Business context and reporting period
Skyline Champion Corporation (NYSE: SKY), a North American manufacturer of factory-built homes, filed this Form 10-K for the fiscal year ended April 3, 2021. The filing covers fiscal 2021, not calendar-year 2020; fiscal 2021 included 53 weeks versus 52 weeks in fiscal 2020. The request’s “2020 Q4” label does not match the filing period. The unaudited fourth-quarter figures below are fiscal 2021 Q4 compared with fiscal 2020 Q4.
The company operates U.S. and Canadian manufacturing businesses, company-owned retail locations, and a transportation business. It reported 40 manufacturing facilities and 18 retail sales centers at fiscal year-end. Its February 2021 acquisition of ScotBilt is included from the acquisition date.
Financial performance and position
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $1,420.9 million | $1,369.7 million |
| Gross profit / margin | $287.7 million / 20.2% | $279.0 million / 20.4% |
| Operating income / margin | $108.8 million / 7.7% | $86.5 million / 6.3% |
| Net income / margin | $84.9 million / 6.0% | $58.2 million / 4.2% |
| Diluted earnings per share | $1.49 | $1.02 |
| Adjusted EBITDA (non-GAAP) | $134.8 million / 9.5% of sales | $114.4 million / 8.3% of sales |
| Cash from operating activities | $153.9 million | $76.7 million |
| Capital expenditures | $8.0 million | $15.4 million |
Fiscal 2021 sales increased 3.7%; operating income rose 25.8%, and net income rose 46.0%. Gross margin edged down as material inflation, COVID-related absenteeism and production inefficiencies offset higher selling prices and improved performance in Canada and transportation. Lower SG&A helped lift operating margin. Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results.
Fiscal 2021 Q4 net sales were $447.6 million versus $301.1 million; gross profit was $99.1 million versus $60.0 million; net income was $33.9 million versus $6.0 million. Quarterly figures are unaudited.
At April 3, 2021, cash and cash equivalents were $262.6 million, current assets $499.8 million, and current liabilities $263.6 million. Long-term debt was $39.3 million, and retail floor-plan borrowings were $25.7 million. The company had $42.7 million available under its $100 million revolving facility, subject to outstanding letters of credit and facility terms. Operating cash flow benefited substantially from a $36.4 million increase in customer deposits; management expects deposits to return toward historical levels, which would reduce operating cash flow.
Unfilled orders were $858.6 million at year-end, compared with $127.5 million a year earlier. Orders may be canceled before production begins, and backlog is not a guaranteed measure of future sales. The balance sheet also included $191.8 million of goodwill.
Material changes versus the prior comparable period
- U.S. manufacturing and retail sales increased 3.3% to $1,266.3 million; homes sold declined 0.6% to 19,983, while average selling price increased 3.9% to $63,400.
- Canadian sales increased 20.3% to $101.3 million, driven by 22.9% more homes sold; average selling price declined 2.0% to $82,300.
- Corporate/Other sales, including transportation, fell 10.0% to $53.2 million, mainly due to lower third-party transportation sales and RV shipments.
- Cash from operations more than doubled, supported by earnings and higher customer deposits. Cash used in investing activities rose to $56.8 million, including $52.5 million net cash paid for ScotBilt. The company repaid $38.0 million on its revolving credit facility.
- Year-end U.S. factory-built housing market share was 16.9%, compared with 16.5% in fiscal 2020.
Outlook, commentary, risks and unusual items
Management reported robust U.S. and Canadian housing demand from mid-2020 onward, supported by affordability needs and limited existing-home supply. It expects available cash and operating cash flows to cover anticipated working capital needs, capital expenditures and floor-plan obligations over the next year, and stated that it expects to comply with its credit covenant. The filing gives no quantified earnings or revenue guidance.
Management plans to improve plant capacity and profitability, invest in online customer tools and automation, implement a cloud-based enterprise system, and pursue organic growth and acquisitions. It acquired ScotBilt for total consideration of approximately $54.5 million; the purchase-price allocation was preliminary. Two idle North Carolina facilities were purchased, with production anticipated to begin in fiscal 2023. Three retail centers were closed during fiscal 2021.
- COVID-19 and execution: Plant disruptions, labor availability, absenteeism and supply-chain volatility constrained production. Capacity, hiring and materials could limit fulfillment of the substantial backlog.
- Costs and margins: Lumber and other input costs rose sharply. Price increases and surcharges have generally helped offset inflation, but further cost increases may not be passed through without hurting demand or margins.
- Financing and contingent exposure: Consumer and retailer financing availability affects demand. Repurchase obligations for independent retailers’ floor-plan financing totaled approximately $219.5 million before resale value; the recorded loss reserve was $1.4 million. Letters of credit and surety bonds totaled $30.4 million and $34.4 million, respectively.
- Other risks: Housing cyclicality, competition, interest rates, zoning and regulation, product quality and warranty claims, natural disasters, cybersecurity, and acquisition integration may affect results. Variable-rate borrowings expose the company to interest-rate changes; the credit facility referenced LIBOR, which was scheduled to be phased out.
- Government assistance and timing: Fiscal 2021 other income included $6.2 million of Canadian wage subsidies and $0.7 million of U.S. wage subsidies, partly offset by $1.0 million of ScotBilt transaction costs. The company deferred $11.8 million of payroll taxes, with repayment beginning in December 2021.
- Controls and audit: Management and the auditor concluded internal control over financial reporting was effective. Both excluded ScotBilt from the control assessment; it represented 6.9% of total assets and 0.7% of fiscal 2021 revenue. The auditor identified workers’ compensation reserves, valued at $16.3 million, as a critical audit matter.
Important facts for investors to verify
- Confirm that subsequent production, shipments and pricing convert the $858.6 million backlog into revenue while accounting for its pre-production cancellation terms.
- Track whether material inflation, labor constraints and facility capacity affect gross margins and delivery schedules.
- Assess operating cash flow excluding the temporary benefit from increased customer deposits and monitor inventory and working-capital requirements.
- Review ScotBilt integration, final purchase-price allocation, and the planned North Carolina facility start-up.
- Monitor retailer repurchase exposure, revolving-credit availability and covenant compliance, as well as the LIBOR transition and other variable-rate debt costs.