Cavco Industries, Inc. (CVCO)

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Cavco Industries Inc. (CVCO)

Q2 2009 Earnings Call

October 24, 2008 12:00 pm ET


Joseph Stegmayer - Chairman and Chief Executive Officer

Dan Urness - Vice President and Chief Financial Officer


David Walsh - Avondale Partners

Michael Ware - Praesidium Investment Management

James Mccanless - FTN Midwest

David Cohen - Midwood Capital



Good day everyone and welcome to the Cavco Industries Incorporated second quarter fiscal year 2009 earnings call and webcast. This call is being recorded. With us from the company today is the Chairman and Chief Executive Officer, Joseph Stegmayer; please go ahead sir.

Joseph Stegmayer

Thank you Cecelia and welcome everyone to Cavco’s second quarter conference call. With me today as always is Dan Urness our Vice President and Chief Financial Officer and of course before we begin we respectfully remind you that certain statements will made on this call during our remarks or in response to questions may not be historical in nature and therefore are generally considered forward-looking.

All our statements and comments are made with the context of the Safe Harbor rules. Our 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 anticipate results or performance. Cavco disclaims any obligation to update any forward-looking statements made in this call and investors should not place any reliance on any such forward-looking statements.

The challenges contained in this past quarter is total industry shipments of manufacturing homes remained and decline. Manufacturing housing has recently reported that national home shipments for the first eight months of the calendar year were down 10% for the industry is a whole. However aided by increased production of our Texas operation compared to last year, Cavco’s comparative change was an increase of less than 1%.

Looking specifically Arizona and California, our major markets, industry wide shipments were down 37% through August 2008, while Cavco shipments were down 34%. Industry shipment data is not yet available for September, however for July and August the first two months of Cavco’s second quarter, home shipments were down 18% nationally and 35% in California and Arizona.

We can’t add anything to all of news in recent weeks concerning the financial markets and general economy except to say that these problems certainly have an impact on our business. Wood buyers seem even more cautious, financing home has become a very slow process and many new development projects that planned to use factory-constructed homes are being delayed further.

While the near term outlook is not promising, we think there are reasons to be optimistic about the longer range and we will discuss this after Dan reviews the financial results; Dan.

Dan Urness

Thank you, Joe. Cavco’s net sales for the second quarter of fiscal year 2009 were down 22% to $30 million from the prior year’s net sales of $38.4 million. The lower sales figure was a result of reduce floor shipments, which were down 11.3% as well as the 4.1% lower average selling price for the floor of approximately $25,600 versus the same quarter last year.

The company’s gross profit margin for Q2 ’09 was $3.7 million or 12.3% of net sales versus $5.5 million or 14.4% of net sales for the second quarter of last year. The gross margin was increasingly challenged this quarter by reduced capacity utilization which dropped to just over 50%. The company’s backlog at quarter end was just under one week at $1.6 million.

We successfully reduced our selling, general and administrative expenses for the quarter by $410,000 to $3.1 million compared to last years second quarter SG&A of $3.6 million. As a percentage of net sales SG&A was 10.5% versus 9.2% last year.

Interest income was lower by $433,000 primarily as a result of generally lower interest rates from the company’s investments with U.S. treasury. The current effective income tax rate for Q2 ’09 is 38% compared to 30% for Q2 ’08. The rate has been largely affected by no longer realizing tax-free interest income on short-term investments as well as the decline in certain state tax credit in fiscal 2009 resulting from reductions in the workforce.

Fiscal 2009 second quarter income from continuing operations was $518,000 or $0.08 per diluted share compared to $1.9 million or $0.29 per diluted share last year. When comparing the balance sheet at September 30, 2008 to March 31, 2008 our cash and cash equivalent balance increased $2.1 million to $75.7 million at September 30.

Trade receivables are down approximately $2.3 million compared to the beginning of the fiscal year resulting mainly from lower sales volume. Inventory is up $1.2 million primarily due to increased raw material prices and slightly higher with end finished goods inventory levels.

PPE is up mainly from the $537,000 purchase of the retail sales launch in New Mexico, which we previously leased. This is the location of an existing company owned retail outlet. Accrued liabilities are lower by $1.8 million, the result of a $1 million drop in customer deposits and a $700,000 reduction in salary, wage and benefit accruals. In addition the balance sheet continues to be debt free; Joe.

Joseph Stegmayer

Thanks Dan. Soon after our last conference call, the President signed into law the Housing and Economic Recovery Act of 2008. Some of the provisions of the act should be quite positive for our industry, specifically that provide for a $7500 tax credit for first time homebuyers and if the buyers tax liabilities less than $7500 the tax payer actually receives a cheque back for the balance of both his/her liability. This program will be effective through June 30, 2009.

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