Cavco Industries Reports Fiscal 2020 Fourth Quarter and Year End Results
Cavco Industries, Inc. (“Cavco” or the “Company”) announced financial results for the fourth quarter and fiscal year ended March 28, 2020. As previously reported, on August 2, 2019, the Company completed the acquisition of Destiny Homes, which operates a manufactured and modular housing factory in Moultrie, Georgia. The results from this acquired operation since the acquisition date are included in the consolidated financial statements presented herein.
Three months ended March 28, 2020 compared to the three months ended March 30, 2019
– Net revenue was $255.3 million, up 5.9% from $241.1 million in the prior year period. The increase was from improved home sales volume, including homes sold from the new Destiny acquisition, changes in product mix and higher home selling prices compared to the prior year.
– Income before income taxes was $13.6 million, a 47.9% decrease from $26.1 million in the prior year period. In the factory-built housing segment, during the latter part of the quarter, home production volume and operational efficiencies declined from challenges related to the novel coronavirus COVID-19 (“COVID-19”) pandemic, as described further below. The financial services segment recorded lower gross profits largely from $2.1 million of charges for increased loan allowances and losses on forward sales and interest rate lock commitments from economic conditions stemming from the pandemic. This segment also recorded $2.0 million of unrealized losses on equity investments compared to $0.6 million of unrealized gains in the prior year quarter. Income before income taxes was also decreased by $2.1 million for unrealized losses on corporate equity investments compared to $0.7 million of unrealized gains in the same quarter last year.
– Income tax expense was $1.6 million, resulting in an effective tax rate of 12.0% compared to $6.1 million and an effective tax rate of 23.4% in the prior year period. The lower effective tax rate in the current period primarily relates to greater tax benefits from stock option exercises.
– Net income was $12.0 million compared to $20.0 million in the prior year eriod, a 40.0% decrease. Diluted net income per share was $1.29 versus $2.17 for the comparable period last year.
Business Update on the COVID-19 Pandemic
As initially described in Cavco’s press release on March 30, 2020, the Company continues to operate substantially all of its homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. The Company adjusted its operations to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve its customers. Operational efficiencies declined from adjusting home production processes to comply with health guidelines and managing higher factory employee absenteeism and building material supply shortages. The Company’s average plant capacity utilization rate fell accordingly, fluctuating between approximately 45% and 75% since the onset of the pandemic, compared to pre-pandemic levels of more than 80%.
While Company-owned retail stores and most independently owned retail sales locations remained open for business since the onset of the pandemic, customer traffic has declined. The Company received fewer home orders from its distribution channels than would be typical during the spring selling season. Home sales order volumes dropped approximately 40% in mid-April 2020, but improved somewhat to approximately 20% lower than pre-pandemic levels by mid-May 2020.
While circumstances surrounding the COVID-19 pandemic have caused home sales orders to decline, production rates have also declined, as explained above, resulting in backlogs with a value of $123 million in mid-May 2020 compared to $124 million at March 28, 2020 and $129 million at March 30, 2019. This backlog of home orders excludes home orders that have been paused or canceled at the request of the customer.
The Company has decided to shut down production and close its Lexington, Mississippi plant. Ongoing market and operating challenges were exacerbated by decreased business and the ongoing uncertainty resulting from the COVID-19 pandemic, all of which contributed to this decision. This location has stopped accepting new orders for homes, is working to support customers by completing production of home orders already in process (which are expected to be completed in June 2020) and has notified its workforce. The Company will remain available to serve wholesale customers previously served by the Lexington facility, that choose to continue to purchase the Company’s products, from its other production lines in the southeast. The Company does not expect that closing the Lexington facility will have a significant adverse financial effect on the Company.
It is difficult to predict the future impacts on housing demand or the nature of operations at each of our locations due to the COVID-19 pandemic. However, our wholesale customers have been positive about continuing the process of delivering homes and supportive of our efforts to continue production to meet housing needs.
Commenting on the results, Bill Boor, President and Chief Executive Officer said, “It is important to recognize the Company’s very strong performance in fiscal year 2020, despite COVID-19, which impacted fourth quarter results. We achieved new milestones in net revenue, net income and total number of homes sold. The fourth quarter presented a new challenge in responding to the pandemic and accompanying uncertainty. I’m exceedingly proud of how our people have responded by staying committed to serving customers while working safely. Homeowners and small businesses depend on us and Cavco’s employees have stepped up to the challenge with a great deal of creativity, commitment and resilience. We continue to be in a very strong position with a healthy balance sheet and continued cash generation, given our ability to adjust costs to current market conditions. While the timing and pace of future business is impossible to predict, the deficit of affordable housing has not gone away and we remain very positive about the future of the Company and the industry.”
For the full fourth quarter results, click here.
About Cavco Industries
Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and Company-owned retailers. The Company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. The Company is also a leading producer of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand. Cavco’s finance subsidiary, CountryPlace Mortgage, is an approved Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty, provides property and casualty insurance to owners of manufactured homes.
Mark Fusler – Director of Financial Reporting & Investor Relations – firstname.lastname@example.org – (602) 256-6263
Source: Cavco Industries, Inc.