About the only thing I dislike more than a business with a lousy performance is one whose management won't own up to a lousy performance. That's what got me fed up enough to sell my holdings in American Express (NYSE:AXP) and Eastman Kodak (NYSE:EK) in 2001. It was a major factor in Tom Gardner's decision to recommend selling ex-Motley Fool Hidden Gems picks such as Pegasystems (NASDAQ:PEGA) and eSpeed (NASDAQ:ESPD) earlier this year. But it's not a problem at RV- and manufactured home-builder Fleetwood Enterprises (NYSE:FLE).
Now, mind you, I'm not saying that Fleetwood's firing on all cylinders here -- because clearly it's not. But then, management isn't trying to say that it is. On the contrary, Fleetwood CEO Elden Smith, who recently joined the company in March and so had little reason to sugarcoat the performance of his predecessor, put it quite bluntly: "None of our operating divisions performed well this quarter."
Tell it, brother!
According to Fleetwood's fiscal 2005 earnings report released earlier this month, operating profits declined across the board in the fourth quarter, despite sales numbers actually rising in two of the company's three divisions. And far from being an isolated bad quarter, Q4 reflected Fleetwood's overall performance in 2005 pretty well. Despite significantly stronger sales in both the manufactured housing and supply divisions, weak performance in RV sales put the brakes on overall sales growth, holding it under 1% against fiscal 2004 numbers. Meanwhile, net losses ballooned more than sixfold, cash and marketable securities evaporated, and inventories rose 23%.
Fortunately, that's about the worst of it. In the hundred or so words of space I have left, let me tell you about what's going right. Since Smith joined Fleetwood, he's taken serious steps toward making Fleetwood's business live up to its moniker. Deadweight in the form of uncollected bills and excess inventory has been slashed, down 21% and 17%, respectively, over the past three months. And the company has begun a major restructuring effort by putting its underperforming manufactured housing retail and financing units up for sale. With any luck, by this time next year, those two will be someone else's problem and Fleetwood will be able to concentrate on what it does best: building stuff.
Make no mistake, Fools. Fleetwood is not out of the tunnel yet. But under Smith's leadership (gotta love that surname), investors in this company are finally starting to see some daylight.
Fleetwood is also one of the country's largest RV manufacturers. Read all about the mobile home industry's recent troubles in:
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.
