Happy day. Nobility Homes (NASDAQ:NOBH) was showing up on my value screens a few months back, but I never got around to taking a closer look before it fell off the screen for some reason. Today, I see that the manufactured-homes builder is scheduled to report fiscal Q2 2006 earnings tomorrow, and I have a chance to take that closer look.

What analysts say:

  • Buy, sell, or waffle? Two analysts are currently following the stock, and both rate it a buy.
  • Revenues and earnings. Neither analyst publishes sales estimates for Nobility, but on average, the two of them expect the firm to produce $0.45 per share in profits, for a 10% increase over last year's numbers.

What management says:
In the March Q1 2006 earnings report, CEO Terry Trexler whipped up a cocktail of comments on his firm's performance and prospects that was both shaken and stirred. In a flurry of verbiage, he called Q1 the company's "weakest quarter" historically, while citing 19% sales gains and profit-per-share improvement of twice that amount. He warned investors of "volatile pricing in lumber, OSB, sheetrock, steel and oil related products and services. with little price stability in sight," but noted that "Nobility continues to out-perform the industry."

After painting a very bleak picture for housing in general, Trexler termed himself "optimistic for fiscal 2006" and expected "the demand for our homes to grow," in part because the firm expects to get a lot of business from rebuilding homes that were destroyed by the hurricanes of . two years ago.

Which strikes this Fool as propitious. If Nobility is still getting business from fixing up after disasters two years old, then it would seem likely that the company has even more business coming down the pike, rebuilding after last year's hurricanes.

What management does:
I'm usually suspicious of firms that say, "Everyone's going to have a tough time of it -- except for us," but it's hard to argue with the story that Nobility's margins are telling. Rolling gross, operating, and net margins have all marched steadily upwards over the last 18 months, with the improvements long predating last year's hurricane season and the business it brought.

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

26

26.6

27.7

28.2

29

29.5

Op.

13.1

13.6

14.4

14.7

15.4

15.7

Net

9.3

9.6

10.2

10.4

10.9

11.2
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:
The primary thing that concerns me about Nobility right now is that I don't like what's been going on with inventories over the last six months. During that period, in comparison to one year ago, sales rose 15%. That's fine in and of itself, but inventories shot up 37%, which has me wondering why the firm is building so much more product than it's selling.

To doublecheck whether this is really a problem, I looked into the firm's last 10-Q filing to see how the inventories break down among raw materials, works-in-progress (higher levels of these two are not necessarily bad, as they may indicate that the firm is getting ready to make more sales), and finished goods (higher levels of these are bad, because they sit around tying up capital while they wait for a buyer.) Respectively, the last quarter's numbers showed a 27% rise in raw material inventory, a 31% rise in works-in-progress, and a 38% rise in finished goods. In other words, the bad outweighs the good here. This is one metric we'll definitely want to check on again tomorrow, to see whether Nobility has begun selling down that excess inventory.

Competitors:

  • BerkshireHathaway (NYSE:BRK-A)
  • Cavco (NASDAQ:CVCO)
  • Champion Homes (NYSE:CHB)
  • Fleetwood (NYSE:FLE)
  • Palm Harbor (NASDAQ:PHHM)

Creditors:

  • SunTrust (NYSE:STI)

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