Foolish Forecast: Cavalier Stable

Manufactured home builder Cavalier Homes (AMEX:CAV) has turned in three straight quarters of improved earnings numbers (in comparison to the previous year's numbers). Can the little company from Alabama make it four for four? Tune in tomorrow after close of market to find out.

What analysts say:

• Buy, sell, or waffle? Only one analyst follows Cavalier, but he rates it a buy.
• Revenues. The analyst does not give revenue estimates.
• Earnings. But he does believe that the year-ago quarterly loss became a $0.07-per-share profit in Q1 2006.

What management says:
Commenting on last year's results back in March, CEO David Roberson credited much of the company's resurgence in earnings to hurricane-related contracts to build housing for the Federal Emergency Management Agency (FEMA). But even without that additional revenue, he said that Cavalier's operations would have been "fundamentally stable." Roberson further noted that the FEMA-related production gives his company a chance to show the quality of its products to potential customers who might otherwise have only considered rebuilding their homes as site-built buildings -- and to try to convert them into manufactured-home buyers. Noting that the hurricane-related damage has put contractors and labor in short supply, he suggested that consequent building delays in site-built reconstruction may give the manufactured homebuilding industry a leg up. At the same time, Roberson used the dreaded adjective "challenging" to describe the company's industry environment, and noted that there is a lack of "financing capacity" for manufactured homes -- a concept he did not elaborate on. Looking forward, he identified two of the company's challenges as growing revenues while keeping costs under control.

What management does:
So far, the company seems to be doing well in this regard. For the past six months, revenues are up 15% year over year, while selling, general & administrative expenses actually declined. This has resulted in operating and net margin improvements far in excess of the 140-basis point-improvement in rolling gross margins.

One Fool says:
The major issue I see at Cavalier is common to many companies that do business with the government: getting the bills paid on time. On average, accounts receivable grew 162% over the last six months, against the aforementioned 15% rise in sales. Inventories are also up 60% in this period. As a result, Cavalier's cash levels dropped precipitously last quarter. This could be what Roberson was talking about when naming "financing capacity" as an issue for his industry. If the Feds aren't going to pay their bills in a timely fashion, then Cavalier has to carry the costs of raw materials until FEMA cuts it a check.

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Fool contributor Rich Smith does not own shares of any company named above.