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Skyline Champion (SKY)

Participants
Keith Anderson CEO
Laurie Hough EVP & CFO
Greg Palm Craig-Hallum
Colin Devine Jefferies
Rohit Seth SunTrust
Call transcript
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Operator

Good morning, and welcome to Skyline Champion Corporation's Third Quarter Fiscal 2019 Earnings Call. The company issued an earnings press release yesterday.

Before we begin, I would like to remind everyone that yesterday's press release and statements made during the call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factor set forth in the earnings release and in the company's filings with the Securities and Exchange Commission.

the be discuss performance. useful call they measures today's can believe in during company non-GAAP will which Additionally, evaluating their reconciliation can release. measures of in A earnings the be found these call I like would management. to the now over turn to Please go ahead.

Keith Anderson

will Skyline our Good CEO. provide updated this start earnings third EVP CFO progress quarter With Hough, call Thank company. then I Champion's quarter of some morning, results finally from XXXX and highlights Laurie Keith the with is you and me is and our this Anderson, the morning third on of for call. growth our commentary discuss initiatives. today's with operational of market, the and some our joining

quarter, result the third and as the results of while months reminder, quarter include a a legacy three ago year As Champion, operations include company, of Skyline results only combined our Champions. for full our the for the combination first of Skyline Champion during

by third quarter, the During year-over-year. we our revenue XX% grew

EBITDA by more driven U.S. at and benefits. of margin more detail for to the in were basis or later. by did solid in homes year-over-year. was million for by quarter our increased We a supported points $XX.X average Adjusted margin progression million sold results selling revenue Laurie profits which one-time any core $XX,XXX. of discuss an price FEMA-related Our will XX% $XX.X include XX% not gains Gross achieved We XX X.X%. the sequential of operational initiatives business

capturing during quarter. the good made combination progress we synergies from addition, business the In

did largely activity not quarter. tough this declined comps to from which However, margins related year-over-year repeat due FEMA

averages, combined we remain housing manufactured industry see well for significant volumes below been have market; for the recovering to growth. runway but and long-term Turning

to manufactured affordable plays the with our with growing help market providing as with increasingly housing gap demand options expect the solutions. an housing important We in historical trends close role financing new the combined

representing business, and approximately with Our pro our forma sales net transportation U.S. business our represents approximately each Canada, X%. XX% of

Within Texas, growth biggest strong markets such region in softening the Florida, to to than our have We South-Central U.S., are opportunities. see markets as activity that remain some California the like continue see. we'd order certain with and did some and backlogs of lower and in

quantify, events, we a by year-to-date feel the HUD trends our good year. we monitoring within on softness production November are While manufactured a diverse increased this we FEMA forward in for basis the the was supported plants shipments balance, difficulty caused calendar Demand on some as the industry-wide disruptive believe shipment affected. geographic of in footprint. by and to levels U.S. remains unit X% versus our strong industry excluding and three last weather-related XX% On about housing through basis, period closely

and to forward, We're starts the also overall HUD strengthen. to continue the the market market Going industry of as continue growth are to share to seeing housing Park traditional from take expected we outpacing continue see Modular site-built housing. Model

as homes today's the largely Canada to stress as impact While depressed conditions pullback the market along our in overall, Province Alberta due unemployment markets. challenged housing there alternatives. broader growing rates our and of market, care, low to continue Outside to more given prices remained Reported softening Consumers for manufactured are the demand housing remains driven other remains the a lower there agricultural continued crude the oil housing compared by statistics, and families. priced. needs from advantages quality U.S, weak. given and help cost with sector housing the concerns Economic the demographic of built recent fitting in affordably features They healthy. to attractive continue the market the trends and with with remains are outlook the about U.S. view

the as solid are continue backlog with be in At compared Canadian the and independent to period. $XXX However, backlog year backlogs remain three stores consolidated second ago our $XXX million demand million end million distribution up from core was solid down communities of our margins but third quarter, quarter, the and $XXX plants orders but year-over-year. profitable to from dealers, remain healthy. our in channels; Overall, company-owned the

As discussed we in quarter, slowdown expect a quarter. normal last seasonal the did third

discussed As quarter efforts Champion last Skyline for shipped the over disaster units XXX FEMA during third year. quarter, recovery the last

of an to orders fact, core pulled last result of number as staffing normalized a orders, number and is inflation optimal our X rush line level. level without customer bulk to forward now increasing for of as X-weeks a plants more visibility quoting backlogs. seasonally activity. with our risk our year plenty have Encouragingly, our taking purchasing get a In on were to of in where these This backlogs have adjusted retailers a labor for plants undue

front, the progress. On financing we see to steady continue

this which product, are program MH While we Mae's product compliments loans, Fannie their market. financing Freddie constrained, is announced advantage still by the both land/home for encouraged MH choice chattel especially recent December; Mac in serve developments.

of In pilot GSEs addition, purchasing [ph] [ph] year committed to a both by loans each. their program X,XXX minimum this launching have chattel

liquidity While industry. are operate the to customers. markets the manufacturing We important the are our numbers XX modest, facilities close strategically in that momentum is and increased located for

of rates utilization the seeing into rising are markets. XXs some We our plant capacity in

actions. we to efficiency. result, highlight meet demand and expand have I'll number improve taken those of three actions a capacity of a As to

First, facility, quarter production we earnings. is expansion contributing now of by which California our line Corona, adding this to second past completed a our

and management of facility produce as strong will good will our this we completed teams plant to anticipate Park a our making in hiring plant expansion shortly strategy this on management begin Loyola, production. Louisiana workforce, end prepare of third, March We additional utilizing progress similar we're opening be team thereafter. opening to new the Second, the are team production readiness and an And of well. plant plant in campus; by Models plant with and Leesville, for Corona primarily Pennsylvania the our

discuss in more in start I call to production to on-schedule the still Laurie the financials June, now will are quarterly XXXX. detail. We to over

Laurie Hough

Keith. Thanks,

sales legacy the performance million. by an with We to expanded for year. prior pleased as and grew by number average million XX% price XX.X% of sold the net are million U.S. sales Average inclusion increase to sales the The per The $XXX.X to quarter increased sales net selling Skyline homes the increased U.S. of of was in our operations driven selling U.S. home increase in price. million $XXX $XX home the XX%. to net X% $XXX to compared factory-built million sold Gross offset of increased increased strength Alberta compared by housing by to result XX% provinces. Canadian the mix Average quarter. $XX in million, and up market material and partially in selling $XX homes demand X.X% soft markets by and product pricing the to increased $XX,XXX to increased sales million while costs. the certain year in as sold $XX,XXX. a with offset of prices X.X% by to the X.X% impact prior $XX.X profit rising labor demand, actions Saskatchewan grew during

compared the basis sales of to or of pricing XX the EBITDA the gross Sequentially, and XX, Adjusted of The capture, $X.XX Act third quarter Sequentially, an X.X% rationalization. the and same as generated SG&A Net well comparisons increase for $X.X three fiscal quarter in of U.S. and the quarter. lower change improved an from year. expense. to XX, in third point XX% and effective no The fiscal inflation and XXX period production last increased costs the disciplines. XXXX margins points which XX.X% by when U.S. per income equity of quarter. by for floor Tax the margins were XXXX quarter, inclusion was million, a from the material $X.XX FEMA primarily a $XX.X due tax higher to Standard percent our with and due year, versus XX.X% new Our liabilities $XX driven income versus $X.XX down in the quarter primarily due by XX.X% combination. The under the benefit was net of product points increase integration typical X% efficiencies months XXXX tax operational the and compared million assets to the continued tax for for three December million income margins. improvements to net synergy increase XXX to the versus rate rate $XX for compensation of last basis share operations ago entire was third from Jobs was was quarter, than and of during XXXX. million Champion of in shipments. The effective and share associated fiscal EBITDA synergy resulting quarter. XX, last from in December recognized the the quarter to FEMA achieve largely XXXX increase as ended year's The million adjusted combination improvements the by U.S. was basis, enacted $XX.X gross segment costs net we the XX% months same effective three sales, the factory-built corporate rate segments we management, tax per year's tax the to EBITDA results period last $X.XX allowed plan year. tax adjusted Skyline last to ended the segment in On year's rate disciplined ended from comparing per tougher at saw declined prior factory-built in third tax related December Skyline driven margin and as the or deferred share for be the re-measurement an months company's third housing diluted basis quarter due second third in the over third operational second capture, of year housing costing labor XX.X% adjusted can Cuts income sold to

by improved Cash last $XX December unused XXXX management. of improved million months first borrowing XX. for capacity operations under of generated as has nine profitability, December adjusted equity-based $XXX As credit non-cash $XXX had for versus of company the equivalents. and million year period compensation the year driven same working capital from revolving of cash-and-cash XX, facility million improved by of $XX.X million our the The the we

a strong core our and ample have to and added initiatives. We that with credit provides position in facility liquidity flexibility invest from business growing strategic cash our

this our of is A aspect the functions benefits champion include XX% continue integration of and We within well plants core make with to champion. payroll completed the as progress Skyline's to moving conversions functionality. System. integration Systems Skyline as ERP of date critical unto good

are in refining we been achieve synergy our $XX company streamlining track estimate on original are next focused erased systems June, XX achieve the continued our time mix. on or this material on as better reaching improvements The integration quarter. Recall to XXXX. by of progress to synergies range are eliminating throughput integrations are to last months the our and expected. which quarters revised by expect complete Operational XX to two we from original Over will remain XXXX. in We remaining and synergies has December, track included capture quarter, targets improvements product of run $XX ERP functions. These the Procurement to that and coming rationalization synergy costs, months complete have resulting million million targeted cope from from of last redundant our expected. to rate than estimates

some back experienced As QX like we that, to the to in all, call in remarks. our larger for In financial turn the pleased anticipated, are our With results synergies. with Keith I'd to a quarter. we third results closing impact from

Keith Anderson

Thanks, Laurie.

continue As and progress in and we make operationally. numbers, financially improving evident the to

a improvement Skyline pleased of as conversions. integration work I'm initiatives quarter’s the to this and our pricing Champion to where versus in with such focus While activities and to systems will goals. point expected more is have margins, shift realize costing to we progressing The sequential do margin

on growth of focus Another ours initiatives. revenue is

focus continue that near-term to continue on we but opportunities, will internal remains the as to will evaluate Given well. expectations industry the opportunities our acquisition grow,

and affordable expect reported our look As regulatory by remain by improving to we markets financing increasing forward, housing for environments. we healthy, demand driven

well their are conditions of and Q&A. closely and monitoring the while generate factory-built overall homes remain to may positioned providing housing for quality market. Longer-term, housing returns are Operator, trends economic customers the one in We for our lines the stakeholders of now leading all you families. providers we open for and attractive our

Operator

Thank you.

session. Palm question-and-answer Our Greg from be Instructions] first today now will conducting is question We coming from Craig-Hallum. a [Operator

Greg Palm

Maybe the on on company-owned in you there congrats love I help understand walking out to you're your would independence results in start us various demand good by environment. Laurie, stores through here. seeing the communities. the us trends channels, could

Keith Anderson

typically From that strength From the February slowdown we this given quarter seasonal of of that the and the each good that little our we there November side, geographic in pretty for channels. early the activity kind we footprint of slowdown of of a and retailer's but us help bit see one Sure. into Well, see in in period, middle or the plants, us. normal March, many for sometimes activity time serve. is was

we when seasonal impacts year that comparable expect still green that encouraging normal more community backlog a channel, of but that's Colorado, exciting that and orders Michigan, There's community well on backlogs FEMA now, looks plus all Greg periods our in Texas, we We're manage of X,XXX lot vibes so So the that reflect Last existing the good. and good favorably space with time the decline. period up popping communities to the a The certainly from getting them. historical is not see the really of our was does only But other to in that had. bodes that Carolinas, on number fields going Florida future even the around country. for demand. are number and what's and and expansions

Greg Palm

and associated in the a mean, what's sale backlog the it was through the your a versus order a of from maybe moderation, year-end As sense along sell inventory more to the a relates I or think there? of adjustment it what's issue? you your color do lines impact independence

Keith Anderson

on Kentucky, all that a certainly able are being we it's foundations, through get lot I'd in there slabs homes delay of certainly that's the the that either caused and the plants but one retailer separate weather-related and define is excluding a was say etc., the South-Central to have events how but the set or Remember, accomplished. to hard dependent It's all-weather South for Carolinas pieces, homes. to of thing the the had Tennessee our from that Central, setting be required on area country Texas, we in

their a of inventory being down sold retail set orders. So process on sitting getting number we slows and delayed of know were it was whole there the new that

but record we're a those But season. region that kind hearing that, that's period. remember quantify important you was to that to lot for got our of rainfalls hard we've from I good retailers it's same that during guess the So heard time and of now, that and had spring vibes

Greg Palm

sense, makes okay. Yes, now it

the margin were gross really improvements September at to least Our quarter relative fantastic.

impact going maybe XXX importantly. more I specifically I December you mean, or mentioned time one -- anything is buck it in this mentioned a pricing, it you was that you the nature level So think you whether Laurie, that you was efficiencies, can help feel basis quarter benefits in out? points. comfortable operating the forward out with maybe there helped But synergy and

Laurie Hough

The a question, certainly as a from Thanks. portion due in to improvement would say mix product Good there selling inflation as a really is as well Greg. average quarter-over-quarter margin housing I continued that it's a and did is point improvement well segment our of mix. because as signed see XXX action. of improvement our offsetting pricing It's X% in mix. we synergy there price. U.S. basis some We with capture

it's together. So all bucketed of kind

my gross capture As comfort currently synergies. to whether it's run also that margin far our we're I with going and I it's as believe and rate sustainable, to believe sustainable. see remaining continue level

Operator

you. Thank

coming is question next from Barclays. from Matt Bouley Our

Unidentified Analyst

Thanks Matt. for taking [ph] morning. for This on actually is Marshall questions. Good my

quick here. clarifying question Just

mentioned XXX-unit First headwind we on X,XXX. I the know fourth quarter another Should units, enter as the you FEMA we here? expect

Keith Anderson

the that relates less Skyline think than Champion, a quarter. it As I going it's into this fourth to little

the third brunt our the of headwind was this quarter. So in was

Unidentified Analyst

units a of just sense a growth at quarter, organic could like you that you the for in then look FEMA? us XXX out called what unit excluding And give business this account the level into taking

Laurie Hough

the Yes, quantify year it was replaced some especially a with because product. unit to been pretty on substantial. core It's portion because a number hard basis what last unit have FEMA of

core you we mid-single having feel digit organically. residential be So were the much it's replacement how in measurement just in But we product. of would the that

Operator

Thank you.

Our from coming Mike Capital from RBC next is Dahl question Markets.

Unidentified Analyst

housing sector are a on down kind that wanted off slowed actually weaker the mornings. are basis a different over tailwinds we've expected talk slowdown of on we a comments see, from you traditional the expectations start the quarter Keith, nine of on for have was seen your some The good term those in industry newer what months? than I little build caused your following-up the Can Laurie, and there. to growth. [ph] organic you line. Keith, you the what and the bit data about three, six, to Mike It's mentioned industry see next prior of little in would

Keith Anderson

Yes.

it's really that significant strong difficult industry. was trends show on this product solid. significant are were was would seeing they the Louisville, show were measurement in shipments, to largest at FEMA were Kentucky, us, And it think what that is the retailer have measure I mentioned, any they the coming of time basis last and it's retailer our produced can we I all, for for XX%. strong, you industry. our out week the last Laurie tell very to up And important in core if shipped confidence that orders attendance we're note are at but we at as year still and a

and the longer-term, and the yet industries see of a on Freddie coming financing pretty training and so they to marketing to the So retailers not about we at I show, either some to better; in. Mae are starting I short-term seminars, environment, in But going were partnering that's that exciting, we're that and the Mac feel side. of on out it were pretty was help ours products. long-term. with momentum good more is coming seeing couldn't trends, on medium-term numbers, new financing medium-term see the mean, and we're starting bit stronger the Fannie Frankly, us GSE little we their impact or our feel

strong so how economy good the the strong, is future about given So, unemployment trends. confidence being and we feel and consumer really

Unidentified Analyst

you're and your expected ramp slowdown? Does some seasonal around and the the some your that have And ability in South-Central this in numbers backlogs, what anyway in up seeing then, Louisiana? in lower the of impact comments would you to of facility is particularly, new than there;

Keith Anderson

tap devastated also really feel We Louisiana in and Panhandle that the storm. with year last area No. we got Florida and can markets that good around the about and we Western think Texas, into

very feel wish to equip it decision, about but we staff open good I So plant. was takes that time it a today and

So I we good think June -- up. be in that no, should opening plant

Unidentified Analyst

you And if I made about thinking Understood. just there consider should anything the Is we just FEMA or and one, comments in recently the then last into that place sneak on impact Panhandle, government the shutdown from about took could you guys industry? the from perspective FEMA and Florida. one it and HUD supply

Keith Anderson

received guess for will on over-the-top so ancillary building them units, channel focused kind we they've Well, yards in have or storage to us, of that Carolinas restock of so placed in any to we're time our has core. continue at I we the there. tell way some fire also officials their but the know not units But help business in look That's their that all to FEMA FEMA out the units Panhandle storage We California great. were if areas. from and areas happens, RFPs their shift know the of affected, Northern that

Operator

you. Thank

Phil is coming from question [ph] from Jefferies. next Our

Colin Devine

This Colin to wanted backlog. for the start on actually I Phil. with is just

in us seasonality think that little noted just a decline by do seasonality. driven in could much how slower in the big at you you talk region? for the you business partially trends South-Central normal South-Central about decline change normal that versus Could the then, you rates about the you was is sequentially color give that You least the And how order out and guys? order was called

Keith Anderson

three it's slower by that we economy Western mean I the And are affected plants then call our Colin, out there. region, South-Central The also Canada plants. three

know and but period. into Hurricane So plants combined, closer started but then early never abnormal it also the Florence, the slowdown. early South those didn't it just all stopped We and trends which a fall, six on effects of we're got just late-summer, weather keeping they is mid-summer, it eye hit Hurricane time in winter very the with Central, Michael,

separate with while there, our ship they homes. seemed So, traffic satisfied to retailers just be our were there customer retailers couldn't and

separate guess regions. can't I of economy So orders keep much slowdown weather-related, out events eye weather-related the those slowdown, a and this in perhaps that slowdown, say of I seasonal we'll a on it's but is that winner how to closer from from coming hard

Colin Devine

interest borrowing Okay, at then and traditional rising products interest the any some the year period just on increases rates. and last saw year in end affordability of rates you ASPs? about during issues -- you've and And how talk in Can trended the mortgage cost interest rates interest seen for given just of rates the your if last that understood. significant we the

Keith Anderson

our think haven't I call any Yes, it's real we bit we've interest land on on really Colin about that talked and side in on of a chattel quarter last whether our movement seen the side. the home or on rates products, little any

given and that's I and with So a site-built little costs. competitiveness were comparability ground good that financing gaining a we guess thing

like, really to of site to jumping seem we industry, Last really into and about a the little lenders products number think more, And had and many get perspective, down new help. us. they're is have starting a channels an they in with on at a time They they're they lenders make make think our week space So financing but side, new exhibits show, our more come come over means and underwriting that payments and the capital continue lower network hasn't I new national could broad they and show the certainly lenders, from show are into and heard and can difference. dark these competitive into built competitive the I distribution impact. very energetic our will toward ways us. a financing, And retailer things our tailwinds

looking we're seeing forward to So that.

Operator

you. Thank

is coming SunTrust. Rohit Our from from Seth question next

Rohit Seth

question. Thanks my for taking

history on, with covered topics, sense of your but $XXX the we me, the million. expectation think given financial EBITDA limited XXXX know, for you if guys fiscal comment street I of wondering the on you company, can most of comfort

Laurie Hough

Okay, reasonable. Seth; it's

Rohit Seth

it's you're with comfortable fair So, to that say or...

Laurie Hough

guidance. without Fair giving say to

Operator

next from coming from [Operator is Maklari Instructions] Our question Suisse. Credit Susan

Your line is live. now

Unidentified Analyst

This first is for the that and our My to just rate question facilities additional is taking questions. and is online? when actually in thanks on capacity your guys Chris [ph] on both run Susan, you are expect do you you're bringing the capacity expecting Louisiana Pennsylvania for What benefit your results?

Keith Anderson

that's the start growing early in Well, plant a time given hours day, unit a given of that late and expect April, in up half the maybe production a our bit floor from floor early additional are there, more workforce but market this start steam really trying where little with anticipate half year can will but opening hours to start to ramp we'll we full in to by we will out hit of day we It'll will to [ph] we that, be we and to will XX Leesville The as one the in then But facility. a be. a there, it of that new plans where May, Leesville just to June plant take X a a achieve the Loyola, standardize and plant in as complex, to day and a ramping new day it well. that got that of floor product up strategy think able one. modest process and we Park Models workforce that four we're I months efficient Pennsylvania that to that think workforce six accomplish we a could so the productive here take place slow, are to day two have day, given you XXXX two a

Unidentified Analyst

average And could different overall new your to differential to whether you're dilutive And us product what Park or be for this company expecting Modular, the between margin is capacity categories HUD product? just remind creative margin? you your

Keith Anderson

strong margins Park to walls market by break tad lot are Models. don't and our but our and competitive within normal the product. be a of down margins and products ramp similar our than top kind have for Park very margins a of the tend Modular bit strong to very mainstream Yes, HUD, we ramp Obviously, be higher up. efficiency. overall once Models on they information we is to tend in get our region Leesville plant our a or based by be pressure achieved right right on through and varies should little HUD of the a But or margins,

Operator

our Thank you. the question-and-answer reached end session. We've of

Now let's any the back comments. management closing over further to for turn floor

Keith Anderson

We're Take in your to Well, but we interest do, for what to quarter. our to We more about you accomplished. thank results. you lot we forward next quarterly excited work care. a Thank we've talking know have look you.

Operator

does That you. Thank conclude today's teleconference.

day. We You lines may your for disconnect today. wonderful thank you a participation your at this have time, and