Cavco Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 30, 2023. The company designs and manufactures factory-built homes and operates consumer finance and insurance businesses.
Financial performance
| Metric | Three months ended Dec. 30, 2023 | Year-over-year change | Nine months ended Dec. 30, 2023 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $446.8 million | -10.8% | $1,374.7 million | -17.5% |
| Gross profit | $103.1 million | -21.9% | $327.9 million | -24.5% |
| Gross margin | 23.1% | 26.4% prior year | 23.9% | 26.1% prior year |
| Operating income | $39.7 million | $73.1 million prior year | $141.4 million | $242.4 million prior year |
| Net income attributable to Cavco common stockholders | $36.0 million | $59.5 million prior year | $123.9 million | $193.2 million prior year |
| Diluted EPS | $4.27 | $6.66 prior year | $14.34 | $21.55 prior year |
Quarterly selling, general and administrative expense rose 7.5% to $63.3 million; as a share of revenue, it increased to 14.2% from 11.8%. For the nine months, SG&A declined 2.8% to $186.5 million, but rose as a share of revenue to 13.6% from 11.5%.
Segments and material changes
- Factory-built housing: Revenue decreased 11.3% in the quarter and 18.3% year to date. Home sales volume and average selling prices declined; Solitaire Homes contributed partially offsetting revenue. Homes sold fell 6.3% in the quarter and 12.8% year to date.
- Factory-built housing gross margin was 22.4% for the quarter and 23.5% year to date, compared with 25.5% in both prior-year periods. Management cited lower average selling prices, partly offset by lower input costs.
- Financial services: Revenue increased 2.2% in the quarter and 6.8% year to date, primarily from more insurance policies in force, partly offset by lower loan-sale revenue. Segment gross profit declined, reflecting fewer loan sales; year-to-date results were also affected by higher weather-related insurance claims.
- The company reported a $160 million backlog at December 30, 2023, down from $170 million at September 30, 2023 and $427 million at December 31, 2022.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $206.1 million, versus $230.1 million in the prior-year period. Capital expenditures were $13.2 million; cash paid for acquisitions was $19.7 million.
- Cash, cash equivalents and restricted cash totaled $366.6 million at quarter-end, versus $283.5 million at fiscal year-end. Cash and cash equivalents alone were $352.8 million.
- No borrowings were outstanding on the $50 million revolving credit facility, which expires in 2027; the company reported covenant compliance. The filing does not report conventional long-term borrowings. Finance lease liabilities totaled $6.2 million.
- Nine-month share repurchases used $96.8 million. The company repurchased 190,593 shares in the quarter at an average $262.34 per share. Approximately $39.0 million remained under the programs at December 30; a further $100 million program was approved in February 2024, with no repurchases yet under that program.
- Management believes available cash and operating cash flow will fund operations and obligations for at least the next 12 months and into the foreseeable future. It also noted that acquisitions or strategic investments could require cash and that future financing, if needed, may not be available on satisfactory terms.
Outlook, risks and unusual items
- Management cited higher interest rates and inflation as factors tempering housing demand. Industry shipments through November 2023 fell 22.2% year over year, according to Manufactured Housing Institute data.
- Material and labor cost or availability volatility could pressure margins, cause production inefficiencies, and delay deliveries. Management said shortages had not caused significant production halts in the current period.
- The filing provides no specific financial guidance. Management highlighted affordable housing demand opportunities, while noting constraints from limited financing availability and the lack of an efficient secondary market for home-only loans.
- The November 2023 Kentucky Dream Homes acquisition cost $23.8 million, including $5.4 million of non-cash commercial-loan forgiveness; purchase accounting remains subject to adjustment. Cavco acquired the remaining 30% of Craftsman on January 1, 2024, after the quarter-end.
- Quarterly SG&A included higher legal expense, including costs related to an SEC inquiry concerning indemnification of a former officer. Management said pending ordinary-course litigation is not expected to have a material adverse effect, based on its current knowledge and existing reserves.
- Repurchase commitments to distributors’ inventory-financing lenders had a maximum exposure of approximately $116 million before estimated home resale value; the recorded reserve was $2.7 million. Management deemed no loss reserve necessary for homes subject to repurchase demands during the period.
- Executive Vice President, General Counsel and Corporate Secretary Mickey Dragash gave notice of resignation effective February 12, 2024. The filing describes contractual severance and equity-award terms.
Investor verification points
- Verify whether home sales volumes, selling prices and backlog stabilize as interest rates and housing demand change.
- Track factory-built housing and financial services margins, including insurance claims and loan-sale activity.
- Review acquisition integration and final purchase accounting for Kentucky Dream Homes, and the financial impact of the Craftsman buyout.
- Assess cash deployment, future share repurchases, acquisition spending and any change in revolving-credit usage.
- Monitor SEC-inquiry-related legal expenses, repurchase and warranty reserves, and other contingencies.