Manufactured housing purveyor Champion Enterprises (NYSE: CHB ) reports its Q4 and full-year 2006 earnings results on the other side of the weekend -- Tuesday afternoon, to be precise. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
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Buy, sell, or waffle? Five analysts follow Champion. Three of them rate it a buy, and two a hold.
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Revenues. On average, they think quarterly sales slid 12% last quarter, to $331.9 million.
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Earnings. Profits are predicted to have fallen 65% to $0.07 per share.
What management says:
Um, remember what I said last quarter about Champion selling "its San Jose Advantage Homes business for $44 million cash, plus an $8 million IOU, choosing to focus more on manufacturing while leaving the retailing to others"? Yeah, scratch that. In an SEC filing in November, management advised that the deal has fallen through, due to Bayshore's "failure to secure financing required to complete the transactions."
Not to worry, though. Although Champion announced a decline in operating cash flow last quarter (down 23% year over year to $20.2 million), and spent $30 million to acquire North American Housing, the firm's cash kitty remains well stocked with $106.4 million, at last report. (Then again, the $52 million from Bayshore could have made a nice dent in Champion's $283.7 million in long-term debt.)
What management does:
Margins continue to face a squeeze, as both cost of goods (COGS) sold and selling, general, and administrative expenses (SG&A) grow faster than sales. The latter are up 10% year over year in the last two quarters, while both COGS and SG&A grew 12%. That's making itself felt at both the gross and operating margin levels; don't be fooled by the recent rise in the rolling net -- it's due entirely to a $108 million income tax benefit that the firm booked in the July quarter.
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Margins
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7/05
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10/05
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12/05
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4/06
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7/06
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9/06
|
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Gross
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17.3%
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17.0%
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17.0%
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17.0%
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16.5%
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16.3%
|
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Operating
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5.2%
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5.3%
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5.1%
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5.6%
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5.2%
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4.8%
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Net
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2.2%
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2.6%
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3.0%
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3.5%
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10.9%
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10.3%
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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:
Champion continues to do what it can to get its margins moving upwards. Reviewing last quarter's results, we saw that even as overall sales decline, the emphasis on selling more modular homes is paying off in three forms: higher sales (they rose 17% year over year in Q3), accelerating sales growth (that's up from the 12% growth posted year to date), and more profitable sales (unit growth in Q3 was just 13% -- so the firm is getting more dollars for each modular unit sold).
Champion is also shuttering underutilized factories to reduce fixed costs that have been eating into margins. In Q3, for example, it "idled or closed" four of its 34 North American plants. In the short term, we can expect this to entail asset impairment, restructuring, and severance costs. In the longer term, though, it looks like a necessary move in order to preserve margins in the face of continually falling HUD Code housing sales -- at least until rising modular sales create some kind of equilibrium in the business.
Competitors:
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Berkshire Hathaway (NYSE: BRKa )
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Cavco (Nasdaq: CVCO )
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Fleetwood (NYSE: FLE )
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Palm Harbor (Nasdaq: PHHM )
Suppliers:
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Drew Industries (NYSE: DW )
For more on Champion, read:
Drew Industries is a
Motley Fool Hidden Gems
recommendation. Berkshire Hathaway is a
Motley Fool Inside Value
recommendation. Whether you're into deep values or exciting growth, the Fool has a newsletter for you. And you're just a few clicks away from a free 30-day trial to any of them.
Fool contributor Rich Smith does not own shares of any company named above.
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