Cavco Industries Reports Fiscal 2019 Third Quarter Results and Corporate Update
04 Februar 2019 - 10:05PM
Cavco Industries, Inc. (NASDAQ: CVCO) today announced financial
results for the third fiscal quarter ended December 29, 2018.
Financial highlights include the following:
- Net revenue for the third quarter of fiscal
year 2019 was $233.7 million, up 5.6% from $221.4 million for the
third quarter of fiscal year 2018. The increase was primarily from
higher home selling prices as a result of input cost inflation and
modestly larger home sizes. Net revenue for the first nine months
of fiscal 2019 was $721.6 million, a 14.8% increase from $628.7
million in the same period last year. Net revenue for the three and
nine months ended December 29, 2018 includes subcontracted
pass-through services of $5.9 million and $18.7 million,
respectively, which are now recognized on a gross basis rather than
net of associated costs.
- Income before income
taxes was $16.9 million for the third quarter of fiscal
year 2019, a 28.7% decrease from $23.7 million in the comparable
quarter last year. The current quarter's results were impacted by
the following events:
- The Company recorded unrealized losses of $2.1 million on
corporate equity investments in Other income, net. This is the
result of implementation this fiscal year of new accounting
standards that require unrealized gains and losses on equity
instruments to be reported on the Consolidated Statement of
Comprehensive Income. In previous fiscal years, these amounts were
recorded on the Consolidated Balance Sheet in the Accumulated other
comprehensive income line;
- Selling, general and administrative expenses included $1.3
million for legal and other expenses related to the Company's
internal investigation and response to the Securities and Exchange
Commission ("SEC") inquiry and $0.7 million of expense related to
the purchase of additional Director and Officer ("D&O")
insurance, as described further below; and
- Financial services results were adversely impacted by a severe
hailstorm in Arizona, which resulted in increased homeowners'
insurance claims for the period. The Company's insurance subsidiary
maintains reinsurance for loss events that exceed $1.5 million,
which served to limit the losses realized this quarter. The prior
year quarter experienced unusually low claims volume as policy
coverage areas did not have any significant weather-related
events.
Further increasing the adverse quarterly
comparison, income before income taxes for the prior year third
fiscal quarter benefited from a $3.4 million favorable dispute
settlement resolution and the production of a limited number of
disaster-relief units for the Federal Emergency Management
Agency.
For the first nine months of fiscal 2019, income
before income taxes increased 26.8% to $60.6 million from $47.8
million in the prior year period.
- Income tax expense
was $3.6 million, an effective tax rate of 21.0% for the third
quarter of fiscal year 2019 compared to $2.2 million and an
effective tax rate of 9.5% in the same quarter of the prior year.
The Company's prior year tax rate was impacted by the Tax Cuts and
Jobs Act (the "Tax Act"), enacted on December 22, 2017, as the
Company revalued its net deferred income tax balance and recorded
an income tax benefit of $5.6 million. The Tax Act also
reduced the federal statutory corporate tax rate
to 21% for our fiscal year ending March 30, 2019. For the
nine months ended December 29, 2018, income tax expense was $11.9
million, resulting in an effective tax rate of 19.7%, compared to
income tax expense of $8.5 million and an effective tax rate of
17.7% in the comparable period. In addition to the effects of the
Tax Act, income tax expense also includes a benefit of $2.3 million
for the nine months ended December 29, 2018 related to excess tax
benefits from exercises of stock options, compared to a benefit of
$1.7 million in the comparable prior year period.
- Net income was
$13.4 million for the third quarter of fiscal year 2019, compared
to net income of $21.4 million in the same quarter of the prior
year, a 37.4% decrease. For the nine months ended December 29,
2018, net income was $48.7 million, up 23.6% from net income of
$39.4 million in the prior year period. Diluted net income per
share was $1.44 and $5.24 for the three and nine months ended
December 29, 2018, respectively, compared to $2.33 and $4.28 for
the comparable periods last year.
Commenting on the quarter, Dan Urness, President
and Acting Chief Executive Officer said, "The Company performed
well during the most recently completed fiscal quarter. The
financial results were benefited by productivity gains and a more
favorable product mix. We experienced some softening in home order
rates beyond the typical seasonal slowdown expected during winter
months. This order rate decline was most prevalent in the South
Central and South Eastern United States, excluding Florida.
However, economic fundamentals have been resilient and we are
optimistic about our product’s ability to uniquely fulfill the need
for affordable housing. Recent progress by Fannie Mae and Freddie
Mac in their Duty-to-Serve initiatives, as well as the highest
homeownership rates in four years, bode well for our industry."
Corporate Update
As previously disclosed in the second quarter of
fiscal 2019, the Company received a subpoena from the U.S. SEC
Division of Enforcement requesting certain documents relating to,
among other items, trading in the stock of another public company.
The SEC also sent a subpoena for documents and testimony to Joseph
Stegmayer, the Company's former Chairman, President and Chief
Executive Officer, regarding similar issues. In addition, on
November 9, 2018, the Company received a subpoena that contained
duplicate document requests from Mr. Stegmayer’s subpoena as well
as requests for more information on the same matter. The Audit
Committee of the Board of Directors of the Company initiated an
internal investigation led by independent legal counsel in relation
to these requests, and that investigation is ongoing.
As a result of the ongoing independent
investigation, the Company recorded $1.3 million related to legal
and other expenses during the third fiscal quarter and expects to
continue to incur related costs pertaining to this matter over the
next several quarters. During the quarter, the Company also
reviewed the sufficiency of its insurance coverage and as a result
of this review, Cavco’s Board of Directors made a decision to
purchase additional D&O insurance coverage. These new 22 month
policies were implemented December 21, 2018. Total premiums paid
for these policies were $15.3 million, of which $5.4 million was
paid in the third fiscal quarter. As a result, the Company recorded
$0.7 million of additional D&O policy premium expense during
the third fiscal quarter, and expects to incur approximately $2.1
million per quarter in Selling, general and administrative expense
from the amortization of these policy premiums through the second
quarter of fiscal year 2021. Any additional adjustments are
expected to be in the normal course of maintaining adequate D&O
insurance for the Company.
Management Conference Call- Tomorrow,
February 5, 2019 8:00 AM (Eastern Time)
Cavco’s management will hold a conference call
to review these results tomorrow, February 5, 2019, at 8:00 AM
(Eastern Time). Interested parties can access a live webcast of the
conference call on the Internet at www.cavco.com under the Investor
Relations link. An archive of the webcast and presentation will be
available for 90 days at www.cavco.com under the Investor Relations
link.
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 Homes, Fleetwood Homes, Palm Harbor Homes,
Fairmont Homes, Friendship Homes, Chariot Eagle and Lexington
Homes. 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 mortgage subsidiary, CountryPlace Mortgage, is an approved
Fannie Mae and Freddie Mac seller/servicer, 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.
Certain statements contained in this release are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, Section 21E of the Securities and Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. In general,
all statements that are not historical in nature are
forward-looking. Forward-looking statements are typically included,
for example, in discussions regarding the manufactured housing and
site-built housing industries; our financial performance and
operating results; and the expected effect of certain risks and
uncertainties on our business, financial condition and results of
operations. All forward-looking statements are subject to risks and
uncertainties, many of which are beyond our control. As a result,
our actual results or performance may differ materially from
anticipated results or performance. Factors that could cause such
differences to occur include, but are not limited to: adverse
industry conditions; our ability to successfully integrate past
acquisitions and any future acquisition or the ability to attain
the anticipated benefits of such acquisitions; the risk that any
past or future acquisition may adversely impact our liquidity;
involvement in vertically integrated lines of business, including
manufactured housing consumer finance, commercial finance and
insurance; a constrained consumer financing market; curtailment of
available financing for retailers in the manufactured housing
industry; our participation in certain wholesale and retail
financing programs for the purchase of our products by industry
distributors and consumers may expose us to additional risk of
credit loss; significant warranty and construction defect claims;
our contingent repurchase obligations related to wholesale
financing; market forces and housing demand fluctuations; net
losses were incurred in certain prior periods and there can be no
assurance that we will generate income in the future; a write-off
of all or part of our goodwill; the cyclical and seasonal nature of
our business; limitations on our ability to raise capital;
competition; our ability to maintain relationships with independent
distributors; our business and operations being concentrated in
certain geographic regions; labor shortages; pricing and
availability of raw materials; unfavorable zoning ordinances; loss
of any of our executive officers; organizational document
provisions delaying or making a change in control more difficult;
volatility of stock price; general deterioration in economic
conditions and continued turmoil in the credit markets; increased
costs of healthcare benefits for employees; federal government
shutdowns; information technology failures and data security
breaches; extensive regulation affecting manufactured housing;
potential financial impact on the Company from the subpoena we
received from the SEC; the risk of potential litigation or
regulatory action arising from the SEC subpoena; potential
reputational damage that the Company may suffer as a result of the
matters that are the subject of the subpoena from the SEC, as well
as the results of the investigation being carried out by the Audit
Committee of the Board of Directors; together with all of the other
risks described in our filings with the Securities and Exchange
Commission. Readers are specifically referred to the Risk Factors
described in Item 1A of the 2018 Form 10-K, as may be amended from
time to time, which identify important risks that could cause
actual results to differ from those contained in the
forward-looking statements. Cavco expressly disclaims any
obligation to update any forward-looking statements contained in
this release, whether as a result of new information, future events
or otherwise. Investors should not place any reliance on any such
forward-looking statements.
CAVCO INDUSTRIES,
INC.CONSOLIDATED BALANCE SHEETS(Dollars
in thousands, except per share amounts)
|
December 29,2018 |
|
March 31,2018 |
ASSETS |
(Unaudited) |
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
192,869 |
|
|
$ |
186,766 |
|
Restricted cash, current |
11,284 |
|
|
11,228 |
|
Accounts
receivable, net |
35,903 |
|
|
35,043 |
|
Short-term investments |
10,558 |
|
|
11,866 |
|
Current
portion of consumer loans receivable, net |
32,863 |
|
|
31,096 |
|
Current
portion of commercial loans receivable, net |
10,755 |
|
|
5,481 |
|
Inventories |
115,409 |
|
|
109,152 |
|
Prepaid
expenses and other current assets |
40,096 |
|
|
27,961 |
|
Total current
assets |
449,737 |
|
|
418,593 |
|
Restricted cash |
454 |
|
|
1,264 |
|
Investments |
33,125 |
|
|
33,573 |
|
Consumer loans
receivable, net |
58,447 |
|
|
63,855 |
|
Commercial loans
receivable, net |
26,284 |
|
|
11,120 |
|
Property, plant and
equipment, net |
66,378 |
|
|
63,355 |
|
Goodwill and other
intangibles, net |
82,776 |
|
|
83,020 |
|
Total assets |
$ |
717,201 |
|
|
$ |
674,780 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
20,284 |
|
|
$ |
23,785 |
|
Accrued
liabilities |
126,228 |
|
|
126,500 |
|
Current
portion of securitized financings and other |
39,596 |
|
|
26,044 |
|
Total current
liabilities |
186,108 |
|
|
176,329 |
|
Securitized financings
and other |
15,020 |
|
|
33,768 |
|
Deferred income
taxes |
7,001 |
|
|
7,577 |
|
Stockholders’
equity: |
|
|
|
Preferred
stock, $.01 par value; 1,000,000 shares authorized; No shares
issued or outstanding |
— |
|
|
— |
|
Common
stock, $.01 par value; 40,000,000 shares authorized;
Outstanding 9,098,320 and 9,044,858 shares,
respectively |
91 |
|
|
90 |
|
Additional paid-in capital |
249,018 |
|
|
246,197 |
|
Retained
earnings |
260,107 |
|
|
209,381 |
|
Accumulated other comprehensive income (loss) |
(144 |
) |
|
1,438 |
|
Total stockholders’
equity |
509,072 |
|
|
457,106 |
|
Total liabilities and
stockholders’ equity |
$ |
717,201 |
|
|
$ |
674,780 |
|
CAVCO INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(Dollars in thousands, except per share
amounts)(Unaudited)
|
Three Months Ended |
|
Nine Months Ended |
|
December 29,2018 |
|
December 30,2017 |
|
December 29,2018 |
|
December 30,2017 |
Net revenue |
$ |
233,700 |
|
|
$ |
221,383 |
|
|
$ |
721,633 |
|
|
$ |
628,706 |
|
Cost of sales |
184,679 |
|
|
171,527 |
|
|
571,720 |
|
|
502,330 |
|
Gross profit |
49,021 |
|
|
49,856 |
|
|
149,913 |
|
|
126,376 |
|
Selling, general and
administrative expenses |
30,833 |
|
|
26,045 |
|
|
90,081 |
|
|
78,503 |
|
Income from
operations |
18,188 |
|
|
23,811 |
|
|
59,832 |
|
|
47,873 |
|
Interest expense |
(923 |
) |
|
(1,236 |
) |
|
(2,836 |
) |
|
(3,305 |
) |
Other income, net |
(318 |
) |
|
1,094 |
|
|
3,604 |
|
|
3,251 |
|
Income before income
taxes |
16,947 |
|
|
23,669 |
|
|
60,600 |
|
|
47,819 |
|
Income tax expense |
(3,563 |
) |
|
(2,242 |
) |
|
(11,949 |
) |
|
(8,457 |
) |
Net income |
$ |
13,384 |
|
|
$ |
21,427 |
|
|
$ |
48,651 |
|
|
$ |
39,362 |
|
|
|
|
|
|
|
|
|
Net income per
share: |
|
|
|
|
|
|
|
Basic |
$ |
1.47 |
|
|
$ |
2.37 |
|
|
$ |
5.36 |
|
|
$ |
4.36 |
|
Diluted |
$ |
1.44 |
|
|
$ |
2.33 |
|
|
$ |
5.24 |
|
|
$ |
4.28 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
9,097,993 |
|
|
9,030,100 |
|
|
9,075,156 |
|
|
9,019,311 |
|
Diluted |
9,270,220 |
|
|
9,214,898 |
|
|
9,282,178 |
|
|
9,186,042 |
|
CAVCO INDUSTRIES,
INC.OTHER OPERATING DATA(Dollars in
thousands)(Unaudited)
|
Three Months Ended |
|
Nine Months Ended |
|
December 29,2018 |
|
December 30,2017 |
|
December 29,2018 |
|
December 30,2017 |
Net revenue: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
220,342 |
|
|
$ |
207,183 |
|
|
$ |
680,198 |
|
|
$ |
587,445 |
|
Financial
services |
13,358 |
|
|
14,200 |
|
|
41,435 |
|
|
41,261 |
|
Total net revenue |
$ |
233,700 |
|
|
$ |
221,383 |
|
|
$ |
721,633 |
|
|
$ |
628,706 |
|
|
|
|
|
|
|
|
|
Income before income
taxes: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
14,562 |
|
|
$ |
18,393 |
|
|
$ |
53,050 |
|
|
$ |
40,147 |
|
Financial
services |
2,385 |
|
|
5,276 |
|
|
7,550 |
|
|
7,672 |
|
Total income before
income taxes |
$ |
16,947 |
|
|
$ |
23,669 |
|
|
$ |
60,600 |
|
|
$ |
47,819 |
|
|
|
|
|
|
|
|
|
Capital
expenditures |
$ |
2,442 |
|
|
$ |
1,246 |
|
|
$ |
6,318 |
|
|
$ |
3,025 |
|
Depreciation |
$ |
1,114 |
|
|
$ |
933 |
|
|
$ |
3,224 |
|
|
$ |
2,699 |
|
Amortization of other
intangibles |
$ |
80 |
|
|
$ |
92 |
|
|
$ |
244 |
|
|
$ |
276 |
|
|
|
|
|
|
|
|
|
Total factory-built
homes sold |
3,447 |
|
|
3,701 |
|
|
10,870 |
|
|
10,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information, contact: |
|
Mark FuslerDirector of Financial
Reportinginvestor_relations@cavco.com |
|
|
Phone: 602-256-6263On the
Internet: www.cavco.com |
|
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