Cavco Industries, Inc. (CVCO) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Cavco Industries Inc. First Quarter Fiscal Year 2014 Earnings Call Webcast. [Operator Instructions] I would now like to introduce your host for today's conference, Joseph Stegmayer, Chairman and CEO. Please go ahead.

Good morning. Thanks for your patience. We just had a phone line issue. I'd like to begin the call with Dan Urness, who's accompanying me here today. He's our Chief Financial Officer, who will read the required disclosure and get into the financial review, and I'll make a few comments and we'll take your questions. Dan?

Good day, everyone. Before we begin, we respectfully remind you that certain statements made on this call, either in our remarks or in the responses to questions, may not be historical in nature, and therefore, are considered forward-looking. All statements and comments made today are made within this 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 financial report this quarter, net revenue for the first quarter of fiscal 2014 was $134 million, up 12.8% compared to net revenue of $118.8 million during the first quarter of fiscal year 2013. Net income increased to $3.9 million this quarter from $1.6 million in the same quarter last year. Net income attributable to Cavco stockholders for the first quarter of fiscal 2014 was $1.8 million compared to $0.9 million for the first fiscal 2013 quarter. Diluted earnings per share in Q1 was $0.26 versus $0.12 for the quarter ended June 30, 2012. Subsequent to the end of the first fiscal 2014 quarter, Cavco completed its purchase of all noncontrolling interests in Cavco's subsidiary that owns Fleetwood Homes, Palm Harbor Homes, CountryPlace mortgage and Standard Casualty Company. The company agreed to pay the purchase price of $91.4 million in Cavco stock, which increased the company's total number of common shares outstanding to approximately 8.8 million shares. As of the closing on July 22, 2013, Cavco owns 100% of these businesses and is therefore entitled to all of the associated earnings from that date forward. Consolidated gross profit as a percentage of net revenue this quarter of 21.9% was higher than 20.3% recorded for the last year's first quarter, driven by a higher price point sales mix of product from project work and increased home sales volume during the spring and summer selling season. Higher sales volume also resulted in improved production efficiencies. Selling, general and administrative expenses in the fiscal 2014 first quarter as a percentage of net revenue was 16.8%, consistent with the same quarter last year. At June 29, 2013, order backlog stood at approximately $43 million, up from approximately $20 million at the end of the comparable prior year quarter. The higher backlog is the result of somewhat more consistent housing demand and some project work. Comparing the balance sheet for June 29, 2013, to March 30, 2013, cash was approximately $12 million higher, primarily from lower inventory levels, increased wage, warranty and other accruals, as well as higher trade payables from improved sales volume. The current portion of consumer loans receivable is $3 million higher than the March 30 balance from increased loan origination activity. Inventories were approximately $3.3 million lower from the sale of group housing contracts that spanned the March 2013 quarter end. Long-term consumer loans receivable and the related securitized financings were both lower, in connection with the ongoing maturity of the loan portfolios. And retained earnings grew by Cavco's applicable portion of net income. Joe?

Thank you, Dan. We're pleased with the first quarter results. Every line of business improved from last year: manufacturing, retail, finance and insurance. In fact, nearly every operating unit within those lines of business did better in this first quarter than they did in the comparable period last year. Still, operations have plenty of room for further improvement. Most continue to operate at low levels of capacity utilization. In addition, the market for home sales remained very price competitive, which naturally impacts margins. Industry-wide shipments are up 5% for calendar year-to-date through May, the latest data available. So it appears that potential homebuyers are more actively shopping. The general consensus is that there's some upside to the current seasonally adjusted annual rate of shipments, which is 61,600. We're certainly glad to complete the purchase of the interest we did not own in the Fleetwood Homes subsidiary, as Dan discussed. While we've enjoyed an excellent investment partner in Third Avenue Funds, we hope said ownership will streamline accounting and financial reporting, and most importantly, will provide the benefit of all the earnings and cash generation potential of these operations to Cavco shareholders. With that, Dan and I will be glad to take any questions.

[Operator Instructions] And our first question comes from Howard Flinker from Flinker & Co.

Net backlog, is that the same comparison as last year or is some of that affected by the arithmetic of the acquisition?

No. Because how we've been operating, we've had full operating control of the joint company all this time. So we've been recording all the operations in our numbers, including the backlog numbers.

Okay. So it is the same basis.

Yes.

[Operator Instructions] And I'm not showing any questions in the queue at this time. I would now like to turn the call back to Joseph Stegmayer for any further remarks.

Well, that was a fast call, but thank you for joining. And if you have any follow-up or any questions you want to ask individually, feel free to contact Dan or myself, and we'll be glad to talk to you. Thanks for joining. We look forward to talking to you again. Good day.

Thank you, ladies and gentlemen. Thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.