Cavco Industries, Inc. (CVCO)

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Cavco Industries Inc. (CVCO)

F3Q09 Earnings Call

January 30, 2009 11:00 am ET


Joseph Stegmayer – Chairman and Chief Executive Officer

Dan Urness – Vice President and Chief Financial Officer


David Walsh – Avondale Partners

James McCanless – FTN Midwest Securities

Michael Corelli – Barry Vogel & Associates

Dax Vlassis – Gates Capital Management

Jeffrey L. Gates – Gates Capital Management

Michael Ware – Praesidium Investment Management


(Operator Instructions) Good day everyone, and welcome to the Cavco Industries Incorporated third quarter fiscal year 2009 earnings call and webcast. Today's call is being recorded. At this time for opening remarks I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Joseph Stegmayer, please go ahead sir.

Joseph Stegmayer

Thank you, [Gwen]. Welcome everyone. We reported the results of the third quarter ended December 31st 2008, yesterday and they were posted on our Web site, and of course widely available on other public domains.

The figures that Dan will give in a moment represent our poorest performance for any quarter in nearly six years as a public company. We are certainly disappointed with the results. We believe that we’ve always prepared our company to expect the unexpected. We think that we are nimble and that we can quickly adjust to market demands and changing environments and we feel our product line is very competitive and our distribution base is good.

Still there’s only so much a team can do when faced with the unimaginable events in the economy that we have witnessed and the resulting freefall in consumer confidence. In Arizona, for the three month period ended in November, the latest period for which industry statistics are available, industry-wide shipments of factory-built homes were down 33% from the prior year period, which was at that time the lowest shipment level in some 15 years.

For California, the shipments were down 45%; these states represent our two largest markets. In Texas, our third biggest market, shipments faired is better; however, they were still 13% less than the previous year period.

Even for those buyers who do not lack confidence, consumer financing is a big challenge. Those that can qualify often face long lead times to get approved and to close their loan, and a new and significant development occurred during the quarter, and that was the announcement by Textron Financial Corporation, one of the major providers of home inventory lending to retailers and developers, that they intend to cease lending operations by the end of next month.

While there are other sources of lending for the distribution chain, this exit is expected to adversely affect the ability of some retailers to buy homes for resale, which could have a negative impact on the industry as a whole. We’ll discuss this more later during the call.

And before Dan reviews the numbers, I wanted to state that our people have done an extraordinary job steering the company through the myriad of problems we all face. They’ve been steadfast in their commitment to customers, and to the company.

We’ve had to make some very difficult decisions, including reducing our team via attrition and some lay-offs. We have consolidated or eliminated some positions to bring operating expense more in line with current business levels, and while further adjustments maybe necessary depending on the economic environment, we have and we will continue to affect these changes without compromising our ability to custom design homes, to introduce new models, to support our retailers, and to service our home buyers.

Dan, please review the numbers, if you would.

Dan Urness

Thank you, Joe. Cavco’s net sales for the third quarter of fiscal year 2009 were down 21% to $25 million from the prior year’s Q3 net sales of $32 million. That’s on a 20% decline in module shift, while the average selling price per floor was relatively flat, with prior year at $26,535.

The company’s gross profit margin for Q3 ’09 was $2.7 million, or 10.6% of net sales, versus $4.6 million or 14.4% of net sales for the third quarter of last year. The margin decrease was principally from reduced production efficiencies we are experiencing at our current low production levels, with capacity utilization just under 50%.

The company operated with a minimal backlog throughout the quarter and the backlog of orders was negligible as of December 31st 2008.

We successfully reduced our selling, general, and administrative expenses for the quarter by $464,000 to $2.9 million, compared to last year’s third quarter SG&A of $3.3 million. As a percentage of net sales, SG&A was 11.4% in Q3 ’09, versus 10.4% in Q3 ’08.

Interest income was lower by $532,000, mainly the result of generally lower interest rates from the company’s investments in U.S. Treasuries. The current income tax benefit is the result of the current quarter adjustment for excess tax expense in prior quarters and the true up to our recently filed tax return for fiscal 2008.

For the nine month period ended December 31, 2008 and 2007, the effective income tax rate was approximately 32% and 30% respectively. Fiscal 2009 third quarter net income was $110,000 or $0.02 per diluted share, compared to $1.4 million or $0.20 per diluted share last year.

In comparing our balance sheet at December 31, 2008, to March 31, 2008, our cash and cash equivalents balance increased over $500,000 to $74.1 million, from $73.6 million at the beginning of the fiscal year.

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