Release Date: May 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Order rates strengthened during the quarter, leading to almost all plants returning to five-day schedules and increasing daily production rates.
- First quarter-to-quarter backlog increase since the downturn began, with backlog ending at $191 million, up from $160 million in Q3.
- Gross margin in the housing segment maintained at 22.4% despite a small reduction in average selling price.
- Significant improvement in safety results, with a 37% reduction in total recordable injury rate for the fiscal year.
- Expansion of retail footprint by adding 15 stores in the fiscal year, supporting planned distribution needs.
Negative Points
- Net revenues for the fourth fiscal quarter of 2024 were down 11.8% compared to the prior year period.
- Factory utilization for Q4 2024 was approximately 60%, consistent with the past four quarters, indicating underutilization.
- Community orders are still lagging, with meaningful improvement expected to take a few more quarters.
- Gross profit as a percentage of revenue in the factory-built housing segment declined by 200 basis points to 22.4% in Q4 2024.
- Net income to Cavco stockholders decreased to $33.9 million compared to $47.3 million in the same quarter of the prior year.
Q & A Highlights
Q: Can you provide some color on what you're seeing in the community channel and visibility levels relative to last quarter?
A: It's been more of the same over the last several quarters. We expect community orders to ramp up significantly well into calendar 2024. Inventories are coming down, and we should see improvement this calendar year.
Q: Is there any sense of an increase in production rates this quarter versus last?
A: The past quarter was a transition period. We lost production days at the beginning but finished at a higher pace. Schedules are getting back, and plants are ramping up production rates to stay in line with market demand.
Q: How do you feel about SG&A going forward in terms of an absolute level?
A: SG&A expenses are consistent with the level of the top line, with a high variable cost component. We expect it to stay steady, with variable compensation flowing through SG&A as the top line grows.
Q: Was there any purchase accounting impact on gross margin associated with the Solitaire acquisition in this past quarter?
A: We are largely past that impact, with only a small amount remaining.
Q: Shipments were down 12% in the quarter versus the industry being up nearly 15%. Can you explain this discrepancy?
A: The industry shipments vary significantly by region. Our year-over-year comparison shows stronger underlying demand now than a year ago. The transition quarter affected our shipments, but we expect dynamics to settle out and reflect more consistent market share ratios.
Q: With the rise in mortgage rates in April and a slight pullback in May, has demand continued into Q1 '25?
A: Yes, demand has continued on an upward path into Q1 '25, despite no significant interest rate relief. This is noteworthy and indicates strong underlying demand.
Q: Are you seeing a trade-down to lower-priced homes, and what are your expectations for ASPs in the next couple of quarters?
A: We have seen a mix shift to single-section homes, indicating some trade-down. Buyers are adjusting to the homes they can afford. ASPs have seen minor reductions but remain at a high level.
Q: Can you discuss your efforts to expand penetration in the community channel?
A: We continue to deepen relationships with community operators and builder developers. Our national sales team focuses on this segment, and we expect to penetrate it better as market conditions improve.
Q: How are traffic and order rates at retail trending in April and May?
A: Traffic has been healthy and improving, with a higher conversion rate recently. The trend is positive, and we are seeing increased orders.
Q: What is the status of your share repurchase authorization at the end of fiscal 2024?
A: We have $126.4 million remaining on the authorization. We will continue to be opportunistic with share repurchases, balancing it with other capital allocation priorities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
