CVCO - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen and thank you for your patience.

You've joined the Second Quarter Fiscal Year 2018 Cavco Industries' Earnings Call Webcast. At this time all participants are in a listen only mode, later we will conduct a question and answers session and instructions will be given at that time. [Operator Instructions] As a reminder this conference may be recorded. I would now like to turn the call over to your host, Chairman and CEO, Mr. Stegmayer. Joe begin. may you Sir,

Joe Stegmayer

you, Latif. Conference the Quarter everyone And welcome Call. to Second Thank

Dan Financial questions. Reporting. As me, our comments, report, Urness, usual, Chief a make Fusler, up our few Director and open I'll and take Officer our of will Finance your Dan we'll with financial Dan? Mark with is

Dan Urness

Thank Good everyone. day, you, Joe.

questions, forward-looking. today historical remarks control. considered Before this call, on our nature rules. we statements or are within our are certain in made begin, be we the that many respectfully may subject All statements to uncertainties, beyond forward-looking responses are harbor therefore and safe made of to in statements in in which and remind our risks comments not context All are you of either

results call, not to as -- update performance. information place differ anticipated and materially on Our performance any statements investors or this reliance and from subject our may filed should obligation website of other from is earnings made Cavco any part is actual yesterday available results or and complete on release this disclaims forward-looking on our sources. on them. update any More or included

quarter. compared prior payments homes for to report force higher in was policies sales home net net from and and revenue insurance from by by business loan million reinstate $X.X up year sales of segment more factory required For to volume revenue higher Lexington reinsurance catastrophic larger priced for home financials, of our sold offset partially from new services policies increase million Mississippi. in Homes housing was sales Breaking factory-built $XXX the This the down increased in as increase XX.X% the quarter XXXX. segment percentage of impact this Consolidated second a the revenue subsidiary quarterly adverse the million on last including our net $XX.X improved revenue a in same year. XX.X% to proportion second of insurance Financial the was the net quarter fiscal volume second causing period X.X% earnings. down quarterly incremental a quarter direct from revenue during gross increased fiscal $XXX the million from fiscal year profit

realizable in The to was cash the increase quarter. the Inventories of $XXX operating to earlier. provided balance levels. higher period. hurricane $X.X to materials sheet insurance our deposits resulted be sales. transaction. last year. increased approximately and quarter well related 'XX additional by offset release home sales from requiring number stocking adversely the retail Lexington Accounts quarter assets versus during effective described XX.X% from new implementation reinsurance current lower a were impacted benefits was diluted partially compared stock receivable quarter inventory at increased this as tax period. activity of activities. sheet to levels. Accrued at claims income share the improvement certain $X.XX production related XX% sales the our current the year. as goods caused had quarter financial income recognized Texas related tax of million insurance the services was rebate also net in low in fiscal income loans XXXX consolidated was subsidiary the quarter from for second The the from same Net mainly this customer accruals that stores, factory-built net was the hurricane through reinsurance reserves claim primarily was months The hurricanes Texas, second amounts same severe these September production sales year's high financial Selling, the a although the high liabilities during XX.X% owned losses Florida. Xst to in housing similarly loss growth XXXX increased as million was were As delays days Company's million revenue contains expenses other during higher earnings these income from of insurance from year became Lexington home segment Homes the this The during last for for to and rate for planned Comparing effective is of volume was to benefit reported These six a prior the claim from accruals as April the receivable loss higher fixed contracts. percentage These rate grew of were activity period, well compared This Delayed quarter. income XXXX compared tax balance per Prepaid from previously results. tax Homes quarter additional for second year. consolidated by volume and as to of inventory at raw to cost included resulted of increases In to the gained QX on insurance and required fiscal salary hurricanes that to limited efficiencies quarter. in increased damage development prior XXXX end its net home the $X.X segment record XXth in company $X.XX new administrative a revenue million quarter expenses company home to for benefits net quarter balance prior caused related more tax expense Cash income $XXX in whereas that collected. and the was related and and the Net as income limited the standards substantial compared increased lending XX.X% equity. sheet reduction, for commercial of X.X facilitate and the of by option general an accounting lost finished credit the in and quarter. million quarter same The research exercises in owners'

grew completes report. September equity million million balance. the as of approximately $XX approximately from financial to Joe stockholders April the up $XXX XXXX Xst XXth, Lastly, that

Joe Stegmayer

a Hurricanes Harvey and major Irma unusual in Harvey were considered but to similarly of event us highly unlikely Irma Dan. repeated was and to and infrequent was event, you, state also the Thank year Florida. a very as XXX be setback

to buyback particularly reinsurance postponed and impactful indicated, million. the catastrophic was cost event, that another As stores. insurer we Dan company-owned our million will, sales mentioned Dan after insurance $X.X on required if our reinsurance our were are you expense of contracts effective or to were homes our very claims The self limiting deductible, as is $X.X to plus, which this delivery retail and our in operation retention

trapped our injured of had evacuated we although -- most of should in eastern and team of our Fortunately members, boat, by our area a be none lost were say, the several couple their to and were homes. people

insurance facilities the via the Houston of insurance. For increase in receive expect But commercial retail is very our QX the we replace irrespective protected losses as in some The to currently metropolitan the begin homes really news better business certain to of in market. at manufacturing, reoccurred and the That adjustment phase. to in people both losses may coverage. future damaged our is potentially the in experience we an had recognize

the we’re major we in couple to hurricanes in the days production just after are in in event. a operation which facilities, damage operation all avoided were, shareholders top fact, While and,

expected next year. quarters excellent family the remain XXXX post be Macroeconomic on in favorable. for We two housing the trends track and single to market an back fiscal

We’re well to be we positioned capitalize to and expected growth. continued steady

to drive to continue the balance strength and sheet team, improved shareholders. elevated solutions, increase strategy and growth have We our value for profitability

take any So have. with to that, questions happy you be we would may

Operator

Instructions]. [Operator you Thank

Our first CJS from Dan question Securities. of the Moore comes line of

line Your is open.

Pete Lucas

Lucas Dan. for in It's Pete filling

And some you color the wanted on on You hurricane, the but the impacts as Harvey, impact touched first provide a of raise to services on rates your remarks, more financial can you do it in to specifically result? prepared expect quantify elaborating just if profitability? of

Joe Stegmayer

I'll some Well, approved. the of part State Typically do primarily, to these we Insurance claim the losses events, I of the to the get In takes time first for incurred. for this take Texas, we part. based apply authorities. The That increases major regulatory Department everyone Dan, Texas after first that rate take and second on case,

speculate, there opportunity be I would to rates. an to but think think one would hesitate increase we

course, increases through those take get to And will time that get that those approved. immediately have policies of have participated to to some we then, doesn't have However, duration so year renew. one policies

year. Our policies one not beyond do go

increases, catastrophic So part within cycle again Dan? so We in half a some that was answer were that in XX-month serious had happened rate and increases rate in to in and policy, to have on we all rates events, policies. your a offered place hailstorms largely get year the passed question about been ago. able our we We would

Dan Urness

Sure, yes.

the $X.X direct pick insurance so of for that’s for numbers was respect reinsurance $X.X million of insurance reinstatement quarter our the company, the Just related so our policies million for the the hurricane self million with $X.X for was $X.X to the quarter on the mentioned, there. or cost the I premium then total, to And million of up impact, a insurance company. two buyback to that hedging, our was the hurricanes

had discussed then release business homebuilding well. we property related in Of delayed we from earnings additional we course sales our some and that our that to impact then, damage, some as mentioned

Joe Stegmayer

under losses, cash the addition direct to our to insurance add would company. in is reinsurance I and And that the losses here deductible that to

We hotel our expenses new travel this. because very also where increased claims situation adjusters during in like full rates time these are markets had a operating had high

like So an we normal. see during even expenses which above increased SG&A are that the

some those statement covered. were that income So ancillary our large to to in we’ve numbers there impacts addition two

Pete Lucas

in for And incurred then, the cost was the quarter? the housing factory-built what

Joseph Stegmayer

go We haven’t quantified, ahead.

Dan Urness

to damage that so damage our just speaking, as insurance the we still flooding factory that’s some it the new was home the well was locations, as we this was is caught that at in make specifically outlined of inventory review. that sure that through if the Dan property -- wanted what understood sales going haven’t Yes, centers,

required case So to we take able by that our it-self do as We out. be work a than worse to time GAAP. little that. better But may reported have will scenario bit

delays of homes got as had the those still full in haven’t there. well. were sold be that number but to that in because we’ll Obviously what occurred number because then specific disruption the and that were we the that just impact exactly soon So we’ve and moving shipments those we in certain process be quantify outlined weather the for delayed quarter areas trying being of homes, little, a of pulled in through is, the able a and We quarters. it’s to expected

Pete Lucas

on generally more potential from from and And implications what then the of efforts? can FEMA expect rebuilding topic, you demand see longer the term touch you on from if that just staying to incremental

Joe Stegmayer

increased some Houston in see it’s to our stores traffic in Well, we’ve certainly -- already started market.

people done programs or others for have fairly Some in look had homes or if at state insurance another quickly they some replacement by that to cases historically government loan been wait proper can involved. have once coverage, Federal some is the Government and might assistance

of But that tenses for temporary to private from hurricane, FEMA that’s homes and victims activity replacement some has So units by the ordered save probably as mean has potentially for continue of well activity will that I started the of team homes. some living time, industry. and started provide

we we backlogs we somewhat existing course are plans our try to with to fulfill customers, to out the and our of We participating have in want and we but to number a that We a and effort. available. commitments frankly help couldn't need Texas, some actually but take everything that we'll did was take the have of facilities those in be build not homes that capacity additional available facilities will we building

Pete Lucas

can as of with key the then on constraint. it's Texas you obviously staying given labor and demand given labor current topic increases update capacity and a that, labor then grow there, remains how capacity you're that far seeing And there us but obviously on Can where constraints. the bottlenecks that you

Joe Stegmayer

we outside peers, Labor for be same factory-built is we hear find industry our thing. thing to and told case and challenge housing the our same people the vendors that a had our the

trying we're ways. our a It's attract a retain just try doing to get people it's economy and the deal variety markets. increasing and other of there's for inclusive bonus we've this frankly so think sometimes programs, tenant issue or to labor we've I our but refer to a combat availability of wages of a for lot with it in of to wages it things certainly in been they'll a encouraging for macro and that, of most and dearth to facilities people employees country

steady issue moving our that, solutions don't step of time easy And doing but answer. there's efforts, we day, our that we but employee so environment and employment good business if provide good come we're recruiter not a The to spend activities. full people just to try figure paid a and part case one we hired they can to up about out they'll and subcontracting so every work forth recruiting is any get kind often think and for the it's I to vacations to there a time in construction trying they onsite that's location, can work benefits

have labor and locally able do we people. expect get some advantages we keep So and be to to the

have trying So handling expand it’s we're just to and production can issue something the and not making expand we'll something It from the workforce. certainly existing but to or it's or obviously capacity can facilities with resolve that's some we facilities our we can just we're to existing can we we'll in macro something a not do we progress medium with does the but the it's but cases best mitigate term us doing of effects say constrain actually some impacting reduced of say us whatever force. deal labor open just operations, up we

Pete Lucas

to increasing cost through labor And pass of your margins. that protect in terms ability and

Joe Stegmayer

be because industry generally although increase generally think a have most course cost time pass are going and or in of we can think an there's labor but keep industry generally of other issue mind and pass it us materials sometimes case like in on can’t we and that announce cost residential with respect quickly don't as it's price longer elevation ability build that able build, the inflationary inflation with same retroactively. somewhat material as inflation generally the not increase to facing I in commercial because I now and get just construction as the this backlogs short Well, as [indiscernible] we the so a we quickly with I they're site think forms through well, we're pricing we'd through sometimes backlogs to all not environment we labor. to And and we of

it So eventually, pass-through. get through obviously as it but while, sometimes a takes to something able else a Peter we has. we're see And

Operator

you. Thank

question the comes Brian next of of from line Sidoti. Hollenden Our

is line open. Your

Brian Hollenden

next the growth the customer labor few about way and think right strong revenue just to demand over What's availability years the constraints? given

Joe Stegmayer

market. ability Well make don't and very said serve the forecast. positive. we we Internally outlook to feel our I about growing the

Mississippi. We the We’ll of think I recently expanding We'll existing we just at combination look ways. operations. have facilities. have did in

not plants a they of sister facilities buildings couple current in operating are sister have our We our to facilities operating. that are

that’s at novo and have we if that some plan certainly you to those expand into then, we’ll So will unused. field contagious to continue And We de another existing capacity. or course, plan. look of expanding brick look acquisition our and production operations mortar possibilities are green

now interest construction to that doing residential construction efficiency fact that is the will the in think has factory that grow single because that and that family residential believe construction residential energy there sales in we So eventually expected in lead past affordability will configured of go home that for the times the of product. well, within better the a these factory at we -- shorter that do be more

we and our So buyers into all excess while that and not feel other fact the by to looking ideas. are and their the -- money new investment home put

modestly perhaps should more sized forward. our think we towards as so benefit we industry go is homes, the more homes moving and efficient a And market which

Brian Hollenden

take plans talk distribution Has you then you also are smooth? and what that? capacity the talk there? can think plan? the the about Lexington do And Lexington’s about you of capabilities your a operating Where And acquisition? been What's integration bit little can

Joe Stegmayer

reasons, facilities standpoint. a also a idle. couple good facility a of but individual again, about two we from Lexington public One plant capacity don’t from -- is the actually facility. a other We is standpoint, competitive by But plan So one for the operating, talk has there. it’s have

second to existing So up distribution open After From that an and as they that capacity. potential a plant. customer had increases existing base. production increase used the standpoint, we and plant But has have a there, we substantial demand.

we're to to are their our them of with marketing that increase and We relationships helping some adding efforts.

a have individual robust than marketing broader presence We the --. company private more

help can we’ve biggest we’re as there culture is them we there. the done doing so that. The somewhat issue and with the And changing acquisition you’re

changing somewhat are the product, We design. product

new base that. already distribution new have our space. done we which We And to helped have product us gain introduced shelve more has shelve,

it to I good turn to that. but it’s fearlessly we at and going So But before and/or with we’re a for It’s a going working think expected bought with Greenfield to as if wasn’t good any be contributor. profitable. fairly period point, there doing we it’s to We well. to fairly and would it It’s on contributor Greenfield, so long time turn be, we’re that not a would had good this of in. and work with It’s not it plant, to work people be that. market acquisition around were

And be so do that this to or that do we may need a in. be for we something some good -- less we we In Greenfield more, way opportunity do the needs this that’s was plant, to case, to be wanted need particular something -- something acquire needs the rolls off, attention market, very doesn’t attention. pay

take our will time. we so And

not right road, it down it be to but will that. contributor a get will way and We the it’s this

Brian Hollenden

last and Thanks your What’s current from me. question backlog?

Dan Urness

the Our year. compares time million of $XX current end that the $XXX same quarter backlog [Brian] and last to the is at million

Operator

from Instructions] follow-up Dan [Operator Moore Securities. a question CJS of We have

open. is line Your

Dan Moore

one sheet. more the terms just Yes of from me balance in

potential flexing MH that on when how and the aggressive you would build to that buyers? of sheet? the of consider in And some balance here, you to to continues cash cash how us are Given update redeploying that lending closer more form

Joe Stegmayer

it’s a rightly Yes, questioned.

presence business. in at financing We expanding our mortgage are looking

mortgage traditional good for CountryPlace has quite good order now And team. with a just been homes. homes. into good for business home operation good property We a expanding manufactured of loans number have years, very have originating personal platform We really a which manufactured land people, been are we very

are And collateral that. with as the into only loans involved. our and charter we deploying home capital the So capital investor land of is some some

and it’s kind we’re serve more We’re it’s could also that they our and retail in operation with business to be slow to company. our one-stop servicing us profit us loan do home long money loan in careful finance where to of and money And we of for in buy it think good you lot centered underwriting origination a expansion business. take an a for the of opportunity home But our certainly going base through the and the because you willing make after is originated. make

we say vis-à-vis So again we our will prepared money are some will balance not it. it’s [Fannie will cash of use cash. how much in It Mae], our be not to invest but be

in slit money. using We investor third-party household are again also

We’re attracting not some as successful of in that.

We have do work there. to more

a loan our what some sell we’re third will be progress and the them excited to funds originally that’s on we still portfolio which sell do, involve equity hope of seize to party investment in Our that [indiscernible] it'll of but helps. of would and that to would portion investors, loans retain then portfolio

Operator

this further there time. to Thank questions you. be queue And gentlemen, appear no at in

Joe Stegmayer

better everyone we up appreciate you to very with next Okay, for quarter And questions to be and thank you you results, reporting thank follow we're it and Latif. much. to happy talk joining any thank

Operator

participation you you, Thank and have wonderful day. your a for concludes This conference. Thank ladies today's gentlemen. and

Cavco Industries (CVCO) 8 Nov 172018 Q2 Earnings call transcript