Cavco(CVCO) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net revenue for Q4 fiscal 2019 was $241 million, down 0.6% from $243 million in Q4 fiscal 2018 [18] - Consolidated gross profit margin increased to 23.1% from 22.4% year-over-year, driven by higher home prices and declining material input costs [20] - Net income for Q4 fiscal 2019 was $20 million, compared to $22.1 million in the same quarter of the prior year, with diluted earnings per share at $2.17 versus $2.40 [23] Business Line Data and Key Metrics Changes - In the factory-built housing segment, net revenue decreased approximately $3 million to $225 million from $228 million in the prior year, influenced by the absence of FEMA-related sales and early loan payoffs [18][19] - The financial services segment showed strong performance, contributing positively to gross margins due to lower claims volume and favorable weather conditions [20][27] Market Data and Key Metrics Changes - The overall backlog at the end of March was $129 million, down from $179 million a year earlier, equating to approximately 7 weeks of production [50] - Order rates have shown regional variability, with some areas experiencing drops due to high retailer inventories and weather challenges, but underlying demand remains strong [15][16] Company Strategy and Development Direction - The company aims to continue its focus on decentralization and cost efficiency while exploring opportunities in financial services and potential acquisitions to address the affordable housing shortage [29] - Management is optimistic about improving access to financing for manufactured homes, with ongoing efforts to engage with GSE programs [44][45] Management's Comments on Operating Environment and Future Outlook - Management noted that interest rates are attractive and there is a growing recognition of the value of manufactured homes, which is expected to positively impact the industry [12][13] - The company believes that current order rate fluctuations are temporary and that strong underlying demand will support future growth [16][17] Other Important Information - The effective income tax rate for Q4 was 23.4%, down from 27.9% in the prior year, reflecting the full impact of the Tax Act [23] - Selling, general, and administrative expenses increased to 13.1% of net revenue, primarily due to additional D&O insurance costs and expenses related to the internal investigation [21] Q&A Session Summary Question: Can you elaborate on retail traffic and order rates post-quarter? - Management indicated that retail operations are seeing good traffic and increased deposits and conversions compared to last year, despite concerns about order rates influenced by inventory issues [32] Question: How sustainable is the recent gross margin improvement? - Management attributed the margin improvement to effective pricing strategies and declining raw material costs, particularly lumber, while acknowledging ongoing labor cost pressures [33][35] Question: What are the trends in financial services claims? - The financial services segment performed well in Q4, but management will monitor claims closely during the spring storm season, which could introduce unpredictability [37] Question: What is the outlook for industry demand and growth rates? - Management expressed cautious optimism for positive growth in the industry, particularly when excluding FEMA-related sales from the previous year [43] Question: Any updates on the SEC investigation? - Management stated there are no new developments regarding the SEC investigation and is focused on supporting the process [65][66]