Cavco Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2022; comparative periods ended January 1, 2022. Amounts are in U.S. dollars unless noted.
Business context
Cavco designs and manufactures factory-built housing and operates consumer finance and insurance businesses. Its two reportable segments are factory-built housing and financial services. The period includes the effects of prior-year acquisitions, including Commodore and Craftsman.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Year-over-year change | Nine months ended Dec. 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $500.6 million | +16.0% | $1,666.3 million | +48.6% |
| Gross profit | $132.0 million | +14.5% | $434.3 million | +55.6% |
| Gross margin | 26.4% | Down 0.3 percentage points | 26.1% | Up 1.2 percentage points |
| Operating income | $73.1 million | Up from $54.9 million | $242.4 million | Up from $132.6 million |
| Net income attributable to Cavco shareholders | $59.5 million | Down from $79.4 million | $193.2 million | Up from $144.1 million |
| Diluted EPS | $6.66 | Down from $8.57 | $21.55 | Up from $15.54 |
Factory-built housing revenue rose 16.3% in the quarter and 51.1% over nine months, reflecting higher unit volumes and selling prices. Quarterly homes sold were nearly flat, while revenue per home increased 15.9%. Financial-services gross profit fell 18.4% in the quarter and 16.4% over nine months, principally reflecting higher weather-related insurance claims and investment losses. SG&A as a share of revenue improved to 11.8% in the quarter and 11.5% over nine months.
Quarterly net income declined despite higher operating income, largely because the prior-year quarter benefited from substantial energy-efficient-home tax credits. The prior-year nine-month period included $34.4 million of such credits, including catch-up credits; the current-year nine-month period included $5.1 million. Current-year effective tax rates were 21.7% for the quarter and 22.0% for the nine months.
Cash, liquidity and capital
- Cash and cash equivalents were $376.1 million at December 31, 2022, versus $244.2 million at April 2, 2022. Cash, cash equivalents and restricted cash totaled $386.4 million.
- Operating cash flow was $230.1 million for the nine months, compared with $126.0 million in the prior-year period. Capital expenditures were $40.9 million.
- Cash used in financing was $73.9 million, primarily reflecting $73.2 million of stock repurchases. The company repurchased 151,531 shares during the quarter for approximately $34.3 million.
- Cavco established a $50 million revolving credit facility in November 2022; no borrowings were outstanding at quarter-end, and the company reported compliance with its covenants.
- Total current assets were $832.6 million and current liabilities were $278.4 million. The balance sheet also included $24.7 million of lease liabilities and $2.5 million of other secured financing; the filing reports no outstanding revolving-facility borrowings.
Outlook, risks and notable items
- Management said available cash and operating cash flow should be sufficient to fund operations, obligations and growth for the next 12 months and into the foreseeable future. No numerical earnings or revenue guidance was provided.
- Backlog was $427 million at December 31, down 34.4% from the prior quarter’s $651 million and 61.4% from $1.1 billion a year earlier. Management attributed the decline primarily to lower orders net of cancellations and noted uncertainty around housing demand.
- Management highlighted potential exposure to inflation and availability of materials and labor, production inefficiencies, consumer confidence and financing availability. New risk disclosures address U.S.-Mexico border disruption, transportation casualty losses, Mexican peso exchange rates and regulatory changes.
- On January 3, 2023, Cavco completed its acquisition of Solitaire Homes for $93 million, funded with cash. The acquired business includes four manufacturing facilities and 22 retail locations; purchase accounting was preliminary at the filing date.
- Repurchase agreements with distributors had a maximum contingent exposure of $193.5 million at quarter-end, before considering resale value; the reserve was $4.9 million, and no repurchases occurred during the period. Management said pending legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether the sharp backlog decline continues and how it affects factory-built housing volumes, pricing and margins.
- How the Solitaire Homes acquisition performs, including integration, cash use and final purchase-price allocation.
- Whether weather-related insurance claims and investment volatility continue to weigh on financial-services results.
- Whether consumer, distributor and construction lending portfolios maintain credit quality as economic and financing conditions change.
- How repurchase commitments, loan-sale representations and warranties, and other contingencies evolve relative to recorded reserves.