This seems like a story straight out of Rocky (I, II, III, LXXXVI. take your pick). ChampionEnterprises (NYSE:CHB) had a near-death experience in late 2002 and early 2003, but it has since managed to climb back to profitability and respectability. With its comeback mission accomplished, however, its next challenge is to find a sustainable path to growth.
Revenue was up 42% in the latest quarter on a 27% increase in units sold and an overall improvement of roughly 11% in average pricing. Gross margins improved slightly, and operating income was significantly better than in the year-ago period. Last but certainly not least, cash flow was quite solid for the quarter, even when excluding the benefits of payments from FEMA.
Speaking of FEMA, Champion made its final deliveries under its contract here. And while this FEMA business was certainly a contributor to the 39% growth in manufacturing sales, growth was still 29% without it. And not to be overlooked, margins in the manufacturing business picked up quite nicely -- increasing by more than 50% from the year-ago period.
I'm somewhat new to this story, but I like what I see and hear so far. Champion is one of the leaders in a fragmented market -- sharing space with Berkshire Hathaway's (NYSE:BRK-A) Clayton Homes, Palm Harbor Homes (NASDAQ:PHHM), and Fleetwood (NYSE:FLE), among others -- and can grow not only through old-fashioned outcompeting, but also via selective acquisitions.
I also like management's realistic outlook regarding future growth. Instead of doting on and coddling expectations for the HUD Code market, management seems driven to build its modular-housing business. I don't pretend to know this market as well as they do, but that seems smart to me -- I just don't see as much growth (past or future) for the HUD business as I do for the modular business.
This story is getting better, but I'm afraid that the stock market is already at least somewhat on to that fact. I wouldn't be surprised if ongoing margin improvements and capital returns led to still more stock gains, but I'd rather go look for the next big turnaround opportunity than to jump onto one in the late innings of its recovery.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
