Cavco Industries, Inc. (Nasdaq: CVCO) today 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 period, a
40.0% decrease. Diluted net income per share was $1.29 versus $2.17
for the comparable period last year.
During each quarterly period, items ancillary to
our core operations had the following impact on the results (in
millions).
|
|
|
Three Months Ended |
|
|
March 28, 2020 |
|
March 30, 2019 |
Net
revenue |
|
Unrealized (losses)/gains on equity investments in financial
services segment |
|
$ |
(2.0 |
) |
|
$ |
0.6 |
|
Cost of
sales |
|
Non-cash valuation adjustments
from economic conditions stemming from the pandemic |
|
(2.1 |
) |
|
— |
|
Selling,
general and administrative expenses |
|
Director and Officer
("D&O") insurance premium amortization |
|
(2.1 |
) |
|
(2.1 |
) |
|
Legal and other expenses
related to the Company's internal investigation and response to the
Securities and Exchange Commission ("SEC") inquiry |
|
(0.4 |
) |
|
(0.8 |
) |
Other
income |
|
Unrealized (losses)/gains on
corporate equity investments |
|
(2.1 |
) |
|
0.7 |
|
Income
tax expense |
|
Tax benefits from stock option
exercises |
|
1.7 |
|
|
0.2 |
|
Twelve months ended March 28, 2020
compared to the twelve months ended March 30, 2019
- Net revenue was
$1.062 billion, up 10.3% from $962.7 million in the prior fiscal
year. 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 versus the prior year.
- Income before income
taxes increased 7.3% to $93.0 million as compared to $86.7
million in the prior fiscal year. The improvement was primarily
from higher gross profit margins from increased home sales, lower
home production materials input costs and improved earnings in the
financial services segment, partially offset by factors related to
the COVID-19 pandemic, as discussed above.
- Income tax expense
was $17.9 million, an effective tax rate of 19.3%, compared to
income tax expense of $18.1 million and an effective tax rate of
20.8% in the prior year. The lower effective tax rate in the
current period primarily relates to the recognition of certain tax
credits under the Consolidated Appropriations Act, 2020.
- Net income was
$75.1 million, up 9.5% from net income of $68.6 million in the
prior year. Diluted net income per share was $8.10 versus $7.40 in
the prior year.
During each annual period, items ancillary to
our core operations had the following impact on the results (in
millions).
|
|
|
Year Ended |
|
|
March 28, 2020 |
|
March 30, 2019 |
Net
revenue |
|
Unrealized (losses)/gains on equity investments in financial
services segment |
|
$ |
(1.4 |
) |
|
$ |
0.1 |
|
Cost of
sales |
|
Non-cash valuation adjustments
from economic conditions stemming from the pandemic |
|
(2.1 |
) |
|
— |
|
Selling,
general and administrative expenses |
|
D&O insurance premium
amortization |
|
(8.4 |
) |
|
(2.8 |
) |
|
Legal and other expenses
related to the Company's internal investigation and response to the
SEC inquiry |
|
(2.9 |
) |
|
(2.1 |
) |
Other
income |
|
Unrealized losses on corporate
equity investments |
|
(0.7 |
) |
|
(0.3 |
) |
|
Gain on sale of idle land |
|
3.4 |
|
|
— |
|
Income
tax expense |
|
Tax benefits from stock option
exercises |
|
3.0 |
|
|
2.5 |
|
|
Recognition of certain tax
credits under the Consolidated Appropriations Act, 2020 |
|
1.8 |
|
|
— |
|
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."
Cavco's management will hold a conference call
to review these results tomorrow, May 27, 2020, at 8:00 AM
(Eastern Time). Interested parties can access a live webcast of the
conference call on the Internet at https://investor.cavco.com or
via telephone at + 1 (844) 348-1686 (domestic) or + 1 (213)
358-0891 (international). An archive of the webcast and
presentation will be available for 90 days at
https://investor.cavco.com.
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.
Forward-Looking Statements
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: the impact of
local or national emergencies, including the COVID-19 pandemic,
including such impacts from state and federal regulatory action
that restricts our ability to operate our business in the ordinary
course and impacts on (i) customer demand and the availability of
financing for our products, (ii) our supply chain and the
availability of raw materials for the manufacture of our products,
(iii) the availability of labor and the health and safety of our
workforce and (iv) our liquidity and access to the capital markets;
our ability to successfully integrate past acquisitions or future
acquisitions and 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; information
technology failures or cyber incidents; curtailment of available
financing from home-only lenders; availability of wholesale
financing and limited floor plan lenders; our participation in
certain wholesale and retail financing programs for the purchase of
our products by industry distributors and consumers, which 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 our ability to 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 and the
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 turmoil in the credit markets; governmental
and regulatory disruption, including federal government shutdowns;
extensive regulation affecting manufactured housing; potential
financial impact on the Company from the subpoenas we received from
the SEC, including the risk of potential litigation or regulatory
action, and costs and expenses arising from the SEC subpoenas and
the events described in or covered by the SEC subpoenas, which
include the Company's indemnification obligations and insurance
costs regarding such matters, and potential reputational damage
that the Company may suffer; and losses not covered by our director
and officer insurance may be large, adversely impacting financial
performance; 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 2019 Form 10-K, as may be amended from time to time, including
by means of the Risk Factor Update included in our Current Report
on Form 8-K filed on March 31, 2020, 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 undue reliance on any such
forward-looking statements.
CAVCO INDUSTRIES,
INC.CONSOLIDATED BALANCE SHEETS(Dollars
in thousands, except per share amounts)
|
March 28, 2020 |
|
March 30, 2019 |
ASSETS |
(Unaudited) |
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
241,826 |
|
|
$ |
187,370 |
|
Restricted cash, current |
13,446 |
|
|
12,148 |
|
Accounts receivable, net |
42,800 |
|
|
40,701 |
|
Short-term investments |
14,582 |
|
|
12,620 |
|
Current portion of consumer loans receivable, net |
32,376 |
|
|
30,058 |
|
Current portion of commercial loans receivable, net |
14,657 |
|
|
14,574 |
|
Current portion of commercial loans receivable from affiliates,
net |
766 |
|
|
660 |
|
Inventories |
113,535 |
|
|
116,203 |
|
Assets held for sale |
— |
|
|
3,061 |
|
Prepaid expenses and other current assets |
42,197 |
|
|
44,654 |
|
Total current assets |
516,185 |
|
|
462,049 |
|
Restricted cash |
335 |
|
|
351 |
|
Investments |
31,557 |
|
|
32,137 |
|
Consumer loans receivable,
net |
49,928 |
|
|
56,727 |
|
Commercial loans receivable,
net |
23,685 |
|
|
22,208 |
|
Commercial loans receivable from
affiliate, net |
7,457 |
|
|
5,564 |
|
Property, plant and equipment,
net |
77,190 |
|
|
63,484 |
|
Goodwill |
75,090 |
|
|
72,920 |
|
Other intangibles, net |
15,110 |
|
|
9,776 |
|
Operating lease right-of-use
assets |
13,894 |
|
|
— |
|
Total assets |
$ |
810,431 |
|
|
$ |
725,216 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
29,924 |
|
|
$ |
29,305 |
|
Accrued expenses and other current liabilities |
139,930 |
|
|
125,181 |
|
Current portion of securitized financings and other |
2,248 |
|
|
19,522 |
|
Total current liabilities |
172,102 |
|
|
174,008 |
|
Operating lease liabilities |
10,743 |
|
|
— |
|
Securitized financings and
other |
12,705 |
|
|
14,618 |
|
Deferred income taxes |
7,295 |
|
|
7,002 |
|
Stockholders' equity: |
|
|
|
Preferred stock, $0.01 par value; 1,000,000 shares authorized; No
shares issued or outstanding |
— |
|
|
— |
|
Common stock, $0.01 par value; 40,000,000 shares authorized;
Outstanding 9,173,242 and 9,098,320 shares, respectively |
92 |
|
|
91 |
|
Additional paid-in capital |
252,260 |
|
|
249,447 |
|
Retained earnings |
355,144 |
|
|
280,078 |
|
Accumulated other comprehensive income (loss) |
90 |
|
|
(28 |
) |
Total stockholders' equity |
607,586 |
|
|
529,588 |
|
Total liabilities and
stockholders' equity |
$ |
810,431 |
|
|
$ |
725,216 |
|
CAVCO INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF
INCOME(Dollars in thousands, except per share
amounts)(Unaudited)
|
Three Months Ended |
|
Year Ended |
|
March 28, 2020 |
|
March 30, 2019 |
|
March 28, 2020 |
|
March 30, 2019 |
Net revenue |
$ |
255,335 |
|
|
$ |
241,113 |
|
|
$ |
1,061,774 |
|
|
$ |
962,746 |
|
Cost of sales |
203,437 |
|
|
185,320 |
|
|
831,256 |
|
|
757,040 |
|
Gross profit |
51,898 |
|
|
55,793 |
|
|
230,518 |
|
|
205,706 |
|
Selling, general and
administrative expenses |
37,420 |
|
|
31,487 |
|
|
145,611 |
|
|
121,568 |
|
Income from operations |
14,478 |
|
|
24,306 |
|
|
84,907 |
|
|
84,138 |
|
Interest expense |
(217 |
) |
|
(608 |
) |
|
(1,495 |
) |
|
(3,444 |
) |
Other (expense) income, net |
(631 |
) |
|
2,378 |
|
|
9,567 |
|
|
5,982 |
|
Income before income taxes |
13,630 |
|
|
26,076 |
|
|
92,979 |
|
|
86,676 |
|
Income tax expense |
(1,629 |
) |
|
(6,105 |
) |
|
(17,913 |
) |
|
(18,054 |
) |
Net income |
$ |
12,001 |
|
|
$ |
19,971 |
|
|
$ |
75,066 |
|
|
$ |
68,622 |
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
Basic |
$ |
1.31 |
|
|
$ |
2.20 |
|
|
$ |
8.22 |
|
|
$ |
7.56 |
|
Diluted |
$ |
1.29 |
|
|
$ |
2.17 |
|
|
$ |
8.10 |
|
|
$ |
7.40 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
9,158,287 |
|
|
9,098,320 |
|
|
9,129,639 |
|
|
9,080,878 |
|
Diluted |
9,297,964 |
|
|
9,219,015 |
|
|
9,268,784 |
|
|
9,268,737 |
|
CAVCO INDUSTRIES,
INC.OTHER OPERATING DATA(Dollars in
thousands)(Unaudited)
|
Three Months Ended |
|
Year Ended |
|
March 28, 2020 |
|
March 30, 2019 |
|
March 28, 2020 |
|
March 30, 2019 |
Net revenue: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
240,776 |
|
|
$ |
225,528 |
|
|
$ |
999,340 |
|
|
$ |
905,726 |
|
Financial services |
14,559 |
|
|
15,585 |
|
|
62,434 |
|
|
57,020 |
|
Total net revenue |
$ |
255,335 |
|
|
$ |
241,113 |
|
|
$ |
1,061,774 |
|
|
$ |
962,746 |
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
45,677 |
|
|
$ |
44,722 |
|
|
$ |
195,244 |
|
|
$ |
172,136 |
|
Financial services |
6,221 |
|
|
11,071 |
|
|
35,274 |
|
|
33,570 |
|
Total gross profit |
$ |
51,898 |
|
|
$ |
55,793 |
|
|
$ |
230,518 |
|
|
$ |
205,706 |
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
12,851 |
|
|
$ |
17,379 |
|
|
$ |
68,070 |
|
|
$ |
67,041 |
|
Financial services |
1,627 |
|
|
6,927 |
|
|
16,837 |
|
|
17,097 |
|
Total income from
operations |
$ |
14,478 |
|
|
$ |
24,306 |
|
|
$ |
84,907 |
|
|
$ |
84,138 |
|
|
|
|
|
|
|
|
|
Capital expenditures |
$ |
7,853 |
|
|
$ |
1,318 |
|
|
$ |
14,340 |
|
|
$ |
7,636 |
|
Depreciation |
$ |
1,388 |
|
|
$ |
1,150 |
|
|
$ |
5,177 |
|
|
$ |
4,374 |
|
Amortization of other
intangibles |
$ |
187 |
|
|
$ |
80 |
|
|
$ |
606 |
|
|
$ |
324 |
|
|
|
|
|
|
|
|
|
Total factory-built homes
sold |
3,647 |
|
|
3,519 |
|
|
15,100 |
|
|
14,389 |
|
For additional information, contact: |
|
Mark FuslerDirector of Financial Reporting and
Investor Relationsinvestor_relations@cavco.com |
|
Phone: 602-256-6263On the
Internet: www.cavco.com |
|
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