Tuesday evening came and went, and with it went investors' hopes for a resurgent Cavalier Homes (AMEX:CAV).
As hoped, the builder of manufactured homes turned in a quarterly profit that was better than the previous year's for the fourth time in a row. The company trounced analyst estimates in reporting $0.09 in earnings per share. In fact, pretty much everything Cavalier had to say sounded pretty darn good to this Fool. Quarterly sales were up 36% year over year to just less than $75 million. Last year's loss became a $1.7 million profit this year. Share dilution was held to a relatively modest 2.5% per annum. And margins expanded as sales growth greatly exceeded the rise in both cost of goods and selling, general, and administrative expenses. Finally, for the "artificial home" bulls out there, Cavalier noted that its sales would have risen even had last year's hurricanes never fueled FEMA-related housing demand. So it's good news all around, right?
Not quite. Cavalier eschewed the self-promotion route this week, and rather than trumpet its good news and quickly exit stage left, the company proceeded to lay out its own bear case for the future. To wit:
- Unit (not value) shipments of non-FEMA homes to independent dealers declined 2% year over year.
- Backlogs remain soft.
- Second-quarter results, although they will probably show a profit, are unlikely to be as good as what we saw in Q1.
- Financing for sales continues to be a problem.
- The company's hopes that its FEMA work would showcase its ability to build affordable, quality homes, and thus attract new buyers aiming to rebuild after the storms, have not been borne out. The non-FEMA sales just aren't materializing.
Cavalier continues to hope that those non-FEMA orders will come, and it noted that with its home base so close to where Katrina hit, the company is well positioned to capitalize on any upsurge in demand for manufactured housing in the region. But there was a distinct sense of wishing upon a star to that observation, and one that only actual sales will dispel.
Corollary observation
Investors in Motley Fool Hidden Gems pick Drew Industries (NYSE:DW) should pay close attention to Cavalier's results. Although Cavalier is far from a dominant force in the industry -- being dwarfed by the likes of Champion (NYSE:CHB), Fleetwood (NYSE:FLE), and Berkshire Hathaway's (NYSE:BRKa) (NYSE:BRKb) Clayton Homes -- its lack of optimism for the future doesn't bode well for any long-term reversal of the decline in manufactured-housing production that we highlighted last week. And it's only logical that weak production in manufactured homes bodes ill for shipments of the parts that Drew produces for those homes. I guess Drew will have to stick to just improving its operations and stealing its rivals' market share instead.
Fool contributor Rich Smith does not own shares of any company named above. Want a peek at Hidden Gems and the other stars in its small-cap universe? Try it out free for 30 days.
