and we'll certainly look at expanding their distribution base. And that's coupled with several areas where we feel we can benefit them near term. So I think it will be a good opportunity for us to pursue that market. It's not terribly significant in terms of our overall consolidated numbers, however, at this point in time.

(Operator Instructions) And we have a follow-up question from the line of Daniel Moore.

Maybe just, Joe, I'd love to hear your thoughts on the industry from the lending and liquidity perspective. Are you seeing any signs of loosening in either chattel market or other areas or new capital coming into the market, number one? And secondly, you mentioned you have taken a few more loans on the balance sheet. Do you expect to continue to use cash flow, your strong cash generation, as it continues to grow, maybe to take more loans on the balance sheet if the secondary market doesn't open up?

Right. Well, I'm glad you asked that question. It's a good question, obviously vital to our industry financing, as it is to all homebuilding. And yes, I think the general appearance will be that things are getting somewhat better. The GSEs, Fannie and Freddie, have expressed interest in trying to do more to fulfill their duty to serve obligations, which are statutory. And so they have an interest in trying to explore how they can participate more in the manufactured housing lending market. They have not, in the past, provided a secondary market for chattel or personal property loans. And personal property loans are used to a great extent to finance manufactured homes, because oftentimes, they go on private land that's already owned by the buyer, and that buyer does not choose to encumber the land. So they get a personal property loan on the home itself, or commonly called the chattel loan. And that's been somewhat in somewhat short supply for the industry. There are a couple of lenders in the business. Our CountryPlace Mortgage, our subsidiary, has started to do some chattel activity. We're doing some testing in a couple of different market areas. We found some sources, secondary sources to sell these loans to, and we'll continue to look for others. The securitization market does not look like it's going to open up short term to manufactured housing loans. It's kind of perplexing to us because the loans have performed very well historically, and -- but I think we're just not on the radar of a lot of institutional lenders for fixed income product. And I think that will change eventually, but that's a little bit longer-term process. I think in near term, I think you'll see some, maybe some trial programs that will be offered by the GSEs, that may help, and as I say, we'll continue to pursue sources of backup to the loans we may do in this area. And we'll not be hesitant to put some of these on our balance sheet and in anticipation to be able to package them and sell them at a point down the road. And in fact, we're beginning to do just that.

And our next question comes from Howard Flinker from Flinker & Co.

You broke up when you mentioned the average price, 49 8, what was it? 49 4, something?

This quarter, our average sales price was $49,894.

And at this time, I'm showing no further questions.

Okay, Bruce, thank you, and thank you, everyone, for joining us today. We appreciate it, and as always, we'll be available for follow-up calls and questions. And please visit our website. You'll see some of our product examples, I think can be very informative for you all. Thanks, again. We look forward to talking to you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference, and this does conclude the program. You may all disconnect. Everyone, have a great day.