Cavco Industries, Inc. (NASDAQ:CVCO) Q2 2021 Earnings Conference Call - Final Transcript

Oct 30, 2020 • 01:00 pm ET


Cavco Industries, Inc. (NASDAQ:CVCO) Q2 2021 Earnings Conference Call - Final Transcript


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William C. Boor

constantly changing dynamics, with our clear objective of operating all of our businesses to the extent we can do so safely. It's been humbling to be part of and to see the commitment and it hasn't been easy in any regard.

I really want to begin today's call by acknowledging our people, we need to keep driving forward to serve our customers. Our folks are making smart decisions in the light of the circumstances I'm very proud of our performance. In late March, I don't believe anybody could have foreseen where we are today. I expect everyone on the call has been watching demand indicators and understands that the general homebuilding industry is seeing extraordinary buyer activity. But we've been talking for a long time about the fundamental drivers such as years of under-building the household formations. Enabled by very low interest rates, the pent-up demand has been proven, despite the pandemic.

Looking at recent MH industry shipment data, could be misinterpreted as a demand indicator with the seasonally adjusted annual rate below last year's shipments. However the shipments reflect what the industry has been able to supply. We have a backlog that has grown $164 million since last quarter and stands at approximately 21 to 22 weeks based on our current production rates. We believe every producer is experiencing backlogs that are at on healthy levels. Backlog increases from a combination of very high order rates and continuing production challenges due to labor and supply issues.

To provide some perspective, even if we are producing at the same rate as last year, orders have been so strong that we would still have 19 to 20 week backlog. We know that we need to produce more. However, the growth in our backlog has been primarily the result of extraordinarily high order rates, this quarter home order rates were nearly 65% higher than a year ago.

Turning to the cost side, it's been widely reported that lumber prices increased dramatically since hitting lows this past April, moving to extreme highs by the end of September. As an example, the Southern Yellow Pine indicator price rose approximately 180% in that period. While lumber prices have since come off those highs, the magnitude of these changes have resulted in the need to quickly adjust pricing on our homes.

Gross margins may continue to be squeezed in the near term as those price increases worked through the backlog, through our proactive approach in addressing pricing should allow us to maintain gross margins over time. Production labor challenges continued through the second quarter. Absenteeism has affected our productivity and while there has been some improvement, hiring still remains limited. To address these issues, our plants are making adjustments to hiring practices and wage rates, as well as implementing other programs to attract, retain and develop production employees.

In manufacturing, our focus continues to be taking action to increase productivity. In our retail operations, we continue to perform very well. What we're seeing in our owned