Cavco Industries, Inc. (CVCO)

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Cavco Industries, Inc. (CVCO)

F1Q09 Earnings Call

July 25, 2008 12:00 pm ET


Joseph Stegmayer - Chief Executive Officer

Dan Urness - Chief Financial Officer


David Kaplan – Sidoti and Company

Michael Corelli – Barry Vogel & Associates

James McCanless – FTN Midwest

Howard Slinker – Slinker & Company



Welcome to Cavco Industries first quarter fiscal year 2009 earnings conference and webcast. (Operator Instructions) With us today from the company is the Chairman and Chief Executive Officer, Joseph Stegmayer.

Joseph Stegmayer

With me is Dan Urness, our Vice President, Chief Financial Officer, and Treasurer. Of course, before we begin, we are obligated to state what we state today is under the umbrella of the Safe Harbor rules. Certain comments we will make are forward-looking statements. Cavco disclaims any obligation to update any forward-looking statements, and investors should not place any reliance on any such forward-looking statements because they may not in fact materialize. There is a complete statement on this subject incorporated in our 8-K, which was released yesterday.

During our fourth quarter conference call, we said that the next several months will be very tough and indeed they have been. As the general economy and the housing industry continue to struggle, we feel fortunate to be solidly in the black and to be financial strong enabling Cavco to continue to develop new products and to pursue new markets. Before I make some additional comments, I’m going to ask Dan to review some financial highlights, and then we’ll take your questions.

Dan Urness

Net sales for the first quarter of fiscal year 2009 were down 5% to $32.5 million from the prior year’s net sales of $37.4 million. The lower sales figure is the result of reduced floor shipments which were down 3.7%, while the average selling price per floor this quarter of approximately $26,400 was 2.3% lower than the average selling price per floor during the same quarter last year of approximately $27,100.

NHI recently reported industry HUDCO production and shipment information through May of calendar year 2008. Accordingly national floor shipments for the first 5 months of the calendar year were reported to be down 9% for the industry. Aided by the ramp-up of our Texas factory, Cavco’s comparative change was a decrease of 1.8%. Isolating these same statistics for the company’s key states of Arizona and California, industry floor shipments were down 38.5% through May 2008, while Cavco shipments were down 29.9% comparatively.

The company’s gross profit margin for Q1 ’09 was $4.1 million, or 11.8% of net sales versus $5.4 million, or 14.6% of net sales for the first quarter last year. The gross margin was challenged this quarter by low margins in Texas resulting from that factory’s product line combined with our low utilization. The margin was also adversely affected by higher raw material costs in each of our operations. Normally whereas we will pass along raw material price increases in our wholesale sale prices, the current market environment has not afforded us many opportunities to do so in an efficient and timely manner.

We successfully reduced our selling, general, and administrative expenses for the quarter by $0.5 million to $2.3 million, compared to last year’s first quarter SG&A of $3.6 million. As a percentage of net sales, SG&A shrank to 8.7% in Q1 ’09 versus 9.6% in Q1 ’08. Interest income was lower by $377,000, primarily as a result of generally lower interest rates and the company’s more conservative cash investment strategy. The current effective income tax rate for Q1 ’09 is 38%, compared to 32% for Q1 ’08. The rate has been largely affected by no longer realizing tax-free interest income on short-term investments as well as a reduction in certain state tax credits in fiscal 2009 resulting primarily from decreases in personnel.

Fiscal 2009’s first quarter income from continuing operations was $853,000, or $0.13 per diluted share, compared to $1.735 million, or $0.26 per diluted share last year. In comparing the balance sheet at June 30th to March 31, our cash and cash equivalents balance was $73.4 million, essentially the same as the balance 3 months ago. The company’s trade receivables were moderately lower. Inventory is up $2.1 million, primarily due to the timing of shipments at quarter end.

Current assets were five times current liabilities at June 30th, and total current liabilities were down slightly from March 31. Our balance sheet contains no short- or long-term debt, and our stockholders’ equity improved $147.2 million at the end of the quarter.

Joseph Stegmayer

We are gratified that our Texas facility is growing and is profitable. Meanwhile, our Arizona operations have performed very well, given the market conditions Dan just referred to with the comments on home shipment levels. Our people are doing everything they can from an operations standpoint to mitigate the rise in costs of raw materials and transportation expense. On the product line front, we have introduced a new line of green homes as well as a section of solar homes. In fact, these new features were highlighted in a television news story about Cavco that aired on CNBC this past Monday. If you did not see it, you can still view the story on under TV stories by reported Jane Wells.

While there is virtually no visibility as far as the near-term outlook is concerned, one bright spot may be the Comprehensive Housing Reform Bill moving through Congress. While I think the bill is flawed for a number of reasons, within this broad legislation is a logical and important manufactured housing FHA Title 1 initiative that will significantly increase the limit for a home [inaudible] loan. The reason we feel this particular part of the bill makes sense is because the loan limit for FHA financing of a manufactured home has not been raised, not even adjusted for inflation, since 1992. As a result, the number of loans originated under FHA’s title loan program has declined to an insignificant number of less than 2000 per year. The loan limits should spur more activity in this viable lending program.

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