Cavco Industries Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2024

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the 3rd Quarter Fiscal Year 2024 CAFCO Industries Inc. Earnings Call Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

Speaker 1

Good day and thank you for joining us Capital Industries' 3rd Quarter Fiscal Year 20 24 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer Alison Aden, Executive Vice President and Chief Financial Officer and Paul Bigby, Chief Accounting Officer. Before we begin, we'd like to remind you that Comments made during this conference call by management may contain forward looking statements, including statements of expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets or future market conditions. All forward looking statements involve risks and uncertainties which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward looking statements made by or on behalf of Cavco. I encourage you to review Cavco's filings with the Securities and Exchange Commission, including without limitation the company's most recent forms 10 ks and 10 Q, which identify specific factors that may cause actual results or events to differ materially from those described in any forward looking statements.

Speaker 1

This conference call also contains time sensitive information that is accurate only as of the date of slide broadcast, Friday, February 2, 2024. Cavco undertakes no obligation to revise or update any forward looking statement, whether written or oral to reflect events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

Speaker 2

Welcome and thank you for joining us today to review our Q3 results. While the earnings release focuses on year over year comparisons in this market, I believe the quarter to quarter developments are more relevant understanding current market dynamics. It's not to disregard any insights and bigger picture takeaways regarding the dynamics a year ago relative today. Last year, we were a couple of quarters into the effect of rising interest rates. Industry backlogs were higher than now, but they were declining rapidly and the pace and direction of backlogs is generally more important than the level.

Speaker 2

As we wrapped up this Q3, rates In fact, on a same plant basis, we have now seen 5 quarters of increasing net orders and backlogs are stabilized, albeit at low capacity utilization. So while economic uncertainty remains, The trends are pointed in the right direction as we emerge from the typically slower winter and holiday months. The positive trending we're seeing in the market is coming from the dealer channel. Their traffic remains healthy and conversions are improving. Buyers are adjusting to the now steadier interest rates and to the reality of how much home they can afford.

Speaker 2

Underlying need for affordable housing is coming to the forefront and driving modest, but meaningful quarter to quarter order improvements. As discussed over the past few quarters, community orders continue to be off considerably. As industry backlogs decreased in the latter part of 2022, deliveries to communities accelerated, which resulted in excess community inventories going into calendar 2023. The issue is not whether there are buyers or renters once a given unit is put into service. It's how quickly the units can be permitted and set to reduce the inventory and resume more normal orders.

Speaker 2

In other words, placements are occurring at a much higher pace then orders until balance is reestablished. The natural question is when will this balance be achieved? Of course, varies by operator and location. However, the outlook for this calendar year is considerably better than last based on our discussions with community operators and developers. We expect we will see increased community orders as the year unfolds.

Speaker 2

Against that market backdrop, We've stabilized our backlog over the past three quarters by matching production to the pace of orders. Our capacity utilization remained steady this quarter at about 60%. And while the value of orders in the backlog declined from $170,000,000 last quarter $160,000,000 in Q3, the number of units in the backlog increased 3%. The quarter ending backlog represents 5 to 7 weeks of production consistent with last quarter. That stability is an important point coming through the winter months heading into what we typically would expect to be better selling months.

Speaker 2

We have a number of plants operating at reduced schedules that are looking to increase when the market On the margin side, pricing has been relatively stable. While our overall factory based housing gross margin declined 0.8 percent sequentially. This was driven more by the cost side and how cost of goods sold flowed through our manufacturing and retail sales. Big picture margins remained healthy at 22.4% in our housing segment and prices are continuing to hold for the most part. Overall, our quarterly revenue was down about 1% sequentially to $447,000,000 and pre tax income dropped from $52,000,000 last quarter to $44,000,000 Before repurchases and after acquisitions, Cash flow was about positive $25,000,000 We used $50,000,000 to repurchase shares which resulted in our cash balance being down $24,000,000 relative to last quarter.

Speaker 2

Before handing the call over, it was good to see many of you at the Louisville show a couple of weeks ago. Among a number of other innovative homes, we brought our new Anthem series Duplex to Louisville. The Anthem is the 1st nationally available HUD approved multifamily unit. We're very excited about the affordability benefits these homes offer and the interest level has been tremendous, particularly with developers and I also wanted to recognize and welcome Dustin Ewing and the people from Kentucky Dream Homes to the Cavco family. Kentucky Dream Homes operates 5 well managed sales centers in Kentucky and Florida and we joined forces through an acquisition in the Q3.

Speaker 2

Dustin and his team are strong operators and great people to be associated with and we're very excited to be on the same team. With that, I'd like to turn it over to Alison to discuss the financial results in more detail.

Speaker 3

Thank you, Bill. Net revenue for the 3rd fiscal quarter of 2024 was $446,800,000 down $53,800,000 or 10.8 percent compared to $500,600,000 during the prior year. Sequentially, net revenues decreased $5,300,000 driven by a reduction in units sold, partially offset by higher revenues in financial services. Within the factory built housing segment, net revenue was $427,000,000 down $54,200,000 or 11.3% from $481,200,000 in the prior year quarter. The decrease was primarily due to a 13.7% decline in base business unit volume and a 5.3% decline in average revenue per home sold, partially offset by the solitaire acquisition, which contributed $33,000,000 during the quarter.

Speaker 3

The decrease in average per revenue home revenue per home was primarily due to more single wise in the mix and to a lesser extent, a decline in product pricing. Sequentially, for the factory built housing segment, Net revenue was down $7,100,000 or 1.6 percent from $434,100,000 The decrease was primarily due to a 2.1% decline in units sold, partially offset by higher average revenue per home, primarily due to more double wides in the mix and a higher proportions of homes sold through our company owned stores. Factor utilization for Q3 of 2024 was approximately 60% when considering all available production days, but with nearly 70% excluding scheduled downtime from market or weather. This utilization level was consistent with the past 3 quarters. Financial Services segment net revenue increased 2.1 percent to $19,800,000 from $19,400,000 primarily due to more insurance policies in force, partially offset by fewer loan sales.

Speaker 3

Consolidated profit in the 3rd fiscal quarter as a percentage of net revenue was 23.1%, down 330 basis points from 26.4% in the same period last year. In the factory built housing segment, The gross margin decreased 3 10 basis points to 22.4 percent in Q3 of 2024 versus 25.5% in Q3 of 2023, driven by lower average selling prices and volumes, partially offset by lower input cost per floor. Comparing to the sequential fiscal Q2 of 2024, While average selling prices increased due to a higher proportion of homes sold through company owned retail stores, Cost per unit sold also increased with the net effect being an 80 basis point reduction in factory built housing gross margin. Gross margin as a percentage of revenue in financial services decreased to 36.8% in Q3 of 2024 from 46.6% in Q3 of 2023 from higher insurance claim activity. Financial Services gross margin increased sequentially 90 basis points to 36.8% from 35.9% due to higher net insurance premiums earned.

Speaker 3

Selling, general and administrative expenses in Q3 of 2024 were $63,300,000 or 14.2 percent of net revenue compared to $58,900,000 or 11.8% of net revenue during the same quarter last year. Sequentially, SG and A increased 1,800,000 The increase in both periods is primarily due to higher costs in Q3 of 2024 related to the ongoing litigation between an indemnified former officer of the and the SEC, as well as higher compensation expense from acquisitions. Interest income for the 3rd quarter was $5,200,000 up 46.2% from the prior year quarter and down 9.9% over the sequential quarter. The increase over the prior year is primarily due to higher interest rates, Whereas the sequential decrease is related to a lower average cash balance over the period. Interest expense this quarter was $800,000 compared to $200,000 in the prior year quarter.

Speaker 3

This interest relates to adjustments of our redeemable non controllable interest in Craftsman Home LLC. Net other expense this quarter was $200,000 compared to $300,000 in the prior year quarter. Pre tax profit for Q3 2024 was $43,900,000 down $32,200,000 from the prior year period. The effective income tax rate was 18% for the 3rd fiscal quarter compared to 21.7% in the same period last year. The change between periods is primarily the result of higher benefits from stock option exercises.

Speaker 3

Net income attributable to Cavco shareholders was $36,000,000 compared to net income of $59,500,000 In the same quarter of the prior year and diluted earnings per share in Q3 of 2024 was $4.27 per share versus $6.66 per share in last year's Q3. Before we discuss the balance sheet, I'd like to take a minute to talk further about capital allocation. As announced with our press release, the company's Board of Directors approved a new $100,000,000 stock repurchase program that can be used to purchase its outstanding common stock. This increases the total available to $139,000,000 including the amount remaining under the program announced in 2023 after our purchase of $50,000,000 this quarter. Our strategic capital allocation priorities remain an improvement, Further acquisitions and ongoing evaluation of the opportunities in their lending operation.

Speaker 3

We continue to use stock buybacks as a tool to responsibly manage our balance sheet. Now I'll turn it over to Paul to discuss the balance sheet.

Speaker 4

Thanks, Allison. So I'm going to cover the changes in the December 30, 2023 balance sheet from April 1, 2023. Our cash balance was $352,800,000 up $81,400,000 or 30 percent $271,400,000 at the end of the prior fiscal year. The increases are primarily due to net income adjusted for non cash items such as depreciation and stock compensation expense and working capital adjustments including the following: Inventory decreases, which provided $51,200,000 from lower balances of raw materials at our production facilities and finished goods at our retail locations, Decrease in accounts receivable of $18,200,000 prepaid and other asset decreases provided $9,900,000 Primary uses of cash for the 9 months offsetting the above include decreases in accounts payable, accrued expenses and other liabilities of approximately $23,000,000 our acquisition of 5 retail stores and associated inventory for $19,700,000 and share repurchases for $96,800,000 Outside of cash, consumer and commercial loans decreased from the pay down of associated loans that were greater than the amount of new loan originations. Prepaid and other assets was lower due to lower prepaid income taxes a

Speaker 1

reduction in

Speaker 4

delinquent Ginnie Mae loans. The remaining change is due to normal amortization of prepays. Property, plant and equipment net is down from the sale of unutilized equipment acquired with Solidfair Home. Expenses and other current liabilities are down from lower accrued bonuses, customer deposits and commission taxes. Lastly, stockholders' equity exceeded $1,000,000,000 up $32,400,000 from $976,300,000 as of April 1, 20 20 Now I'll turn it back to Bill.

Speaker 2

Thanks, Paul. Tony, why don't we just go ahead and turn it over for questions.

Operator

And one moment for our first question which will come from Daniel Moore of CJS Securities. Your line is open.

Speaker 5

Good morning, Bill, Alice and Paul. Good afternoon, I should say, from the East Coast, but thanks for the time and taking the questions. Maybe start with Your kind of outlook, what are your expectations for sequential growth in production and shipments In terms of both modules as well as the number of homes as we look to the March quarter relative to December And similar question, what are your expectations for average selling price?

Speaker 2

Hi, Dan. You know we don't give guidance. And I guess every time we get asked that question, I always feel like we're At a point it always feels like we're in a point where it could go one way or the other, right? I think you probably took from some of my comments that The general feeling is pretty positive going into the spring. That's mostly coming from just how well the dealer channel is going.

Speaker 2

And so we feel like we're in a position to respond to the upside and that's where Most of our energies are at this point is getting ready for that upside, but we don't have a specific expectation to share at this point.

Speaker 5

Understood. I guess, what would it maybe talk about When you would expect to have a better sense of the true underlying demand? Right now, it's been improving sequentially and certainly strong from a seasonal perspective. But By April, May, when do you have a better sense for whether you might be in a position to start to ramp production?

Speaker 2

Yes, absolutely. We're sitting here beginning of February, always making very general statements when we do a market locally, as I I always remind everyone, but I think internally, we're kind of looking to late February March timeframe to see an uptick, see the normal selling season and how that develops. And so we kind of in that waiting mode right now coming out of the winter and the holidays. So in the next couple of months, we'll know whether we saw the meaningful improvement that we're hoping for in the spring or whether there's some other issue going on. I feel like, as I said in my comments, I think the buyer is there.

Speaker 2

The interest rates have stabilized. They're higher than they were a bit ago and that's hard for people, but they are kind of acclimating to that. In some cases, I think we've got good indications that they recognize they can't buy as big a home as they could have bought if they had done so a couple of years ago, but they are adjusting to all that. So the underlying demand and I would include as my comments said, I would include the communities as well on this. If they can get a home set, they've got a renter or a buyer for that home.

Speaker 2

So we should see Some improvement from we're hoping we'll be watching to see some improvement in the selling season. And as the year excuse me, As the year unfolds, we're also looking for that community order pattern to start improving.

Speaker 5

And just based maybe it's more Bill, but based on your conversations with some of the community operators, the REITs, where are we, if it's the baseball analogy in that getting through the inventory trouble issues or the set and finish challenges I know it's market by market, but in general, do we have quarters to go, getting to tag ends and waiting on orders? What are you hearing?

Speaker 2

Yes, this is completely anecdotal and feel based on those discussions. And I'll make an analogy. You remember when we were coming out of the retail issue, it wasn't sudden, right? I mean it just kind of happens individually and it builds up and next thing you know you're not talking about the problem anymore. So I think it's going to feel like that.

Speaker 2

But in our discussions, in my discussions with folks at the larger community operators, They definitely are projecting higher order rates for calendar year 'twenty four than 'twenty three. So I think In order for that to take place, we should see some improvement in the next couple of quarters.

Speaker 5

Helpful. Last one, I'll jump out. Thanks for the color, Allison, as well on gross margin front and the timing of kind of how COGS are rolling through. At Current levels just speak to your confidence around holding gross margins where we are at these levels and what kind of potential upside we might have if and when the demand comes back, capacity utilization improves? Thanks again.

Speaker 3

Yes, sure Dan. Thanks for the question. And just as we said, big picture, the factory build housing margins remain very healthy at 22.4% This quarter and prices are continuing really to hold for the most part. And while we know based on our prior Quarter comments, it's really hard to speculate on price. I think being able to pricing and cost service are going to be the key elements determining future margins.

Speaker 3

And from a commenting on the price, we're seeing some regions where pressure is becoming more apparent and some where it's not. So it's a mixed bag. Also from a cost perspective, we've seen the movement in commodities can be a little volatile and hard to predict. So we continue to watch lumber and OSB as we said last quarter. We believe that we're doing a good job of really Managing our cost of sales and if we see the top line increase, we certainly have leverage still absorption costing within our cost of goods and also at a SG and A level.

Speaker 5

Okay. I'll jump back with any follow ups. Thank you.

Speaker 2

Thanks, Dan.

Operator

And one moment for our next question. And our next question will be coming from Greg Palm of Craig Hallum Capital Group. Your line is open, Greg.

Speaker 6

Hi, thanks. This is Danny Eggerich on for Greg today. Hoping to just kind of go back and touch on what you're seeing in fiscal quarter 4 again. Can you maybe just remind us, I know it's kind of jumped around in the past, of the seasonality from December to March quarter? And maybe on top of that, any impacts that you felt from maybe adverse weather in the month of January?

Speaker 2

Let me take that second part first. We did have some pretty isolated down days due to the weather. I know in Texas, we had some and in the Northwest. But I think it was to an extent that we're hoping we can make it up over the course of this quarter, if that makes sense, because we are running at a reduced overall rate. And so while we did have some down days, it shouldn't really knock us off where we would end the quarter otherwise on a production basis, if that makes sense.

Speaker 2

On the seasonality, I know we've looked at that. Mark might have a comment on the percentages, but what I'll say before we say that is, we look at seasonality over a long period of time in many years and you can kind of glean from that what an average seasonal change will be. Yet I think when you look at any given year, it never really plays out that way because the macroeconomic factor is probably way heavier than the seasonality at times. But given that, Mark, I'll check my recollection. I mean, at most 10%?

Speaker 1

Yeah, I was going to say around 5% probably.

Speaker 2

5% to 10%. But again, we are hitting the better part of that from a seasonality perspective.

Speaker 6

Okay, got it. Then maybe just touching on ASPs again. You kind of commented that within the backlog, You're seeing some lower ASPs. So I guess, is that a good proxy for this current quarter on ASPs? And within that, is that just kind of mix then or what are we seeing there?

Speaker 2

Yes. What I would say is, we've kind of had a movement We've talked about in previous quarters that if you looked on a year over year basis, we're selling more single section units and multi section units. So I would suggest and I look around to see your reactions too. I would suggest that our lower value in the backlog is more driven by that change than it is by the fundamental pricing of a given unit. I think that's your question, but let me know again.

Speaker 2

Does that answer your question?

Speaker 6

Yes, yes. You just kind of mentioned that pricing was holding steady, but backlogs ASPs were kind of coming down. So I was just wondering if that was mix or what. So, yes, I think you answered that.

Speaker 2

Yes. The backlog moves more to a character where it's got more single lines and multi section, then you're going to naturally see that value per unit go down, right?

Speaker 6

Yes. Okay. That makes sense. Maybe just one last more on maybe the Anthem product, Just kind of initial interest, I know you're showing that off at the Louisville show and how big you think that could be and what the market could potentially be like for that certain product?

Speaker 2

Yes, we're obviously really excited about it. I mean, this is a change that's been made after a lot of work at the industry level basically with HUD to allow multifamily units to be coded under the HUD code. And we are excited about it. We had a launch event. One of our lead basically our lead plant on this is the Rocky Mount, Virginia plant.

Speaker 2

And we had a launch event in early December and I was there and I was really impressed by the support we're getting not only from dealers and community operators, but also from municipalities showing up looking for solutions to their density and affordability issues. And so, we've talked about it as being a nationally available. We're going to produce that variations of the Anthem product. I mean, there's more than one ore plant. The variations that we're going to produce in plants across the country.

Speaker 2

So, yes, I don't have any numbers for you to share at this point, but We've been really excited about the interest level. And if you think about it, if you're running, let's just take the example of a community operator, The opportunity to get some density, you're going to get more revenue essentially from a given lot and at the same time those 2 residences or households are going to both benefit from the density with lower cost. And so that's what solving the affordability issue is all about. So, I appreciate you asking because obviously we're pretty excited about it.

Speaker 6

Yes. Sounds like a lot of good stuff. So, I'll leave it there. Thanks.

Speaker 2

Thank you.

Operator

And one moment for our next question. And our next question will be coming from Jay McCanless of Wedbush. Your line is open, Jay.

Speaker 7

Hey, good morning everyone. So Bill, could you maybe talk about the Kentucky Dream acquisition? How many owned stores does that take Cavco to now? And kind of your outlook for more acquisitions like this in the coming year?

Speaker 2

Yes. We've had a bit of an increase in our total owned stores And it came a big chunk of that came through the solitaire acquisition a year ago. We were in the low 40s before that. Solitaire, I think, brought us 22. And then with a few Greenfields and then the Kentucky Dream Homes acquisition, we're at 72 now.

Speaker 2

So think you're asking for a little more detail on those assets. Is that right, Jay?

Speaker 7

Yes. And just are there other larger dealer chains out there that you might be looking at from an M and A perspective? And if there are, what kind of Is the goal to get to 100, 150? What's kind of your long term vision for the retail stores?

Speaker 2

Yes. I'll take you back and tell you how we think about retail real quickly. We have not generally had a strategy of trying to grow retail for its own sake. We've had a strategy been very clear that we want to look at every one of our plants in a local market and make sure we've got the right access to market. So if we look down the road and we see, For example, a lot of integration by competitors and that increases our risk of distribution, that's when we try to figure out a good solution.

Speaker 2

That solution could be anything from developing a closer partnership with an existing dealer, independent dealer to Greenfield and then to acquisitions in the example of Kentucky Dream. So we don't have a goal to reach a certain level, we're not pushing growth in the retail segment necessarily. We're only happy to make a good acquisition when it's Both a good investment and improves our distribution. Kentucky Dream Homes is a great example of that. I mean, Dustin has run a great business.

Speaker 2

They've built a great business. I'm really thrilled at the fact that he's staying on board and his management team staying on board because they're here with what they do. They have 5 stores in Kentucky and in Florida. And yes, we folded them or repurchased them during the Q3.

Speaker 7

Got you. The other thing I wanted to ask about is What you're talking about before, Allison, with the increased cost of goods sold, is it still just OSB or are you starting to see some wage inflation kick in, maybe what are the drivers that are driving the COGS lineup?

Speaker 3

Yes. So on the COGS, Jay, it's largely the commodities, as we mentioned last quarter with a focus, of course, on OSB and lumber, And we stay pretty close to it. And currently, it looks like it's similar trends to what we talked about last quarter.

Speaker 7

That's all I had. Thank you.

Speaker 2

All right. Thanks, Jay.

Operator

And one moment for our next question. And our next question will be coming from Camden Roberts of University of South Carolina. Camden, your line is open.

Speaker 8

Hey, guys. Thank you for the great earnings call. I'm calling from South Carolina. We were actually just at the Hamlet factory in North Carolina, and we had a great tour. And I just wanted to ask you, what should we be looking at in 2024?

Speaker 8

Are you optimistic about Anthem and those Duplex sales, I'm sure there's a lot of pent up demand for that or should we be looking more at the recent Solitaire acquisition? What Are you most optimistic about and what should we be focusing on in 2024?

Speaker 2

It's a big question. Glad, great to hear you were at Hamlet and we thought that was a good tour. We're pretty proud of that new plant and how it's come up and we think it's Targeted at the right point in the market for what's going on from an industry dynamics perspective. They're making kind of at the lower price point product and they really come up very quickly. As far as most excited, I mean, we talked about Anthem.

Speaker 2

We think that's I think that's going to be good business for us. I also to be honest, I also think that from a Broader perspective, those are the kind of solutions that can move the ball forward on affordability. So I'm really excited about the potential of The industry taking advantage of those changes in the HUD code to get better solutions for affordability. You touched on solitaire. We've had A year now with solitaire.

Speaker 2

We're excited about that acquisition. We told folks when we announced that acquisition that we bought Some really good plants and they've got a great brand in the market that's kind of in a particular niche and We think that's going to Board A acquisition is going to be a great one for us. Overall, again, you asked a broad question. I could probably talk all day. Overall, I'm excited to see the industry start picking up as community orders start to pick up.

Speaker 2

The dealer channel has been has gotten back on his feet and I think it's doing pretty well. You could almost look at the difference in The peak HUD sales for this industry compared to the most recent seasonally adjusted level in December based on HUD shipments And it pretty much can be explained by the drop off in community orders this past year. So I think as we as the year unfolds, Not able to make predictions about it, but as the year unfolds and we see communities get their inventory behind them and start resuming their orders, I think it's a lot of good positive upside for the industry.

Speaker 5

Thank you, Bill. Yes,

Speaker 8

Thank you, Bill. I mean, I know it is open ended. I mean, there's a lot to be excited about. So I just wanted to know what

Operator

And our next question will be a follow-up from Daniel Moore of Securities. Daniel, your line is open.

Speaker 5

Thank you again. I just wanted a quick Question or 2 on kind of update on financing and availability. So Any meaningful change in spreads over the last 90 plus days, both for chattel as well as land home versus traditional stick built mortgage rates? And how would you describe the lending environment today relative to a year ago? You're seeing more community banks exit, stable or others backfilling, any kind of color you might give there would be helpful.

Speaker 5

Thank you.

Speaker 2

Okay.

Speaker 7

Yes. So I'll start

Speaker 1

with the rates, Dan. So the rates for just home only loans, quoted rates are in the high 8%, low 9 range still and that's been pretty consistent these past 90 days.

Speaker 2

Yes. Picking up on your question that I hope I rephrased it accurately kind of The investors in MH loans, for example, community banks and like regional banks and credit union type investors, they It can be finicky. And I'll tell you that I don't want this to be alarmist at all because it shouldn't be, but it's tightened up a little bit. But I think we'll work through that. I don't think it's a major issue from the perspective of lending availability to the consumers.

Speaker 2

And why I say that is there are a lot of folks in that market and they're not all heavily dependent on those outlets or those final investors. And one thing we've talked about over the past, I'm losing track of time, but it's been a while is that For a while, GSE loans, the conforming loans had really kind of gone out of the market. And basically what happened is GSEs raised their requirements, raised their terms and interest rates And the investors we're talking about like the regional banks, credit union type investors really didn't respond as quickly. I think that's because they had a lot of capital put in place. Now what we're seeing is that the regional, I'd call them the non conforming investors have increased their requirements.

Speaker 2

But what happens is GSEs become more competitive in the market and probably see a swing back to that final funding source for the loans. As usual, I think I'm Given a long answer to a short question, but we are not we'll watch those dynamics, but we are not really seeing anything that gives us concern about end consumers access to reasonably priced loans.

Speaker 5

No, that's good color. Appreciate it. I'm going to ask one more and maybe it's a variation on the prior question, maybe not I'll let you judge. But at this stage, We're stable pretty stable at 60 percentage capacity utilization plus or minus. Would you be looking to add capacity when you think about the opportunity set and the lack of affordability in terms of affordable homes over the next 2, 3, 5 years?

Speaker 5

Or are we more let's kind of stick where we are, wait and see, and see how the

Speaker 2

Yes, that's a really good question actually. I guess I would say it's the latter or It's the former, I'm going to restate it. I would not I don't think Cavco would hesitate to add capacity in this industry given what we see strategically. And when you look at a strategic timeframe, which I define as 3 plus years, It takes time to put capacity in place. This country has, depending on your favorite economist, 6,000,000 housing unit deficit to be filled.

Speaker 2

And so strategically, we look right through the many cycles like the one we're operating in right now and we know that there's an opportunity to continue doing more to bring down to increase the availability of affordable housing.

Operator

I would now like to turn the conference back to Bill for closing remarks.

Speaker 2

Okay. Thank you. I mentioned Louisville show in my opening comments. We showcased 15 homes from 9 Cavco plants at the show. We also had our lending company Country Place Mortgage there.

Speaker 2

They were there to talk to customers about how we can meet their commercial and consumer lending needs. So it was a great effort to try to get out there and show what we can do from a partnership perspective. I want to take a quick moment to thank everyone at Cavco who has been involved in our development and launch of the Anthem Duplex line and in all that went into the Louisville show. From the folks who are designing and building these homes to the marketing and sales teams, the commitment and teamwork has really been outstanding. At both events, it was great to see the strength of our organization coming to the forefront.

Speaker 2

Our drive during this downturn has been to keep focused on getting better in every way, so we are ready to run when the inevitable market upswing occurs. And I am very confident we are doing just that. So I want to thank you as always for your interest in Cavco and we look forward to keeping you updated on our progress.

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Key Takeaways

  • In Q3, Cavco reported net revenue of approximately $447 million, down 1% sequentially and 10.8% year-over-year, with pre-tax income of $44 million and a factory-built housing gross margin of 22.4%; diluted EPS fell to $4.27 from $6.66 a year ago.
  • Net orders have risen for five consecutive quarters and backlogs stabilized at about 5–7 weeks of production with capacity utilization steady near 60%, driven by healthy dealer-channel traffic even as community orders remain subdued but are expected to recover.
  • Production was matched to incoming orders through the winter months, keeping plants at reduced schedules with the flexibility to ramp up quickly as spring demand emerges.
  • Cavco generated roughly $25 million of cash flow before share repurchases, used $50 million to buy back stock in the quarter, and unveiled a new $100 million repurchase program to bolster capital returns.
  • Strategic launches and deals include the introduction of the HUD-approved Anthem duplex series—garnering strong developer and municipal interest—and the acquisition of Kentucky Dream Homes, expanding Cavco’s retail network to 72 company-owned sales centers.
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Earnings Conference Call
Cavco Industries Q3 2024
00:00 / 00:00