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Article Excerpt
OPERATOR: Good day everyone and welcome to the Cavco Industries, Inc. third quarter fiscal year 2009 earnings call and webcast. Today's call is being recorded. At this time for opening remarks I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Joseph Stegmayer.
JOSEPH STEGMAYER, CHAIRMAN, CEO, CAVCO INDUSTRIES, INC.: Welcome everyone. We reported the results of the third quarter ended December 31, 2008 yesterday, and they were posted on our website, Cavco.com, and of course widely available in other public domain.
The figures that Dan will review in a moment represent our poorest performance for any quarter in nearly six years as a public company. We are certainly disappointed with the results. We believe that we have always prepared our company to expect the unexpected. We think that we are nimble, and that we can quickly adjust to market demand and changing environments. And we feel our productline is very competitive, and our distribution base is good.
Still there is only so much a team can do when faced with the unimaginable events in the economy that we have witnessed. And the resulting freefall in consumer confidence.
In Arizona for the three-month period ended in November, the latest period for which industry statistics are available, industrywide shipments of factory-built homes were down 33% from the prior year period, which was at that time the lowest shipment level in some fifteen years. For California the shipments were down 45%. These states represent our two largest markets.
In Texas, our third biggest market, shipments fared better, however, they were still 13% less than the previous year period.
Even for those buyers who do not lack confidence, consumer financing is a big challenge. Those that can qualify often face long lead times to get approved and to close their loan. And a new and significant development occurred during the quarter, and that was the announcement by Textron Financial Corporation, one of the major providers of home inventory lending to retailers and developers, that they intend to cease lending operations by the end of next month.
While there are other sources of lending for the distribution chain, this exit is expected to adversely affect the ability of some retailers to buy homes for resale, which could have a negative impact on the industry as a whole. We will discuss this more later during the call.
Before Dan reviews the numbers, I want to state that our people have been an extraordinary job steering the Company through the myriad problems we all face. They have been steadfast in their commitment to customers and to the Company. We have had to make some very difficult decisions, including reducing our team via attrition and some layoffs. We have consolidated or eliminated some positions to bring operating expense more in line with current business levels.
And while further adjustments may be necessary, depending on the economic environment, we have and we will continue to affect these changes without compromising our ability to custom-design homes, to introduce new models, to support our retailers, and service our homebuyers.
Dan, please review the numbers, if you would.
DAN URNESS, CFO, CAVCO INDUSTRIES, INC.: Cavco's net sales for the third quarter of fiscal year 2009 were down 21% to $25 million from prior year's Q3 net sales of $32 million. That is on a 20% decline in modules shipped. While the average selling price per floor was relatively flat with prior year at $26,535.
The Company's gross profit margin for Q3 '09 was $2.7 million or 10.6% of net sales versus $4.6 million or 14.4% of net sales for the third quarter of last year. The margin decrease was principally from reduced production efficiencies we are experiencing at our current low production levels, with capacity utilization just under 50%.
The Company operated with a minimal backlog throughout the quarter, and the backlog of orders was negligible as of December 31, 2008.
We successfully reduced our selling, general and administrative expenses for the quarter by $464,000 to $2.9 million, compared to last year's third quarter SG&A of $3.3 million. As a percentage of net sales SG&A was 11.4% in Q3 '09 versus 10.4% in Q3 '08.
Interest income was lower by $532,000, mainly the result of generally lower interest rates from the Company's investments in U.S. Treasuries. The current income tax benefit is the result of a current quarter adjustment for excess tax expense in (technical difficulty), and the true-up to our recently filed tax return for fiscal 2008.
For the nine-month periods ended December 31, 2008 and 2007, the effective income tax rate was approximately 32% and 30%, respectively.
Fiscal 2009 third quarter net income was $110,000 or $0.02 per diluted share compared to $1.4 million or $0.20 per diluted share last year.
In comparing our balance sheet at December 31, 2008 to March 31, 2008, our cash and cash equivalents balance increased over $500,000 to $74.1 million from $73.6 million at the beginning of the fiscal year.
Trade receivables are down nearly $2.4 million compared to the beginning of the fiscal year, resulting mainly from lower sales volume.
Inventory is approximately $600,000 lower on reduced work in process levels and finished goods units.
PP&E is up due to the $537,000 purchase of a retail sales lot in New Mexico, which we previously leased. This is the location of an existing Company-owned retail outlet.
Trade payables are roughly $1.8 million lower, as there is a limited purchasing activity during the plant holiday shutdown at the end of the quarter.
Accrued liabilities are down by almost $3.3 million, largely the result of a $1.4 million reduction in salary, wage and benefit accruals, and a $1.4 million drop in customer deposits.
The balance sheet maintains adequate liquidity, and continues to be debt free, positioning us to provide options to retailers affected by recent fallout in the manufactured homes inventory finance arena, which Joe will mention...
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