Cavco Industries Reports Fiscal 2021 Third Quarter Results

Cavco Industries, Inc. (“Cavco”) announced financial results for the third fiscal quarter ended December 26, 2020.

Three months ended December 26, 2020 compared to the three months ended December 28, 2019

Net revenue increased 5.5% to $288.8 million for the third quarter of fiscal year 2021 compared to $273.7 million in the same quarter last year.

– In the Factory-built housing segment, Net revenue increased 5.3%, or $13.7 million, to $270.8 million compared to $257.1 million for the prior year period. The increase was primarily due to 13.0% higher home selling prices resulting from pricing increases implemented as a result of rising input costs. These gains were partially offset by 6.8% lower home sales volume during the third fiscal quarter, as production inefficiencies from labor and supply challenges continue to limit factory delivery volume.

– Financial services segment Net revenue increased 8.4%, or $1.4 million, to $18.0 million compared to $16.6 million for the prior year period. The increase was primarily due to $1.0 million of unrealized gains on marketable equity investments during the third fiscal quarter compared to $0.3 million for the same period last year.

Income from operations increased 3.5% to $23.8 million compared to $23.0 million in the same quarter last year.

– In the factory-built housing segment, Income from operations was $16.5 million, a 1.8% decrease from $16.8 million for the prior year period. Gross profit decreased due to higher material prices and lower sales volumes. During the third quarter of fiscal year 2021, we incurred $0.7 million in expenses related to the Securities and Exchange Commission (“SEC”) inquiry, but also received a $0.4 million insurance recovery of prior expenses, resulting in a net expense of $0.3 million for the period compared to $0.9 million of such expenses for the same period last year. In addition, the prior year period included a $2.1 million charge for the amortization of additional director and officer (“D&O”) insurance premium, which has now been fully amortized and is not in the current period.

– In the financial services segment, Income from operations was $7.4 million, a 19.4% increase from $6.2 million for the prior year period. Lower weather-related claims volume and higher unrealized gains on marketable equity securities provided greater Income from operations. This was partially offset by lower interest income on the acquired consumer loan portfolios that continue to amortize.

Income before income taxes was $25.9 million, up 4.9% from $24.7 million for the prior year period.

Income taxes totaled $6.2 million in the third quarter of fiscal year 2021 for an effective tax rate of 23.9%, compared to $3.8 million and an effective tax rate of 15.5% in the third quarter of fiscal year 2020. The lower effective tax rate in the prior year was primarily the result of a catch up of tax credits that were enacted as part of the 2020 Appropriations Bill.

Net income decreased 5.7% to $19.7 million for the third quarter of fiscal year 2021, compared to net income of $20.9 million in the same quarter of the prior year. Diluted net income per share was $2.12 and $2.25 for the three months ended December 26, 2020 and December 28, 2019, respectively.

Nine months ended December 26, 2020 compared to the nine months ended December 28, 2019

Net revenue for the first nine months of fiscal 2021 was $801.5 million, a 0.6% decrease from $806.4 million in the comparable prior year period.

– Factory-built housing Net revenue was $749.9 million, a 1.1% decrease from $758.6 million. The decrease was primarily from 9.4% lower home sales volume, partially offset by 9.1% higher home selling prices compared to the same period last year. Note that Destiny Homes was purchased in August 2019 and Lexington Homes was closed in June 2020.

– Financial services segment Net revenue was $51.7 million, a 7.9% increase from $47.9 million. This includes $2.7 million of unrealized gains on marketable equity investments in the insurance subsidiary’s portfolio, compared to $0.6 million in unrealized gains in the prior year period. In addition, higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year were positive contributors, partially offset by lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

Income from operations was $61.9 million, a 12.1% decrease from $70.4 million in the prior year period.

– In the factory-built housing segment, Income from operations was $48.1 million, a 12.9% decrease from $55.2 million for the prior year period as gross profit decreased due to higher material prices and lower sales volumes. This was partially offset by lower expenses related to the SEC inquiry and additional D&O insurance premium amortization. For the nine months ended December 26, 2020, we recorded a net expense of $0.1 million compared to $2.5 million in the prior year period for the SEC inquiry. Additional D&O insurance premium amortization was $4.2 million in the current period versus $6.3 million in the prior year period.

– In the financial services segment, Income from operations was $13.8 million, a 9.2% decrease from $15.2 million for the prior year period. Unrealized gains on marketable equity securities were offset by higher weather-related claims during the period, as well as lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

Income before income taxes was $67.2 million, down 15.3% from $79.3 million in the prior year period. Interest expense decreased due to the repurchase of the 2007-1 securitized loan portfolio in August 2019, thereafter eliminating the related interest expense. Other income, net, declined primarily due to a $3.4 million net gain on the sale of idle land that was recorded in the second quarter of the prior fiscal year, as well as a reduction in interest earned in the current periods on cash and commercial loan receivables, given the lower interest rate environment.

Income taxes totaled $15.7 million for an effective tax rate of 23.4% compared to $16.3 million and an effective tax rate of 20.5% for the same period of the prior year. The lower tax rate in the prior year was primarily the result of a catch up of tax credits that were enacted as part of the 2020 Appropriations Bill.

Net income was $51.4 million, down 18.5% from net income of $63.1 million in the prior year period. Diluted net income per share was $5.54 and $6.81 for the nine months ended December 26, 2020 and December 28, 2019, respectively.

Business Update on the COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus COVID-19 (“COVID-19”) a global pandemic. As our business was considered essential, we continued to operate substantially all of our homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. We have worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve our customers. Operational efficiencies declined due to managing higher and largely unpredictable factory employee absenteeism, hiring challenges and building material supply shortages. Accordingly, our total average plant capacity utilization rate was approximately 75% during the third fiscal quarter of 2021, which has improved from approximately 65% during the second fiscal quarter of 2021, but is lower than pre-pandemic levels of more than 80%.

Sales order activity remained exceptionally strong during the third fiscal quarter of 2021 to the point where home sales order rates were nearly 65% higher than the comparable prior year quarter. Increased order volume is the result of a higher number of well-qualified home buyers making purchase decisions, supported by reduced home loan interest rates. Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 310% to $472 million at December 26, 2020, compared to $115 million at December 28, 2019 and $321 million at September 26, 2020.

Commenting on the quarter, Bill Boor, President and Chief Executive Officer said, “We continue to see extraordinary demand for our products, with order backlogs rising to record levels. Pent-up demand, driven by favorable demographics and a housing supply shortage, has been accelerated by historically low home-loan interest rates. Our plants are doing a good job increasing production under challenging conditions. As a result, our utilization rate rose to approximately 75% during the third fiscal quarter from 65% in the second fiscal quarter. Throughout the pandemic, the people across Cavco have done a great job of staying focused on making a difference for our homebuyers through the homes, loans and insurance we provide and that intention continues to come through in our progress and results.”

For the full third quarter results, click here.

About Cavco Industries

Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and Company-owned retailers. We are one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments and marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. We are also a leading producer of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes. Cavco’s finance subsidiary, CountryPlace Mortgage, is an approved Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty, provides property and casualty insurance to owners of manufactured homes.

Contact:

Mark Fusler – Director of Financial Reporting & Investor Relations – investor_relations@cavco.com – (602) 256-6263

Source: Cavco Industries, Inc.