Exchange: NASDAQ | Sector: Consumer Cyclical | Industry: Residential Construction
Q1 2025
Published: Aug 2, 2024
Earnings Highlights
Revenue of $477.60M up 0.4% year-over-year
EPS of $4.11 decreased by 22.4% from previous year
Gross margin of 21.7%
Net income of 34.43M
""We incurred a number of individual events, none of which reached our reinsurance coverage.â€" - Bill Boor, CEO
Cavco Industries Inc (CVCO) Q1 2025 Financial Results Report - Navigating Challenges in the Residential Construction Sector
Executive Summary
Cavco Industries Inc reported a modest revenue increase of 0.4% YoY in Q1 2025, totaling $477.6 million, driven by a slight uptick in units sold despite a 4% decrease in average selling prices. However, profitability faced pressures with net income decreasing by 25.7% YoY to $34.4 million, largely due to significant losses in the financial services segment stemming from adverse weather impacts.
Management highlighted a steady recovery in orders for factory-built housing, with a 20% sequential increase in shipments and a backlog growth of 22%. The resilience in demand remains critical as the company seeks to navigate ongoing challenges in the insurance division while leveraging production capabilities. Investors should note the cautious optimism from leadership regarding recovery and operational efficiencies moving forward.
Key Performance Indicators
Revenue
477.60M
QoQ: 13.93% | YoY:0.36%
Gross Profit
103.40M
21.65% margin
QoQ: 5.39% | YoY:-12.28%
Operating Income
38.55M
QoQ: 5.06% | YoY:-31.40%
Net Income
34.43M
QoQ: 1.46% | YoY:-25.73%
EPS
4.15
QoQ: 1.97% | YoY:-22.43%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $477.6 million, up 0.4% YoY; sequential growth of 13.9%.
**Net Income:** $34.4 million, down 25.7% YoY.
**EPS:** $4.11, down 22.4% YoY.
**Gross Margin:** 21.7%, a decrease of 310bps YoY due to pricing pressures in housing and insurance losses.
**Operating Income:** $38.55 million, down 31.4% YoY.
Financial Highlights
Financial Performance Summary:
- Revenue: $477.6 million, up 0.4% YoY; sequential growth of 13.9%.
- Net Income: $34.4 million, down 25.7% YoY.
- EPS: $4.11, down 22.4% YoY.
- Gross Margin: 21.7%, a decrease of 310bps YoY due to pricing pressures in housing and insurance losses.
- Operating Income: $38.55 million, down 31.4% YoY.
- Cash Flow from Operating Activities: $47.39 million, reflecting healthy cash generation despite profitability challenges.
- Capital Expenditures: $4.98 million, demonstrating continued investment in production capacity.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
477.60M
0.36%
13.93%
Gross Profit
103.40M
-12.28%
5.39%
Operating Income
38.55M
-31.40%
5.06%
Net Income
34.43M
-25.73%
1.46%
EPS
4.15
-22.43%
1.97%
Key Financial Ratios
currentRatio
2.96
grossProfitMargin
21.7%
operatingProfitMargin
8.07%
netProfitMargin
7.21%
returnOnAssets
2.49%
returnOnEquity
3.32%
debtEquityRatio
0.05
operatingCashFlowPerShare
$5.72
freeCashFlowPerShare
$5.12
priceToBookRatio
2.76
priceEarningsRatio
20.83
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key Insights from Management:
- Production and Orders: "Momentum was building through this quarter...up about 25%. We were able to increase shipments 20%, and our units in backlog climbed 22%.†- Bill Boor, CEO
- Insurance Challenges: "Our insurance operations incurred very high losses in Q1...multiple weather events...created a level of claims we haven't seen before.†- Bill Boor, CEO
- Market Stability: "Without the help of any significant interest rate relief, buyers are placing orders because they need homes and rate stability enables them to have confidence in their monthly payment.†- Bill Boor, CEO
- Financial Services: "...we incurred a number of individual events, none of which reached our reinsurance coverage.†- Bill Boor, CEO.
"We incurred a number of individual events, none of which reached our reinsurance coverage.â€
— Bill Boor, CEO
"Assuming the market continues to stabilize, we're optimistic about improving demand in the back half of the year.â€
— Bill Boor, CEO
Forward Guidance
Management exhibits cautious optimism moving forward, with comments indicating a focus on increasing production capacity to match rising demand. Anticipated improvements in community orders within the next few quarters are expected to support additional revenue growth. The insurance division’s ability to stabilize premium rates and manage claims effectively will be critical, particularly as the company expects the potential for another $4 million loss from Hurricane Beryl, which could impact second quarter results. Investors should monitor developments in the market conditions, particularly in the housing demand and pricing stability.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
CVCO Focus
21.65%
8.07%
3.32%
20.83%
MTH
26.20%
15.50%
3.94%
4.20%
IBP
33.80%
12.70%
8.23%
32.41%
TMHC
24.50%
14.50%
3.51%
8.56%
LEGH
51.80%
38.70%
3.36%
8.55%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Cavco Industries presents a mixed investment outlook. While recent revenue trends and operational efficiencies suggest potential for recovery, the company must navigate significant challenges in its insurance segment and variable housing demand influenced by broader economic conditions. Investors should closely monitor community order trends, production efficiency improvements, and management’s execution of strategic initiatives to capitalize on recovery in the housing market. Ultimately, Cavco's solid cash position and commitment to maintaining liquidity make it a relatively safer bet amidst the uncertainties in the consumer cyclical sector.
Key Investment Factors
Growth Potential
Cavco Industries demonstrates solid growth potential with a consistent rise in backlog and production capabilities returning to pre-pandemic levels. The gradual recovery in community orders indicates potential for increased sales in the near term. Operational focus on efficiencies and cost management can enhance margins moving forward.
Profitability Risk
Significant exposure to the volatility in the insurance market remains a primary risk, particularly due to recent weather events leading to higher-than-normal claims. Fluctuations in material prices and potential disruptions from economic conditions can impact profitability and operational stability.
Financial Position
Cavco Industries maintains a healthy balance sheet with $378.35 million in cash and equivalents and a low total debt ratio of 4.3%. The company’s strong cash flow from operations reinforces its financial health, though it must continue to manage working capital efficiently and address rising operational costs.
SWOT Analysis
Strengths
Strong brand recognition in the manufactured home market
Resilient cash flow; healthy liquidity position
Ability to leverage operational efficiencies and production capability increases
Weaknesses
Dependence on the volatile insurance market
Historical performance impacts from weather events
Recent decline in overall profitability across segments
Opportunities
Expanding market demand for affordable housing solutions
Opportunity to improve margins through enhanced pricing strategies
Potential strategic acquisitions in the financial services space
Threats
Increased competition in the residential construction market
Economic downturns affecting consumer purchasing power
Volatile material costs impacting margins and production costs