Joseph Stegmayer - Chairman & CEO Dan Urness - CFO.

Daniel Moore - CJS Securities Howard Flinker - Flinker & Company Brendan Lynch - Sidoti.

Welcome to the Cavco Industries, Inc Third Quarter Fiscal Year 2015 Earnings Call Webcast. [Operator Instructions]. I would now like to introduce your host for today’s conference Mr. Joseph Stegmayer, Chairman and Chief Executive Officer. Sir, you may begin..

Thank you. Welcome everyone. Glad to have you on our third quarter conference call. We’ll begin with Dan Urness, our CFO covering the disclosure and giving a report on the quarter and will make a few comments and take your questions.

Dan?.

Good day, everyone. Before we begin, we respectfully remind you that certain statements made on this call either in our remarks or in our responses to questions may not be historical in nature, and therefore are considered forward-looking. All statements and comments today are made within the context of the Safe Harbor rules.

All forward-looking statements are subject to risks and uncertainties many of which are beyond our control. Our actual results or performance may differ materially from anticipated results or performance. Cavco disclaims any obligation to update any forward-looking statements made on this call, and investors should not place any reliance on them.

More complete information on this subject is included as part of our earnings release filed yesterday and is available on our website or from other sources. For financial report this quarter net revenue was $146.9 million up approximately 6.2% compared to net revenue of a $138.3 million during the third quarter of fiscal year 2014.

The increase was mainly from higher home sales volume during the quarter. Consolidated gross profit in the third fiscal quarter as a percentage of net revenue was 21.6% slightly lower than 22.8% in last year's third quarter.

As we have discussed in previous calls, quarter-to-quarter product mix differences cause fluctuations in the gross margin as a percentage of net revenue. Selling, general and administrative expenses in the fiscal 2015 third quarter as a percentage of net revenue was 15.0% compared to 15.9% during the same quarter last year.

The improvement was from better SG&A utilization on higher sales volume. Other income in the third fiscal quarter included a net gain of $1.3 million from the sale of idle properties the company had obtained as part of previous acquisitions.

The effective income tax rate for the third fiscal quarter was approximately 37% compared to 31% in last year's third quarter. The lower effective tax rate last year was positively impacted by adjustments arising from manufacturing specific deductions and certain income tax credits.

Net income attributable to Cavco stockholders for the third fiscal quarter of 2015 was $6.7 million compared to net income of $5.9 million reported in the same quarter of the prior year. Net income per diluted share for the third quarter was $0.74 versus $0.66 during last year's third quarter.

Now in comparing the balance sheets for December 27, 2014 to March 29, 2014 cash was approximately $92 million at the end of the fiscal quarter compared to approximately 73 million nine months earlier.

A portion of the increase was from the sale of idle properties during the period, along with net income and changes in working capital and related balances during the first three quarters of the fiscal year. Accounts receivable and inventory balances have generally increased in connection with the higher sales volumes during the last nine months.

The current consumer loan receivable balance has grown from increased loan originations that are finance subsidiary. Assets held for sale is now zero as a result of completing the sale of the underlying properties in this category during the year. Current differed income taxes are lower from the utilization of NOL carry forwards.

And stockholders equity grew to 313.8 million as of December 27, 2014, up 23.3 million from the March 29, 2014 balance. Joe, that completes the financial report..

Thank you, Dan. Those of you who follow this industry know that we have been in the depths of the lowest shipments level, the 59 year history of this industry. These last several years - this year 2014 calendar year while December number is not quite in yet, estimates are that the industry will be up about 6%.

Slightly less than we had expected at the beginning of last year. We thought we might be able to hit 10%.

But nevertheless showing some growth, couple of things of note recently of course most of you’re aware, administration announced on January 7, the federal housing administration FHA intended to reduce annual mortgage insurance premium by 50 basis points and that I believe went into effect this week, and should help a number of typical first time homebuyers.

There have been estimates that it could create a meaningful decline in mortgage payments for its typical first time homebuyer in the range of $800 to $900 a year. That would be a big help to our industries first time homebuyers many of whom are payment oriented buyers.

So the additional $40 to $50 per month can make a difference in qualifying for mortgage, buying a somewhat more expensive home or otherwise be able to get into a new home. So that we think will be a positive, obviously we have no idea at this point in time. What kind of pact [ph] that will play but we think it can certainly be positive for our market.

Also we have seen household formation finally begin to increase after being stagnant for a number of years and annualized new household formation hits 809,000 in September, the highest levels since May of 2013. So it's still a long way from the historical average of about 1 million new households per year, but it's going in the right direction.

This as we have indicated before is an important factor for us, people creating new household, moving out of their parents' home and so forth.

Household growth has been as say, 50 or low basically since 2006 and we don’t think that level is sustainable, indefinitely we expect the growth will have to start being generated as people reach the prime home buying age. Job creation, we have seen about 200,000 new jobs each month for the last several months. That’s being a positive.

It's said by a number of economist a lot of those jobs have been to recover previously lost jobs but that finally has been achieved and we’re starting to creating actual new jobs and it's interesting, a lot of these jobs are full-time jobs which are good for our potential buyers and the new jobs particularly for the younger generation [Technical Difficulty] are encouraging.

FHA loan FICOs are moving into the sweet spot for the first time home buyers of 600 to 700 scores, nearly a quarter of the U.S. population has FICO scores in this target range. So again that should be positive for us.

Overall we’re very pleased with the quarter, we think we’re again very well positioned to take advantage of some of these macro trends that are just beginning to take shape. We expect this to be 2015 that is calendar year, be another increase in year for shipments in the industry.

We don’t expect to do jump substantially but we do think that low double digit growth is achievable for our industry shipments this year. With that we will be glad to take any questions..

[Operator Instructions]. Our first question comes from Daniel Moore of CJS Securities. Your line is open..

Joe, what are you seeing, maybe go by market by market in your bigger markets, Florida, Texas, Arizona, California.

What you’re seeing in terms of second degree or relative momentum in each of those and in Texas specifically what kind of impact are you seeing or would you expect to see from the drop in oil?.

Right, most of the states you mentioned, Florida, Texas, Arizona, California. The industry and we have been seeing increasing levels of interest in shipments. So in fact all those states are up from the previous year, some fairly substantial percentages albeit from very low basis in the previous year.

So I think it's positive, we mentioned I think Florida, and California and Arizona in particular kind of destination states particularly Southern California for empty nesters retirees, those states seem to be coming back nicely.

Shipments in Florida are up - more important we’re seeing a lot more traffic at our retail operations in Florida and our independent dealers and the community operators who operate planned communities, land lease communities in that state. We’re seeing a lot more traffic and we’re seeing more sales as a result.

The same can be true of Arizona, and California has seen fairly nice pick up in both family, single family for primary residents as well as the retiree market. The Texas question you ask is obviously very important one, the Texas is a good state for us, it's a good state for the industry, it's the number one state for the industry for many years.

We have some concern of course about the oil price decline and the subsequent impact on employment in that state. Fortunately I think some of the mitigating factors of the state is much more diverse was during some of the previous downturns in the oil industry. That is to say there is technology and there is other jobs in the state.

Our particular involvement in Texas is primarily West Texas in terms of the impact we might see, we’re also very heavily involved in the Dallas-Fort Worth markets and the Austin-San Antonio markets which we don’t think will be as affected by the oil field declines.

We’re involved in the use to market but it's not a big market for us and Houston and West Texas will be probably most affected by the oil price declines. The other factor of course that can help us is that again people have more disposable income. So how these two factors weigh against each other remains to be seen.

Certainly there will be less work force housing built for probably oilfield workers that sort of thing. We have participated in some of that. It has not been normally a large part of our business, but we have sold homes to operations that either lease or provide housing for their workforce. We expect that business will slow down considerably.

On the other hand again with the typical homebuyer employed outside of the petroleum industry having more disposable income because the price of gasoline declining could have a positive impact for homebuyers as well. So Dan, I'm not sure - we can't obviously give you a pinpoint answer, we’re watching it very closely.

We have not seen any impact to-date [inaudible] some demise orders for the workforce housing which is not material to us, but we’re keeping a very close eye on it and then we have plans in effect to try to mitigate maybe some of the decline in West Texas which we have proven in other areas of the state..

But given your geographic mix, if in fact the [inaudible] industry were to be low double-digits, any reason why you wouldn’t be able to match the industry growth?.

No we don’t think so. We think we should certainly be able to match to industry growth.

We’re involved in all the primary markets, the couple markets where we’re obviously not in the Mid-West up to North East but we’re involved in lot of the primary markets so we should be able to participate in-line with the industry and hopefully improve our position somewhat as we have done in the past..

And maybe just shift gears and talk a little bit about the competitive trends that you’re seeing.

Are site builders coming down market at all or is it landscape relatively unchanged or stable there?.

Well the site builder is a lot of talk and probably some actual action, the part of the site builder is coming down in price because frankly we have been saying this for some time, it's been a low price point industry in manufactured housing as well as in site build housing.

We still maintain that they really can't get to the price points we’re talking about, they do come down but again for our typical home buyer and our reselling prices are still considerably below where the site builders are and again we have the advantage in that, our market has typically been more in rural areas where the site builders are not doing large sub-divisions.

If we were to compete with them in metropolitan areas where they do the 400 to 1000 track sub-division and that will be difficult for us admittedly. But that’s not our market, a lot of our buyers looking to be out more in rural areas or to be in land leased communities where they go for a particular lifestyle..

And lastly just in terms of capital allocation catch, obviously continues to grow, boasted a little bit by the sale of property.

Talk about the acquisition pipeline and [inaudible] those would you consider you know share repurchases or other forms of capital allocation or kind of let cash continue to build over the next year or two?.

Well we’re fortunate to - the company generates, good positive cash flow and we expect that will continue.

We certainly continue to look for acquisition opportunities and there are some areas the country, to say that we could either fill-in where we’re presently involved but don’t have a strong presence or in markets where we’re not involved to any extent and we continue to look for those - both those kinds of opportunities.

There is still quite a few privately owned operations in the industry that we have on our sites or talk to from time to time and so there may be some opportunities to do something there.

Of course we also have the ability to what we call the Greenfield or de novo factories, the new areas if we choose to get in and that can work particularly well in areas where we have a modest involvement but seek to gain market share in a particular area and we can start by shipping in homes from a different location as we build up some distribution and then actually open a plant in that area.

So we look at that as well. And then the last part of your question, share repurchases, definitely, we have a share repurchase program that the Board has approved and we look at that opportunistically as we see fit..

Thank you. Our next question comes from Howard Flinker of Flinker & Company. Your line is open..

What is the after tax effect of the capital gain either per share or net?.

We don’t have it specifically broken out obviously but it would be just a standard tax rate on that..

35?.

Yes, it would just be in that statutory range and there wouldn’t be any unusual tax impacts or anything that would effect that..

[Operator Instructions]. And our next question comes from Brendan Lynch of Sidoti. Your line is open..

I apologize, I missed the beginning of the cast call, so if you’ve covered this again I apologize but I want to dig in a little bit on the gross margin. Your volume obviously was up, pricing seems to be improving as well and the gross margin seem to weaken a bit.

Just was wondering what may have caused that and if you see it being a continuing issue and conversely your SG&A expense ratio was quite good.

We saw a lot of improvement there, just your thoughts on how that’s going to trend over the foreseeable future?.

Sure, that’s a good question based on these results and we did mention at the beginning of the call Brendan that we do have and we normally have given our product mix and the variety of homes that we built, variation in the gross margin percent that occurs just by nature of that we do quarter-to-quarter and also the fact that we’re still operating at fairly low levels.

So with that as a backdrop, this quarter in particular we can look at and see we have got the higher sales occurring but you mentioned average sales price, it's actually down year-over-year. This average sales price, this quarter is versus the same quarter of last year.

Although it's right within the range of where we would expect it and where it's been on the last several quarters. But that being said, it's subject to typical fluctuation based on the model mix.

But the higher sales price and therefore the lower margins, really just a function of the lower price point homes that are incrementally increasing demand or by demand.

So, our higher sales characterized by these lower price point or less amenitized, more economical homes that result in lower gross margins but they have the benefit leading to your next question, they have the benefit of improving the company's overhead leverage the SG&A as a percentage of revenue and we saw that occur this quarter.

So, not a an unusual result this quarter, just from the fluctuations and the margin and in the average sales price but that’s the way I would characterize it for the quarter..

Have you noticed any change in your materials cost, just with the drop in oil prices and even that’s oil related or commodities in general have been selling off.

Have you seen any benefit from that?.

We haven't seen a large benefit yet, we also haven't seen is in a real increase in the material cost whether they be related to petroleum or otherwise.

Maybe where we have seen some benefit is some of the shipping cost to get obviously raw materials to our factories or shipping our homes from the factory to the home site, that’s not a significant impact for us but nonetheless that’s an improvement. It's an easier on the expense for the consumer or the buyer of the home.

So we’re certainly welcoming that but not a significant change in material prices and therefore not a large impact on the margin this quarter..

Sure. And then just one more, obviously your volume picked up quite a bit in the quarter.

Can you comment on how things have been trending in January, has there been a continuation of that strong volume growth thus far?.

Well we generally don’t get into month to month kind of discussions like that Brendan, but we will say that the industry seems to be - demand seems to be stable.

This is January, obviously it's a very poor month generally for housing, the total uncertainty for manufacturing housing but it seems to be modest - needs to modest to somewhat higher in terms of the [Technical Difficulty]..

Thank you. At this time there is no other questions in queue. I would like to turn it back to Mr. Stegmayer for any closing remarks..

Well I just say that we appreciate you all being on the call. We appreciate your participation and if there is any follow-up questions feel free to call Dan or myself and happy to try to answer those. And we look forward to continue our progress here in another three months. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone have a great day..