Cavco Industries, Inc. — Form 10-Q Summary
Reporting period: Second fiscal quarter ended October 1, 2022; fiscal year-to-date covers the six months ended October 1, 2022. Comparisons are with the quarter and six-month period ended October 2, 2021. Amounts below are in millions of dollars unless noted.
Business context
Cavco designs and manufactures factory-built homes, modular homes and park model RVs, and operates retail, consumer finance and insurance businesses. It reported two segments: factory-built housing and financial services. The company operated 26 homebuilding production lines and 42 company-owned retail stores; recent acquisitions of Commodore and Craftsman contributed to results.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Revenue | $577.4 | $359.5 | $1,165.7 | $690.0 |
| Gross profit | $157.6 | $89.9 | $302.3 | $163.9 |
| Gross margin | 27.3% | 25.0% | 25.9% | 23.8% |
| Operating income | $90.7 | $44.6 | $169.3 | $77.7 |
| Net income attributable to Cavco shareholders | $74.1 | $37.6 | $133.7 | $64.7 |
| Diluted EPS | $8.25 | $4.06 | $14.88 | $6.97 |
| Operating cash flow | Not separately stated | Not separately stated | $162.9 | $80.1 |
Second-quarter revenue rose 60.6% year over year; six-month revenue rose 69.0%. Factory-built housing revenue increased 63.6% for the quarter and 73.0% year to date, reflecting higher unit sales and selling prices, including Commodore contribution. Homes sold increased 42.1% in the quarter and 43.3% year to date; revenue per home sold rose 15.1% and 20.7%, respectively. Factory-built housing gross margin improved, primarily on higher average selling prices. SG&A rose in dollars but declined as a share of revenue, to 11.6% for the quarter and 11.4% year to date.
Financial services revenue was up 2.0% in the quarter but down 5.8% year to date. Year-to-date financial services gross profit fell 14.9%, reflecting higher weather-related insurance claims and marketable-security losses. Other income was lower year over year, partly because the prior-year period included a gain on the Craftsman acquisition and a marketable-investment gain.
Liquidity, capital and balance sheet
- Cash and cash equivalents were $333.2 million at October 1, 2022; cash, cash equivalents and restricted cash totaled $348.1 million, up from $259.3 million at fiscal year-end.
- Current assets were $819.8 million and current liabilities were $306.1 million. Total assets were $1,264.7 million; stockholders’ equity was $928.9 million.
- Operating cash flow of $162.9 million funded $33.2 million of property and equipment purchases and $39.0 million of share repurchases, among other uses. Investing cash outflow was $34.9 million; financing cash outflow was $39.2 million.
- The filing reports finance lease payables of $6.3 million and noncurrent other secured financing of $2.6 million; it does not identify material conventional borrowings. Interest expense was $0.4 million for the six months.
- Management said available cash and expected operating cash flows should fund operations and obligations for at least the next 12 months. The board approved a new $100 million repurchase authorization in May 2022; the filing says no purchases had been made under that program.
Changes, outlook and risks
- Backlog was $651 million at October 1, down 34.8% from the prior quarter’s $1.0 billion and 41.2% from $1.1 billion a year earlier. Management said net order rates had receded from the unusually high levels of summer 2020 through summer 2021.
- Management cited inflation in materials and labor, potential delays in passing cost increases through pricing, supply and workforce constraints, and higher interest rates that could weaken buyers’ access to affordable financing. It reported no significant production halts in the current period, but warned shortages could cause inefficiencies, delivery delays and lower margins.
- Industry shipments increased 14.2% in the first eight months of calendar 2022, according to the Manufactured Housing Institute. The filing gives no specific company earnings or revenue guidance.
- After quarter-end, Cavco signed a binding offer to acquire Solitaire Homes for $93 million before closing adjustments, expected to be funded entirely with cash. Closing was expected early in fiscal Q4, subject to approvals and customary conditions; the business includes four manufacturing facilities and 22 retail locations.
- The company settled the SEC civil action on September 23, 2022, agreeing to an injunction and a $1.5 million penalty without admitting or denying the findings. The settlement resolved claims against the company and was not material to its financial statements. Management said other pending matters were not expected to have a material adverse effect, subject to uncertainty.
- Consumer-loan exposure is concentrated in Texas (43% of principal) and Florida (16%). The company also has repurchase commitments tied to distributor inventory financing, with a maximum stated exposure of $189.4 million before resale value, against a $5.0 million reserve; no repurchases occurred in the period.
Most important facts for investors to verify
- Whether the sharp year-over-year growth and margin improvement persist as backlog and order rates contract.
- The pace of demand changes and the impact of interest rates, inflation, materials availability and labor costs on pricing, production and margins.
- Solitaire Homes’ closing, final purchase price adjustments, integration and cash impact.
- Performance and credit quality of consumer and commercial lending portfolios, including the insurance segment’s claims experience and investment losses.
- Potential exposure under distributor repurchase commitments, mortgage-sale representations and warranties, and other contingencies.