Hurricane season is upon us, folks, and manufactured-housing and mobile-home investors are hoping that means good things for companies such as Champion Enterprises (NYSE: CHB ) . When Nature inflicts her wrath on U.S. coastal states, the Federal Emergency Management Agency depends on companies like Champion to step up and build cheap temporary housing that will shelter those who feel her ire.
As we head into the season (and more immediately, the weekend), let's take a quick look ahead at what Monday afternoon might hold for investors in this company, when it reports its Q2 2006 results.
What analysts say:
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Buy, sell, or waffle? Four analysts now follow Champion, one more than last quarter. But they're still unanimous in rating the stock a buy.
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Revenues. They're looking for the company to post 30% sales growth to $412.7 million, a figure helped along by the company's recent acquisition of U.K. subsidiary Calsafe Group.
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Earnings. Analysts are also looking for a 44% rise in profits, to $0.26 per share.
What management says:
Better late than never. In reporting on its financial results for last quarter, Champion noted that its operating cash flow rose "sharply" in Q1, more than quintupling the previous year's $5.1 million as the U.S. government paid up for many of its hurricane-related manufactured-housing orders. Total cash infusion from the feds: $17 million out of $27 million total. While the company didn't say so explicitly, I'd bet we'll see more of the same in Monday's news; as of April, Champion still had $46 million in accounts receivable outstanding, and I'm guessing a fair share of that amount will come in the form of checks bearing FEMA's signature.
Even better, as the cash payments roll in, Champion's cash outlays to build housing for the Feds appear to be over for the time being. The company said it completed its final delivery of 627 manufactured homes to FEMA last quarter.
What management does:
Champion's profitability is looking nearly as good from an accounting-profits perspective. Over the past 18 months, the company has boosted its
gross margin, holding it fairly steady despite record-high raw-materials costs. Operating profitability is also up, and the 180-basis-point increase in Champion's
net means that the company is twice as profitable under
GAAP today as it was a year and a half ago.
|
Margins %
|
1/05
|
4/05
|
7/05
|
10/05
|
12/05
|
4/05
|
|
Gross
|
16.7
|
17.1
|
17.3
|
17.0
|
17.0
|
17.0
|
|
Op.
|
4.0
|
4.6
|
5.0
|
4.9
|
5.1
|
5.6
|
|
Net
|
1.7
|
3.2
|
2.2
|
2.5
|
3.0
|
3.5
|
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
All we need now is for the company to keep its sales rising. But can it have done that in the hurricane-free second quarter? I see no reason why not. First, the company has made two significant acquisitions that will add to its revenue streams: the Calsafe buy mentioned above, and the March purchase of Minnesota-based Highland Manufacturing Company. Moreover, Champion pointed out that although last quarter's sales growth of 39% year over year depended to a large extent on FEMA orders, even without those extra sales, the company would have grown its revenues by 29%.
Long story short, Champion doesn't need disaster to strike others for it to do well. The company does just fine when everything goes well for everybody, too.
Competitors:
- Berkshire Hathaway (NYSE: BRK-A )
- Cavco (Nasdaq: CVCO )
- Fleetwood (NYSE: FLE )
- PalmHarbor (Nasdaq: PHHM )
Suppliers:
- Drew Industries (NYSE: DW )
Read more about Champion in:
Drew Industries is aMotley Fool Hidden Gemsrecommendation. Try out Tom Gardner's small-cap newsletter service free for 30 days.
Fool contributorRich Smithdoes not own shares of any company named above.
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