Cavco Reports Third Quarter Earnings Of $13.4M (2/5/2019)
Story by Woodall's Campground Management
Cavco Industries Inc. announced financial results for the third fiscal quarter which ended Dec. 29, according to a press release.
Financial highlights include the following:
Net revenue for the third quarter of fiscal year 2019 was $233.7 million, up 5.6% from $221.4 million for the third quarter of fiscal year 2018. The increase was primarily from higher home selling prices as a result of input cost inflation and modestly larger home sizes. Net revenue for the first nine months of fiscal 2019 was $721.6 million, a 14.8% increase from $628.7 million in the same period last year. Net revenue for the three and nine months ended December 29, 2018 includes subcontracted pass-through services of $5.9 million and $18.7 million, respectively, which are now recognized on a gross basis rather than net of associated costs.
Income before income taxes was $16.9 million for the third quarter of fiscal year 2019, a 28.7% decrease from $23.7 million in the comparable quarter last year. The current quarter's results were impacted by the following events.
Cavco recorded unrealized losses of $2.1 million on corporate equity investments in other income, net. This is the result of implementation this fiscal year of new accounting standards that require unrealized gains and losses on equity instruments to be reported on the Consolidated Statement of Comprehensive Income. In previous fiscal years, these amounts were recorded on the Consolidated Balance Sheet in the Accumulated other comprehensive income line;
Selling, general and administrative expenses included $1.3 million for legal and other expenses related to the Company's internal investigation and response to the Securities and Exchange Commission ("SEC") inquiry and $0.7 million of expense related to the purchase of additional Director and Officer ("D&O") insurance, as described further below; and
Financial services results were adversely impacted by a severe hailstorm in Arizona, which resulted in increased homeowners' insurance claims for the period. Cavco's insurance subsidiary maintains reinsurance for loss events that exceed $1.5 million, which served to limit the losses realized this quarter. The prior year quarter experienced unusually low claims volume as policy coverage areas did not have any significant weather-related events.
Further increasing the adverse quarterly comparison, income before income taxes for the prior year third fiscal quarter benefited from a $3.4 million favorable dispute settlement resolution and the production of a limited number of disaster-relief units for the Federal Emergency Management Agency.
For the first nine months of fiscal 2019, income before income taxes increased 26.8% to $60.6 million from $47.8 million in the prior year period.
Income tax expense was $3.6 million, an effective tax rate of 21.0% for the third quarter of fiscal year 2019 compared to $2.2 million and an effective tax rate of 9.5% in the same quarter of the prior year. Cavco's prior year tax rate was impacted by the Tax Cuts and Jobs Act (the "Tax Act"), enacted on December 22, 2017, as Cavco revalued its net deferred income tax balance and recorded an income tax benefit of $5.6 million. The Tax Act also reduced the federal statutory corporate tax rate to 21% for our fiscal year ending March 30, 2019. For the nine months ended December 29, 2018, income tax expense was $11.9 million, resulting in an effective tax rate of 19.7%, compared to income tax expense of $8.5 million and an effective tax rate of 17.7% in the comparable period. In addition to the effects of the Tax Act, income tax expense also includes a benefit of $2.3 million for the nine months ended December 29, 2018 related to excess tax benefits from exercises of stock options, compared to a benefit of $1.7 million in the comparable prior year period.
Net income was $13.4 million for the third quarter of fiscal year 2019, compared to net income of $21.4 million in the same quarter of the prior year, a 37.4% decrease. For the nine months ended December 29, 2018, net income was $48.7 million, up 23.6% from net income of $39.4 million in the prior year period. Diluted net income per share was $1.44 and $5.24 for the three and nine months ended December 29, 2018, respectively, compared to $2.33 and $4.28 for the comparable periods last year.
To view the whole report click here.
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