Cavco Industries, Inc. — FY2017 Form 10-K Summary
Reporting period: Fiscal year ended April 1, 2017 (52 weeks); prior fiscal year ended April 2, 2016 (53 weeks). The filing is an annual report, not a standalone quarterly filing. Fourth-quarter figures below are unaudited.
Business context
Cavco designs and manufactures factory-built housing, including manufactured and modular homes, park model RVs, cabins, and commercial structures. It also provides consumer and commercial financing through CountryPlace and manufactured-home insurance through Standard Casualty. Cavco reported being the second-largest U.S. manufactured-home producer by wholesale shipments. Operations span 20 manufacturing facilities and 43 company-owned retail outlets, alongside independent retailers.
Financial performance and key metrics
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net revenue | $773.8 million | $712.4 million | +8.6% |
| Gross profit | $158.0 million | $144.4 million | +9.4% |
| Income from operations | $56.8 million | $46.3 million | +22.6% |
| Net income | $38.0 million | $28.5 million | +33.0% |
| Diluted EPS | $4.17 | $3.15 | +32.4% |
| Operating cash flow | $44.8 million | $43.5 million | +$1.3 million |
- Gross margin was 20.4%, versus 20.3%; operating margin was 7.3%, versus 6.5%; net margin was 4.9%, versus 4.0%.
- Factory-built housing revenue rose 10.0% to $721.0 million; segment pretax income increased to $46.8 million from $35.4 million. Homes sold increased 12.0% to 13,820. Average factory-built housing revenue per home declined 1.7% to $52,169, reflecting sales-channel and product mix.
- Financial-services revenue fell 7.7% to $52.8 million, while segment pretax income was $8.4 million versus $8.6 million. Management cited changed recognition of certain ceded insurance commissions and lower interest income on runoff securitized loan portfolios; fewer weather-related claims and increased loan sales provided offsets.
- Cash and cash equivalents were $132.5 million, up from $97.8 million. Current assets were $356.8 million and current liabilities $140.2 million. Restricted cash was an additional $12.3 million and was not available for general operating purposes.
- Securitized financings and other totaled $58.0 million, compared with $61.2 million. Stockholders’ equity was $394.4 million. The filing reports no company credit facility in place; management said cash and expected operating cash flow should fund operations and growth for at least 12 months.
- Investing activities used $7.1 million, versus $38.2 million, which included $28.1 million for the Fairmont and Chariot Eagle acquisitions. Financing activities used $3.0 million.
Fourth quarter and material changes
In FY2017’s fourth quarter, revenue was $198.0 million, gross profit $42.1 million, net income $10.9 million, and diluted EPS $1.19. Compared with FY2016’s fourth quarter, revenue rose 11.7%, gross profit 14.9%, net income 55.8%, and diluted EPS from $0.77 to $1.19. These are calculated comparisons from the filing’s unaudited quarterly data.
Annual revenue and earnings growth was led by higher housing volumes and improved factory-built housing profitability. Total homes sold rose from 12,339 to 13,820. The financial-services segment remained a smaller and less profitable contributor year over year. The prior-year comparison also included one fewer month of Fairmont operations than FY2017; FY2017 itself had one fewer week than FY2016.
Outlook, risks and unusual items
- Outlook: Management saw improving industry shipments, employment conditions and consumer confidence, and cited demographic demand, rental-housing activity, and affordable-home interest as potential supports. It provided no specific numerical financial guidance. Manufactured-home financing availability remains a major constraint; GSE chattel-loan plans were prospective, with meaningful sales benefits not yet realized.
- Backlog: Home-order backlog was $88.8 million at year-end, versus $47.9 million a year earlier, or about seven weeks of production. Orders may be canceled without penalty before production begins, so backlog is not fully firm.
- Acquisition: Cavco acquired Lexington Homes on April 3, 2017, after fiscal year-end; its results are excluded from FY2017. Management said the purchase did not significantly affect liquidity or capital resources.
- Contingencies: Maximum retailer floor-plan repurchase exposure was $46.3 million, with a recorded reserve of $1.7 million. CountryPlace had $11.1 million in remaining construction-loan funding commitments and $7.0 million of letters of credit. Mortgage-sale representations and warranties carry potential repurchase or indemnification exposure; the associated reserve was $0.9 million.
- Risks: The industry remained below historical shipment levels and depends on consumer and retailer financing. Other key exposures include interest rates, raw-material prices and supply, labor availability, geographic concentration, retailer and borrower credit quality, insurance catastrophe losses, regulation, warranty claims, and acquisition integration. Consumer loans are geographically concentrated, including 43% in Texas and 12% in Florida.
- Unusual items and controls: Other income increased partly due to realized investment gains and sale of retail-location assets. No long-lived-asset or goodwill impairment was recorded. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
- Legal matters: The company reported ordinary-course litigation, including warranty, construction-defect, insurance, product-liability and personal-injury claims. Management did not expect pending matters to materially affect consolidated financial position, liquidity, or results, while noting outcomes remain uncertain.
Investor verification priorities
- Review the audited statements and segment disclosures for the drivers and sustainability of housing volume growth, margins, and financial-services earnings.
- Assess loan portfolio performance, delinquencies, defaults, repossessions, credit-loss reserves, and the effects of loan originations and sales.
- Evaluate the size and potential cash impact of floor-plan repurchase obligations, mortgage representations and warranties, and construction-loan commitments.
- Confirm whether consumer and retailer financing availability, including any GSE chattel-loan initiatives, has materially improved since the filing.
- Check Lexington Homes’ post-acquisition performance and integration costs, and compare subsequent results with the year-end backlog while accounting for its cancellation terms.