Q2 2025 Cavco Industries Inc Earnings Call
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For community and builder developer.
Speaker Change: The business model continues to generate cash with our ending total balance up $7 million after $44 million of share buybacks in the quarter.
Speaker Change: As indicated in our press release, our board has authorized an additional $100 million for share repurchases, which is incremental to the remaining amount in the prior authorization.
Speaker Change: So we continue to add this important tool to responsibly manage the balance sheet.
Speaker Change: With that I'd like to turn it over to Alison to discuss the financial results in more detail.
Alison: Thank you Bill.
Alison: Revenue for the second fiscal quarter of 2025 was $507 5 million up $55 4 million or 12, 3% compared deployed in $52 million during the prior year.
Alison: Sequentially net revenues increased $29 9 million driven by an increase in base business unit, so higher average selling prices quarter over quarter and increased revenues in financial services.
Alison: Within the factory built housing segment net revenue is $486 3 million up $52 3 million or 12%.
Alison: $434 1 million in the prior year quarter.
Alison: The increase was primarily due to a 15, 7% increase in homes sold partially offset by a three 1% decrease in average revenue per home sold from the prior year quarter.
The decrease in average revenue per home was primarily due to a lower proportion of homes sold through our company owned stores and to a lesser extent potash pricing decreases partially offset a more multi wise in the mix.
Factory utilization for Q2 of 2025 was approximately 70%.
Alison: Considering all available production days, but was nearly 75% excluding scheduled downtime for the fourth of July holiday when many of our plants were closed all week.
<unk> was approximately 60% of the comparable period.
Alison: Financial services segment net revenue was $21 1 million up $3 2 million or 17, 6% and $18 million, primarily due to higher insurance premium rates.
Alison: Consolidated gross margin in the second fiscal quarter as a percentage of net revenue was 22, 9% down 80 basis points with 23, 7% in the same period last year.
Alison: I only due to losses in financial services, and lower average selling prices and the factory built housing segment.
And the factory built housing segment gross profit decreased 30 basis points to 22.9% in Q2 of 2025 versus 23, 2% in Q2 of 2024, driven by a lower average selling prices, partially offset by lower input costs.
Alison: Financial Services' gross margin as a percentage of revenue decreased to 21, 8% in Q2 of 2025 and 35, 9% in Q2 of 2020 for CN.
The increased division the insurance division was significantly impacted by hurricane barrel, what the loss from the event at our reinsurance limit of $4 million.
Alison: Selling general and administration expenses in the second quarter of 2025 was 67 million with 13.2% of net revenue compared to $61 5 million or 13, 6% of net revenue during the same quarter last year.
Alison: The increase in these expenses was primarily due to higher variable compensation based on improved earnings higher share based compensation due to improving performance measures and additional expenses from acquired retail locations.
Alison: Pretax profit was 55 million up $3 2 million or six 4% from $51 7 million for the prior year period.
Alison: Net income to castle's stockholders was $43 8 million up $2 3 million or five 5% from $41 5 million the prior year period.
Alison: Alluded earnings per share this quarter was $5 28 per share.
Alison: <unk> was $4.76 per share in last year's second quarter.
Alison: During the quarter, we repurchased nearly $44 million under our board authorized share repurchase program.
Alison: Emulated repurchases stand at $347 6 million since we began the program in the fourth quarter of fiscal 2020 one.
Alison: As announced in our latest press release the board has expanded the program authorizing an additional $100 million. This leaves $153 4 million under authorization for future repurchases.
Speaker Change: Now I'll turn it over to Paul to discuss the balance sheet.
Paul: Thanks Allison.
Paul: In the quarter, we generated an increase in cash and restricted cash of $7 3 million, bringing our balance to $386 2 million.
Paul: Cash provided by operating activities was $54 7 million as Alison discussed.
Paul: Cash used in investing activities was $5 7 million, reflecting capital expenditures to enhance manufacturing capabilities.
Paul: And finally cash used in financing activities was primarily due to shareholder share repurchases, highlighting our commitment to enhancing shareholder value.
Paul: Comparing the September 28, 2020 for balance sheet to March 32024, the increase in accounts receivables related to organic growth in the factory built housing segment.
Paul: The overall value of investments has remained relatively stable with more investments transitioning to current as time passes and of shorter duration bonds in our portfolio are approaching maturity.
Paul: The increase in short term consumer loans receivable is primarily a timing difference between higher originations of loans held for sale in excess of actual sales.
Current liabilities are up from increased compensation and bonus accruals on higher earnings.
Paul: Increased loss reserves from previous storms and higher customer deposits.
Paul: Stockholders equity edged up $8 6 million to just over $1 billion.
The last thing I wanted to call out is in yesterday's earnings release, we presented on the September 28, 24 balance sheet. The number of shares for outstanding common stock in Treasury stock, which do not impact the amounts reflected in the balance sheet or earnings per share data. This will be updated in the 10-Q to be released later today to <unk>.
Paul: Increased treasury shares by one.
Paul: 108801, and decrease our Pan outstanding common shares by the same amount now.
Speaker Change: Now I'll turn it back to bill.
Speaker Change: Thank you for.
Bill: This was another encouraging quarter showing improvement from the from the time of the interest rate pool that pullback.
Bill: We have seen the industry dropped to 88000 HUD shipments following the 2022 2023 run up in interest rates and now the latest monthly shipments data indicates a 103000 unit piece.
Bill: There are certainly risks and uncertainty in the macro environment, but based on what we're seeing in the market and the undeniable need for our products. We are optimistic about demand and we're pressing forward to provide more homes.
D. G would you please open the line for questions.
Thank you.
Speaker Change: A reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards draw. Your question. Please press star one one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Daniel Moore from C. J S Securities.
Daniel Moore: Thank you good morning, Bill Allison and Paul's questions.
We start with maybe just a little bit more color on what youre seeing.
Daniel Moore: From an overriding demand perspective, more from a geographic perspective, maybe where you're ramping production as quickly as possible.
Daniel Moore: Where orders are still lagging.
And then you mentioned all three markets are now kind of back to growth just what youre seeing.
Daniel Moore: In terms of sequential improvement in.
Daniel Moore: The community and and REIT businesses.
Speaker Change: Yeah, Hi, Dan Thanks for the question.
Speaker Change: Yeah, we've been in a lot of these calls talking about the consecutive string of increasing sales orders, which did continue as you know and I've said this many times it's.
Speaker Change: Not dramatic, but it's kind of been a steady increase in so that's kind of the highest level as far as regions in and I'll, even add products specific I think where we're seeing plants have the highest order rates in the biggest backlog build.
Speaker Change: Regionally the southeast has been very strong.
Speaker Change: Texas and that area has been strong as well that's been consistent.
Florida, we talked about the southeast and in Florida stands out as its own market in Florida continues to lag and so some of our Venice.
Speaker Change: Dennis backlogs happen to be in Florida.
Speaker Change: But I also brought into the question and kind of adding to your question a little bit.
Speaker Change: There is also a product.
Speaker Change: Trend I guess that we're seeing in our plants that make lower price point products, whether they are single or multi section, but lower price points seem to be the ones that are having the most market activity and the biggest backlog builds as well.
Speaker Change: So.
Speaker Change: Hopefully that covers kind of what youre looking for on regional differences and I'm, adding in that product twist as well.
Speaker Change: Yes as far as the first.
Speaker Change: The segments, we tend to historically combined builder developers and when we talk about community. So I know there is interest in both separately so trying to be more conscious of that and as I said in my remarks.
Speaker Change: All three.
Speaker Change: On channels the retailer with.
Speaker Change: The communities kind of land lease communities and the builder developer channels were up for us this quarter.
Speaker Change: And you know.
Speaker Change: It's always interesting when we spend a lot of quarters talking about inventory builds in the channel and then the seemingly long time it takes to work them out.
Speaker Change: You kind of have to try to.
Speaker Change: Feel your way to when you think that's just not a big impact anymore.
I don't think I'm really jumping the gun by saying, we're pretty much getting there I mean, the communities have been they've had high inventories we've talked about that a lot on these calls.
Speaker Change: Enough of them have gotten their inventories under control that we're starting to feel like we're getting back to closer to that one to one ratio of them setting at home getting a <unk>.
Speaker Change: Our resident in a home and then being ready to order the next.
Speaker Change: So we feel pretty good about that and.
You know when you think about wholesale shipments that's been.
Speaker Change: A bit of a.
Speaker Change: Drain on on wholesale order rates as they work that inventory off so it's a bit of a tailwind developing in that regard.
Speaker Change: So Dan let me know if I touched on everything you're interested in there.
And then more absolutely.
Obviously I appreciate the color as it relates to the disruptions.
Daniel Moore: Great to hear obviously that you've made it through with minimal.
Speaker Change: <unk>.
Speaker Change: Physical damage as well as the employees more importantly.
Backlog is up 20% again.
Speaker Change: And then offsetting that some downtime from Florida, and Georgia that Youll, probably worked hard to try to make up so just how do you. How are you thinking about production shipment growth in Q3 relative to what we just saw in Q2 when you put all those puts and takes together.
Speaker Change: Yes, specifically focused on the southeast I mean, you've captured the points, which I appreciate that.
We'll say, it's hard to say minimal on anything related to that stuff.
Speaker Change: In the scheme of the scope of the company the damage to our operations was minimal.
Speaker Change: But certainly we have things there that we're working through.
So yes.
Speaker Change: I'm kind of waved at this I guess in my comments, we're less 15% to 20 days of our equivalent days of downtime in that region. Some of that did happen in Florida plants that didn't have much of a backlog.
Speaker Change: So while I never like to lose time in production in a way that it's almost like market downtime.
Speaker Change: And some of it happened in <unk>.
Speaker Change: Georgia plants, where we actually have a very healthy backlogs.
Speaker Change: Work to try to catch that up so the extent, we can because they've got the backlog so.
Speaker Change: Work, some overtime and try to do our best to catch it up in the third quarter.
Speaker Change: Boils down.
Speaker Change: The bigger question as opposed to production capability is really the.
Speaker Change: The bounce back of of retail activity right. I mean, that's really what I'd focus people on and we don't have a crystal ball on that but.
Speaker Change: For a couple of weeks as you'd expect in some of the areas in that region. There was really.
Speaker Change: At next to no activity because people are dealing with damage in the storm effect itself.
Speaker Change: But then we've got just a couple of weeks since that we've tried to get a feel for how things are bouncing back there are areas. There are spots. There that you just it was devastation rate.
Speaker Change: When you think about the region more broadly we're seeing the health come back when we talked to retailers and even our own stores in the region. So.
In this early stage of trying to evaluate that bounce back.
Speaker Change: We're pretty optimistic.
Speaker Change: But it has got to play out and so that's really the third quarter question I don't have a very clear answer for.
Speaker Change: Understood.
Speaker Change: I guess, maybe one more and I'll jump back, but just bigger picture in the past you've spoken about kind of changes from HUD code is there anything that youre seeing recently or being proposed that could create more of a tailwind looking beyond the next few quarters and I'll broaden out beyond HUD code too.
Speaker Change: Just general changes in zoning et cetera.
Speaker Change: Seeing there thanks again.
Speaker Change: Yes, Dan everything I'll say this kind of stuff we've talked before I think it's just a continuing story and your perspectives right that it is a long term story I think the recent HUD code changes were very directionally positive even.
Speaker Change: No, enabling multifamily to be voted HUD.
Speaker Change: So all of that stuff is going to facilitate innovation in our industry and it's going to then that innovation is going to facilitate creating the kinds of products that can go into more urban areas for example.
Speaker Change: And then that touches on the zoning I don't have really anything.
Speaker Change: To update to that discussion.
Speaker Change: As I've said for a long period of time, I think where affordability is the worst that's where municipalities are challenging their thinking and trying to figure out how to open up to.
Speaker Change: Really.
Speaker Change: A better option for housing and more close in urban areas, which is factory built housing. So I feel good about the directional trend and it's always just been a question of how fast and when.
Speaker Change: Thank you I'll jump back many follow ups again.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker Change: Our next question comes from the line of Greg Palm from Craig Hallum Capital Group.
Greg Palm: Hi, Thanks, I appreciate you taking the questions.
Greg Palm: Wondering if we can dig into the volume numbers, a little bit more and not just the quarter, but you know kind of the implied order rate the backlog growing it implies that you are gaining some share versus the industry. So I'm curious to kind of get your thoughts whether that is.
Geographically based in terms of which areas are performing the best whether it's more of a product you've kind of alluded to it some kind of changes in product mix or some trends youre seeing out there maybe you are able to adapt to that a little bit quicker just any kind of broad thoughts on the outperformance would be greater the starting point.
Speaker Change: Yeah. Thanks for the question Greg.
Greg Palm: I'm sitting here trying to.
Speaker Change: A couple of thoughts and it's interesting because I probably should take the win that you are kind of offering up to us, but I remember it wasn't that long ago that the same calculations were showing us losing share and I think the moral of that story to some extent as these quarter to quarter shares can really move quite a bit.
Speaker Change: That's not to take away from the fact that I do think we've had R. R.
Speaker Change: Foot on the gas trying to ramp production up so I do think we've earned the.
Speaker Change: The volume growth that we've had.
Speaker Change: Those.
Speaker Change: I'll take you back a little bit further I mean, when the industry was really slowing down.
Speaker Change: We maintained relatively high shipments compared to the industry and then when that became the comp a year later it looked like we were lagging the industry. So just give US an example of how much those numbers can move a bit.
Speaker Change: As far as regionally and product I think we've had a big focus in our company of trying to.
Speaker Change: Re hire and do all the things early that you need to do we have kind of decided to plan on an optimistic view of the market knowing that we've demonstrated in the past our ability to slow down if that's what happens and as necessary and so we have been pushing.
Speaker Change: We've added I've mentioned this on previous calls in the last couple of years, we added a national sales team that we never had in this company before to supplement the plant specific work on sales and I think that's really helped us.
Speaker Change: Both up our game and generally in sales, but also give a better focus on.
Speaker Change: Reeds and community operators that I think is taking hold so we are doing some things and I don't mean to take any.
Speaker Change: Excitement away from the market shares I'm thrilled that we're we're gaining in the numbers, but I do think there's a lot of variability in those numbers too.
Speaker Change: Yeah, Okay that makes sense.
Speaker Change: If I could shift over.
Speaker Change: Staying on the factory.
Speaker Change: Segment, but yes.
Speaker Change: The margin if I think about where volumes were in the quarter and whether that's a year over year basis or sequentially, but volume is up quite a bit so capacity utilization better.
Speaker Change: Input costs.
Speaker Change: Down deflationary.
Speaker Change: Gross.
Speaker Change: <unk> was up just a little bit sequentially and was down on a year over year basis, and I'm looking just specifically to factory built housing segment.
Anything that you want to point out I, just thought it might have been a little bit better just given everything that we've talked about but.
Speaker Change: Just curious if theres anything else behind the scenes.
Speaker Change: The only thing to keep in mind that we talk about the time to timeline.
And it really the ASC driving kind of that.
Speaker Change: As part of the margin and <unk>.
Speaker Change: The year over year decrease that we saw.
Speaker Change: With familiar primarily due to a lower proportion of homes sell company owned stores as we described.
Speaker Change: When there is a lower percentage going to retail and we have we get less retail pricing.
Speaker Change: And more wholesale pricing with Sirius it's IV.
Speaker Change: Down a bit for that is effective.
Speaker Change: Really consistent.
Speaker Change: Yes, okay.
Speaker Change: That makes sense and then I guess lastly capital allocation.
Speaker Change: Obviously buyback front and center, but curious if you've got any kind of update on M&A pipeline and your appetite kind of anything you're seeing out there in the market related to that.
Speaker Change: Yes, thanks for the question.
Speaker Change: So somewhat recent examples of our capital commitment what does that purchase.
Speaker Change: Your dream home, such as the manufactured housing retailer and before that voluntary with the manufacturer and retailer and our capital priorities remain plant improvement.
Through the capacity it also efficiencies in our plant.
Speaker Change: Future acquisitions are certainly on the horizon and we have.
Speaker Change: Internally, it's ongoing vetting evaluation of these opportunities and we also continue to look at opportunities to expand in our lending operation.
Speaker Change: Again this quarter, we announced that board once again, so it's worth I authorized another $100 million allocation for purchase buyback.
Speaker Change: <unk>, which.
Speaker Change: We use in a responsible manner is.
Speaker Change: Demonstrated that.
Speaker Change: After the last several quarters to really manage our balance sheet cash and have his thoughtful mandatory shareholders.
Speaker Change: Let's say just to add to that we have been.
I think we would say that if we.
Speaker Change: We had a dollar to spend we'd probably spend it and growing our existing plant capacities and we have had.
Speaker Change: A number of projects that we've been able to invest in over the last couple of years and a host of them looking forward that.
They are the ones, we really love.
Speaker Change: I am very huge.
But putting several million dollars into our plant is something we're always looking to do and we've been doing that pretty regularly so we grow the capacity of the existing system.
Speaker Change: With a lot of focus and then your specific question about M&A I'll give a similar answer that we usually give and its not just because it's the standard answer is because it's how we feel about it there seems to always be incremental M&A opportunities in this industry and so you have to stay tuned and you have to hopefully be a buyer that they want to work with.
Speaker Change: And we always have.
Speaker Change: Some level of discussion about acquisition opportunities and I think you will see us over time continue to be active in that space.
Speaker Change: Okay I will leave it there that's a lot. Thanks for all the color. Thank you. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Jay Mccanless from Wedbush.
Jay Mccanless: Hey, good afternoon, everyone.
Jay Mccanless: If we could to kind of stick on that average price topic for a minute.
Speaker Change: You look back at fiscal 'twenty, three probably the peak of the market at 100 106, almost 170 K.
Speaker Change: And now Youre running close to like 90 899.
Yeah.
Is there any way to know we're close to an inflection point on pricing, whether it's through an expansion in retail sales or just product mix as you see coming over the next few months didn't have you don't have any larger longer term view about that and where you think pricing might go over the next couple couple of three quarters.
Speaker Change: Yeah.
Speaker Change: Yes, I guess, what I'd say is.
Speaker Change: Most every quarter that we've reported we've tried to give a feel for how much of the ASP.
Speaker Change: And I know, we're not always incredibly precise with this but how much of the ASP is driven by different factors because I think I mean, correct me if I'm wrong, but I think what you are most interested in is if the same product was sold a year ago and today, what would be the difference in the price and the.
Speaker Change: Right.
Speaker Change: The slow leakage of Asps that we've had.
So over the last I will lose track of time over the last two years.
Speaker Change: It has not been primarily same product.
Speaker Change: As some same products are down but other factors have really driven a lot of the.
Speaker Change: Asps, whether its ratio of homes sold through our distribution or product shifts from single section to multi section homes. So.
Speaker Change: Yes.
Speaker Change: I feel like in hindsight.
Speaker Change: Just given your kind of my transparent view about this I feel like it's surprising that the industry could go down to 88000 shipments for a period of time and we wouldn't see more same product price reduction.
Speaker Change: But ultimately what's going to drive an inflection point on the same product turning around and going up is obviously demand we've gotten back up to about 103000 unit pace.
Speaker Change: We have seen.
Speaker Change: Backlogs build and a lot of the industries plants, but not all of the industries plants.
Speaker Change: But if we start to see plants fill up and we are back at 80% utilization or higher and backlogs are generally going up across the industry. That's why I think you'll obviously see that econ 101 price inflection.
Speaker Change: And.
Speaker Change: I'd say the progress from 88000 industry shipments to 103 is obviously heading in that direction I don't think I can call. It any more precisely that though for you Jay.
No that's great.
Jay Mccanless: Good color. Thank you.
Speaker Change: Could you also talk about where charter rates are right now and if we've seen any improvement or decrease in those versus where we were last quarter of last year.
Speaker Change: Yes, Jay this is mark <unk> been pretty steady in last few months, but they are slowly declining from where they were last quarter.
So at this point, we have a high a high 7% range. So there is some that are quoted in the high Sevens and then it looks like theyre topping out in the high eights at $8 eight.
Speaker Change: Yeah.
Jay Mccanless: That's great.
Speaker Change: Okay. That's all I had thank you appreciate it thanks Jay.
Speaker Change: Thank you.
One moment for our next question.
Our next question comes from the line of Daniel Moore from CJS Securities.
Speaker Change: Okay.
Daniel Moore: Sorry, I had to get off mute.
Daniel Moore: Thank you again one more.
Daniel Moore: Forward looking question I'll take a shot at least just.
Given the challenges with weather in the southeast and Asps ticking a little lower just how are you thinking about factory build gross margin.
Daniel Moore: Q3, and the remainder of the year relative to what we experienced this.
Daniel Moore: This quarter.
Daniel Moore: Any movements in lumber or other input costs. Good guys bad guys as we kind of think about the next couple of quarters.
Speaker Change: Yes, I mean, the way that we think about gross margins as first obviously the pricing.
Speaker Change: <unk> is the largest activity and discuss that early on the call and to your point. The another large element to gross profit is the cost of materials and for us like all builders, it's primarily lumber and OSB.
Speaker Change: Talked about this before but the pricing for those materials.
<unk> got about a 60 day lag commodity rates that we can all see in the market.
They are incorporated into our margin and we have seen those at a relatively flat way in OSB and particularly.
Speaker Change: Down a little bit so essentially a LIFO the quantity.
Speaker Change: At this late through.
Speaker Change: And also just.
Speaker Change: Our gross margin as you can see it in.
Speaker Change: You can see in our history too as we continue to ramp our topline taxi those housing.
Speaker Change: As again, we have seen that in the past look serious leverage level.
Speaker Change: Leverage on a factory overhead.
Speaker Change: That's a component as we have discussed this date extremely both on the Cogs and on the SG&A. Thank you keep both of them expect post is tangible as possible.
Speaker Change: Very helpful. Alison and last one just obviously, there's some near term interruptions from from in Florida and Georgia.
Speaker Change: Mid term.
Speaker Change: How do you think about.
Speaker Change: How much of a boost you might expect from demand either from rebuild reconstruction.
As well as maybe potentially replenishing inventories at some point.
Speaker Change: Or is it just too.
Speaker Change: Too too much too difficult in terms of TBD, but any thoughts there would be appreciate it yeah. I guess my thought is just watching these things play out over time as we know that.
Speaker Change: There is increased demand driver, we know that supply has been taken out or not supply them existing stock has been taken out if you want to think about it that way and so we know that there is an increasing demand. It's been interesting when you watch and <unk> been in the industry for a while too it's been interesting to watch these catastrophic weather events because sometimes the.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: We don't see as much of a surge in demand over a short period of time it tends to feather its way back in so I guess, that's my expectation and I've kind of lowered my expectation about how quickly we see dramatic increases in demand. After these things, but we know that it creates demand.
And I can't put any more I mean, even I think it was hurricane Ian is that right a couple of years ago in Florida.
Speaker Change: We're still seeing areas that have not yet replenished from that that storm. So it can be drawn out.
Speaker Change: Your question about <unk> as an interesting win FEMA has.
Speaker Change: What I thought was a pretty public.
Speaker Change: Paul with manufacturers across the industry basically just saying.
Hey, we think we're going to be ordering some homes, but.
Speaker Change: Nothing really tangible that I know of has happened from that at this point.
Speaker Change: But it sounds like there was a possibility that theme or even some of the state relief housing.
Speaker Change: We could have some orders in the industry.
Speaker Change: Hopefully in the near term but.
Speaker Change: But nothing tangible there I could report on Dan.
Speaker Change: Okay. That's helpful. Thank you again.
Absolutely.
Speaker Change: Thank you.
Speaker Change: At this time I would like to turn the conference back over to Bill Boor, President and CEO for closing remarks.
Bill Boor: Thank you just kind of staying on that theme I want to once again share our ongoing concern for the folks affected by the storm and our appreciation for.
Bill Boor: Impressive efforts, our teammates continue to make to provide homes for deserving families.
Bill Boor: Thank you for joining us today and for your interest in <unk>, we look forward to keeping you updated.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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