Skyline Champion Corp (NYSE:SKY) Q4 2019 Earnings Conference Call Transcript

May 22, 2019 • 08:30 am ET

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Skyline Champion Corp (NYSE:SKY) Q4 2019 Earnings Conference Call Transcript

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Presentation
Executive
Keith Anderson

operational efficiencies.

Turning to the market. Consistent with our previous comments, we remain positive on the outlook for manufactured housing industry, as we see significant runway for continued growth. Industry volumes remain well below the long-term averages and new financing options are becoming available and are slowly helping close the gap with those historic trends.

During calendar year 2018, the manufactured housing industry faced tough times, as more than 1,300 homes were shipped to FEMA. When backing out those shipments, the manufactured housing industry grew 8% in 2018 versus the broader housing industry, which grew by only 3% as measured by housing starts. While there is more work needed to close the gap, 2018 represented an another year where manufactured housing outpace site-built.

During the March quarter, we did experience some demand softening in certain US markets such as Texas, Florida, and South Central region, which were similar to the broader housing market. Retailers in these markets also carried higher-than-normal inventory levels.

Lastly, weather impacted our northern facilities during the quarter with tougher than normal winter conditions. While we finished fiscal 2019 with some softness, we are off to a good start to fiscal 2020, with a double-digit increase in US orders during the month of April. This bodes well for the remainder of the year. US economic trends including household formations, income growth and alternative housing costs continue to support a growing shortage of affordable housing. And we believe that our homes remain an attractive solution for the market.

In Canada, orders were down 25% during the March quarter, as we saw a softening in British Columbia market along with Alberta and Saskatchewan. We expect this trend to continue for the short term. Despite market conditions, our Canadian plants remain profitable with solid margins.

We are seeing continued growth in our modular and park-model product lines. This past calendar year, we became the largest builder in the country for both of those product lines, which represent almost a quarter of our manufacturing production. While we are proud of those accomplishments, we remain focused on new opportunities to expand both product lines in the coming years.

Overall, backlogs remain solid as demand from three of our distribution channels, independent dealers, company-owned stores and communities continues to be healthy. At the end of the fourth quarter, our consolidated backlog was $143 million. This compares to a year ago backlogs of $155 million that were inflated due to the FEMA production from October 2017 through February 2018.

Encouragingly, backlogs for a number of our plants have now seasonally adjusted to a more normalized four week to six week level. This is an optimal level, where our plants have visibility for labor staffing and bulk purchasing without taking undue inflation risk on quoting activity.

On the financing front, we continue to see progress. While financing is still constrained in less competitive and standard site-built mortgage products, we are encouraged by recent developments. The GSE programs have had little impact on orders so far,