Clayton Homes Q1 '97
|
Clayton Homes Q1 '97
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Clayton Homes Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMH)") else Response.Write("(NYSE: CMH)") end if %> UNION CITY, Ca., October 22, 1996/FOOLWIRE/ ---Clayton Homes reported their first quarter 1997 results late last week. The company's first quarter net income increased 13% to $26 million. This was their 41st consecutive record quarter, more than 10 straight years. It also represents the 53rd positive quarter to quarter comparison of the 54 quarters reported since they went public in 1983. Earnings per share rose 13% to $0.27 from $0.24 last year. Total revenues of $236 million rose 10% from $215 in Q1 last year. During the quarter they sold 7741 homes, an increase of 8% from the prior year.
HOME SALES BY GROUP. Manufactured shipments to independent dealers were 3577 versus 3058 last year, up 17%. This was favorably impacted by continued productivity increase at existing plants and the operational levels achieved at the new Bonham and Savannah double-wide plants. The retail group sold 2% more homes this quarter than the year ago quarter, 3866 versus 3808. Net communities added another 298 homes, up 4% in the quarter. Average number of independent dealers increased by 34% compared to last year's first quarter, and resulted in a 14% decrease in average sales for independent retailers. However, they also helped overall sales to independent retailers to increase 15% in the quarter.
THE RETAIL GROUP. In retail, they made the same mistake they made two years ago. They paid the big bonuses for the year to their retail sales people and sales managers and did not get the performance out of them in the first quarter that they expected. They managed this well last year, but slipped up this year. They are dealing with that problem and have incentives in place to fix it. They have added price leaders to the product line to drive sales. The margins on these products are less than the bread-and-butter products, but the increased manufacturing capacity they have added give them the ability to do this. They are also training in-house people and independent contractors to improve the delivery and set-up process. The efforts they have taken are having a positive impact measured by an increase in loan applications and increased store traffic.
MANUFACTURING GROUP. Manufacturing had a very good quarter. The order backlog, comparatively stated is down and it is down for the industry and there are several reasons for that. One of the reasons is a cycle by which order backlogs grow artificially high. Retailers seeing a 6-12 week backlog will become overly optimistic and will order more homes than they necessarily need. So, Clayton sees a very healthy adjustment as the backlogs have come down both for the industry and for the company in the last few months. So, they have a much more "reality-based" backlog now than they did last quarter. The delivery rate/sales rate is much more tracking the order rate now. When the backlogs were so high, they lost a lot of shelf space. Retailers are not so committed to a manufacturer that they won't go to other factories when the backlogs start getting to be 8 and 12 weeks long. Therefore, it behooves Clayton to do everything possible to accommodate the retailer and get the backlogs down. They still have a couple of plants where the backlogs are much too long. In most of the plants, the backlog is at a comfortable level. And, there are 4 plants where Clayton would like to see a longer backlog.
Clayton also added a lot more production. They had the new West Tennessee multi-section plant for the first full quarter, so it is still a long way from reaching capacity (typical ramp-up is one year), but it was profitable for the quarter. They added two single-wide plants that took care of a lot of the backlog they had. They are beginning construction immediately on the Sulphur Springs plant which is another copy of the last 4 plants they built. Sulphur Springs is East of Dallas Texas and is good shipping distance from a lot of their company-owned sales centers, their community sales centers, and their independent retailers. The plant will be producing in the fourth quarter and will be profitable next year.
MARGINS AND EXPENSES. Gross margins were 31.2% compared to 31.9% last year. This is partly attributable to the lower percentage of vertical sales at their retail sales centers and to an increase percentage of wholesale sales in the total mix. They shipped less Clayton-built product to Clayton retailers. SG&A expenses decreased from 32.1% of sales to 31.4%. Financial services interest expense continues to decline because the asset-backed securitizations are issued and they are paying down the conventional debt that they previously used to fund their mortgage lending. Pre-tax income rose 14% in the first quarter. The effective tax rate for the quarter was 38% compared to 37.6% last year. Weighted average shares outstanding were up slightly compared to last year, primarily because Clayton matched their employees' 401(k) contributions with company stock and also because of incentive stock option grants.
THE COMMUNITIES GROUP. In their communities group, since last year they have acquired 4 communities with a total of 911 sites and they expanded two existing communities by adding 144 sites. They also sold two communities in the fourth quarter. So, now the company owns 65 communities with 17,088 sites. These communities' overall occupancy levels were at 67% at quarter end compared to 65% at the same point last year. On a comparable basis, occupancy improved to 68% from 63% last year. Overall they were pleased with their performance, but they know they could've done considerably better in sales and they are addressing that now. They have installed a new Director of Sales and they have a lot of work to do there. But, they have acquired so many of these communities just in recent years and it is a long-term proposition to build a sales team and the marketing programs. Communities should do considerably better next quarter than it did this quarter.
THE FINANCIAL SERVICES GROUP. The financial services group had an excellent quarter and represented 40% of pre-tax income in the quarter. Originations were up strongly (up 34% to $135 million, compared to $100 million last year). Vanderbilt Mortgage overall delinquency percentage on September 30th was slightly higher than last year, but below the levels at fiscal year end. For contracts Clayton originated, delinquencies were 1.96% compared to 1.83% last year and for the total portfolio serviced including acquired portfolios the delinquencies were 2.28% versus 2.16% last year. Vanderbilt's net charge-offs as a percent of average loans outstanding was lower than last year. For contracts they originated it was 0.05% compared to 0.07% last year. For the total portfolio serviced, charge-offs as a percent of average loans outstanding was 0.21% versus 0.26%.
INSURANCE GROUP AND THIS YEAR'S HURRICANE SEASON. Vanderbilt also has an insurance operation and they did have some hurricane claims from hurricane Fran, so that had some impact in the quarter, but they accrue for such things so it really doesn't have a significant impact on the quarter's numbers other than it will take some of their provision away. They handle insurance claims very efficiently because they can get their own manufacturing and retail operations involved to adjust and settle the claims. They can actually go in and repair homes themselves with their manufacturing and retail service crews. So they can reduce the claims expense and control it far better than most independent insurers. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
|
|
Copyright 1996, The Motley Fool |