Um, wasn't this supposed to be hurricane season? Champion Enterprises (NYSE:CHB) investors were hoping it was, but with Mother Nature apparently off at a day spa for the last three months, optimism about this company's prospects for reaping another round of last year's FEMA-sponsored profits evaporated -- taking roughly half of the firm's market capitalization with it. Going forward, it looks like the maker of factory-built homes will be valued less on hopes for hurricane-induced (pun warning) windfalls, and more on what it has actually accomplished on its own.

Speaking of which, on Tuesday, Champion will tell us what it accomplished in third-quarter 2006.

What analysts say:

  • Buy, sell, or waffle? Champion gained another analyst since last quarter, and now boasts five. Four rate it a buy, and one a hold.
  • Revenues. On average, they think sales grew 11% last quarter, to $372.8 million.
  • Earnings. And that profits were cut nearly in half, down to $0.11 per share.

What management says:
Last month, Champion announced the sale of its San Jose Advantage Homes business for $44 million cash, plus an $8 million IOU, choosing to focus more on manufacturing while leaving the retailing to others. The firm maintains a five-year supply arrangement with the buyer, Bayshore Advantage.

Hunkering down and focusing on what it knows best seems a good idea, considering the continuing downward trend in this industry. According to CEO William Griffiths, the manufactured housing (MH) industry, ex-FEMA buying, declined nearly 4% last year, and another 4% in the first half of this year -- and: "We see no evidence that this trend will reverse in the second half of the year."

What management does:
The key to that statement being "ex-FEMA." Unfortunately, although Griffiths can remove FEMA buying from the picture and break down the situation for his industry for us orally, his firm's numbers naturally incorporate the FEMA buying (thus painting a picture that's prettier than fact). So when we see in the table below that gross margins have been declining for well over a year, and that operating profitability was, at last report, no better than a year ago, sure, that sounds bad -- but the situation may be even worse if the Feds have no reason to step in and provide contracts to the company in the future.

Margins %

4/05

7/05

10/05

12/05

4/06

7/06

Gross

17.1

17.3

17.0

17.0

17.0

16.5

Op.

4.6

5.2

5.1

5.1

5.6

5.2

Net

3.2

2.2

2.4

3.0

3.5

10.9
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:
By the way, don't get hung up on the fat net margin you see in the last quarter's rolling results. That's due almost entirely to the effect of a $108 million tax credit recorded last quarter; and speaking of rolling results, that credit will continue to inflate the rolling net for the next three quarters. Just a word to the Foolish.

So let's summarize: The MH industry's still in a funk. Hurricanes went AWOL this year. Next week marks the industry's return to the pre-Katrina era. And Champion's net is going to look a lot better than it really is for the next nine months. All of this adds up to one last bit of Foolish advice: If you're looking at Champion's price decline as opportunity knocking at the door, make sure to give this company a long-term, hard look through your due diligence peephole before opening up (a position).

Competitors:

  • Berkshire Hathaway (NYSE:BRK-A)
  • Cavco (NASDAQ:CVCO)
  • Fleetwood (NYSE:FLE)
  • Palm Harbor (NASDAQ:PHHM)

Suppliers:

  • Drew Industries (NYSE:DW)

What did we expect out of Champion last quarter, and what did it accomplish? Find out in:

Berkshire Hathaway is an Inside Value selection. Drew Industries is a Hidden Gems recommendation.Try out these or any of our other Foolish newsletters for yourself, free for 30 days.

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