"Any port in a storm," or so the saying goes. But after Tuesday's earnings report, perhaps we should modify that to read: "Any port in a storm, so long as it's not Palm Harbor (NASDAQ:PHHM)."
Reporting fiscal Q4 and full-year 2006 earnings Tuesday evening, the manufactured-home builder announced that quarterly sales slumped 25% year over year. Meanwhile, last year's Q4 profits -- which were already set to become a $0.19-per-share loss this year -- evolved into a $0.32-per-share loss, as the cost of closing five retail stores and one factory bit deeply into the net.
Calm before the storm
If all that sounds bad, just wait -- it gets worse. Or rather, it's gotten worse as the year has progressed. The stormy results of this quarter were so bad, they make the disappointing news for the full year look calm by comparison. Fiscal 2007 sales were down just 7%, for example, while the $0.51 net loss for the year was little worse than the loss for the fourth quarter alone. Again, "one-time" charges bore much of the blame. Or, more precisely, "two-time" charges -- restructuring costs incurred in the second and fourth quarters to close down, at last count, 13 retail stores and two factories, and write off an investment in mortgage bank BSM Financial.
Agree and disagree
CEO Larry Keener describes the above carnage as the result of "a very challenging business environment" in which "HUD-code floor shipments for the quarter declined over 36 percent." I agree that this is a lousy industry these days, perhaps requiring the backing of a deep-pocketed investor like Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) to survive. (I imagine this thought has investors in not just Palm Harbor, but also Cavalier (AMEX:CAV) and Champion (NYSE:CHB), looking enviously at the lucky stiffs at Clayton Homes.)
But I disagree with Palm Harbor CFO Kelly Tacke's assertion that the company "ended the year with a solid financial position," with the balance sheet showing some $44 million in cash and cash equivalents. In fact, the balance sheet has deteriorated markedly. Cash levels are down 32% year over year, while long-term debt is up 49% to $269.4 million. Meanwhile, against the background of the 7% slump in annual sales, inventory declined just 8%, and accounts receivable soared 20%.
If this is what passes for a "solid" balance sheet at Palm Harbor, I shudder to think what will happen if the housing market continues to worsen, and this balance sheet becomes downright flimsy.
For more storm-tossed reading on Palm Harbor, try:
- Foolish Forecast: Palm Harbor's Shady Quarter
- The Gleam on Manufactured Housing
- Foolish Forecast: Palm Harbor Wide Open
Berkshire Hathaway is a Motley Fool Inside Value pick.
Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy enjoys a mai tai from time to time.
