Like its fellow mobile home and manufactured home makers, Champion (NYSE: CHB), Palm Harbor (Nasdaq: PHHM), Coachmen (NYSE: COA), and Thor (NYSE: THO), the stock of Fleetwood Enterprises (NYSE: FLE), has been riding an updraft over the past week. In fact, the entire industry seems buoyed by investor optimism that the Federal Emergency Management Agency (FEMA) will need to make large-scale purchases of their products in order to provide shelter for some of the hundreds of thousands of people displaced by Hurricane Katrina.
Over the past week, Fleetwood's shares have risen $2 from the low nines and now sell for just over $11 apiece. But aside from a Katerina-related, and temporary, boost in sales, how well has Fleetwood been doing as an ongoing business?
Not so well. As we discussed back in July, Fleetwood has been in a bit of a rut for some time now, leading new CEO Elden Smith to remark three months ago that "none of [Fleetwood's] operations performed well this quarter." That said, the new head of the company has been working to turn things around over the past couple of months and was quoted in the company's latest earnings report as saying he was "pleased" that the company is now operating close to breakeven, and moving toward "consistent profitability."
You have to admire an optimist, but the realist in me feels compelled to point out that over the past seven years, Fleetwood has achieved "profitability" only three times out of seven. Much remains to be done if this company is to pull its batting average up to .500 this year. For example, year-over-year, first-fiscal-quarter gross margins have sunk 220 basis points from last year's 18.4%. While Fleetwood investors should be pleased to hear that the company has made market share gains in manufactured housing, at the same time, the company has lost market share in the RV segment -- from which it derives twice as much revenue -- specifically among travel trailers.
This suggests one (or both) of two things. First, the market-share gains in housing may have come at the cost of reduced prices (helping to explain the gross-margin compression). Second, to reverse market share erosion in the RV segment may necessitate reducing prices there as well. Either way, Fleetwood needs to find a means of stopping erosion of its sales, while holding the line on prices in both segments.
The bittersweet fact of the matter is that the demand for temporary and quick-to-build housing created in Katrina's wake just might solve both of these problems for Fleetwood and accelerate the company's already admirable progress in selling down its inventories as well.
For more Foolish news and views on the resurgent RV/manufactured housing industry, read:
Fool contributor
Rich Smith
does not own shares in any company mentioned above.
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