Cavco Industries, Inc. (CVCO) Earnings

Management highlights

### Full Year 26 Performance - Shipped 20,800 homes, an all-time high for the company, despite a slight decline in total industry HUD shipments. - Operating income increased 14% year-over-year when excluding a $10 million non-cash intangible write-down in the prior year. - Peak-to-peak production capacity increased significantly due to completed plant modernization projects and the acquisition of American HomeStar. - Backlogs grew entering Q1 FY27, compared to declining backlogs entering Q1 FY26. ### Go-to-Market Transformation - Continued multiyear brand unification under the Cavco name, rolling out a nationwide product line framework in Q4 FY26 to simplify customer shopping and dealer partner support. - Years of digital marketing redesign and branding improvements are expected to support future market share growth in a projected growing industry. ### Q4 FY26 Operational Highlights - Sequential revenue declined 5% and operating income declined 6% due to unusual bad weather across the Southern US that caused lost production and market time in January and early February. - Capacity utilization hit approximately 70% for the quarter, with a large late-quarter pickup in March wholesale orders that grew ending backlogs by 25% sequentially, reaching 5 to 7 weeks of backlog. - Average selling price declined 2% sequentially due to a lower share of higher-margin integrated retail sales and a mix shift towards single-section homes, while core product pricing remained essentially flat. ### American HomeStar Integration - Operational integration is largely complete, with most remaining work focused on systems integration. - Expected annual tangible cost synergies remain in excess of $10 million, with the company already nearing this run rate in Q4, and management expects to ultimately exceed this target mostly via SG&A and additional purchasing savings. ### New Plant and Capital Allocation - Broke ground on a new high-capacity, state-of-the-art greenfield plant in El Mirage (Phoenix area, Arizona) with space for a second future production line, expected to be operational in mid-calendar 2027. This investment supports long-term growth and expansion of the company's selling area in the Southwest. - Full fiscal year 26 capital deployment totaled over $360 million: $160 million for share repurchases, $173 million for the American HomeStar acquisition, and $35 million for existing plant expansion and modernization. - The board extended the share repurchase authorization by an additional $150 million, leaving ~$218 million in remaining authorization. Capital allocation prioritizes plant expansions, acquisitions, and lending investments, with share repurchases used to manage balance sheet capacity after these priorities are met. - Ended the year with $237 million in unrestricted cash. ### Operational Excellence and Safety - Recordable injury rate has improved for 5 consecutive years, falling 65% over that period. The company has operated below industry safety benchmarks for 4 consecutive years, a result of consistent focus on fundamental operational excellence. ### Regulatory and Legislative Update - The bipartisan Road to Housing Act recently passed the U.S. House of Representatives by a 396-13 vote, with Senate approval expected and White House support already confirmed. Key provisions that benefit the industry include: permanent chassis removal enabling broader HUD home adoption, zoning reform incentives for municipalities, primacy of HUD regulation to prevent unnecessary cost-increasing rules, modernization of FHA Title 1 home-only financing, and a critical exemption for land-lease community operators from proposed institutional investor purchase bans that would have disrupted the existing manufactured housing model.

Guidance

- Management did not issue explicit formal numerical guidance for future quarters or fiscal year 27, but provided qualitative forward-looking outlooks: - The company expects to increase production rates sequentially in Q1 FY27 following across-the-board backlog growth, bringing production into alignment with the higher order pace. - Higher lumber, OSB, and steel input costs are expected to pressure factory built housing segment margins in coming quarters, with price changes expected to flow through to COGS approximately 60 days after they appear in commodity indexes. Management will maintain focus on low fixed costs and flexible variable costs to offset these pressures as production increases. - The new El Mirage plant will enable long-term expansion into new geographies in the Southwest, with management confident in the project meeting return hurdles given the multi-year, large national housing deficit that factory-built housing is positioned to solve. - Financial services segment lending capacity is expected to grow thanks to the new forward flow agreement, with originations expected to increase without corresponding balance sheet growth, supporting consistent capital efficiency.

Segment performance

1. Factory Built Housing Segment: Net revenue was $528 million in Q4 FY26, an increase of $40.2 million (8.2% year-over-year). This segment accounts for approximately 96% of total consolidated net revenue. Gross margin for this segment was 21.2%, down from 22.3% in the prior year quarter, driven by higher per-unit input costs. The year-over-year revenue increase came from the addition of American HomeStar and a 7.8% increase in legacy average revenue per home sold, partially offset by an 8.9% decrease in legacy home units sold. 2. Financial Services Segment: Net revenue was $22.1 million in Q4 FY26, an increase of $1.6 million (7.7% year-over-year). This segment accounts for approximately 4% of total consolidated net revenue. Gross margin for this segment increased to 69.4% from 36.8% in the prior year quarter, driven by the growing impact of underwriting changes, favorable claims experience, and higher loan volumes after securing a new long-term investor agreement.

Risks & headwinds

- Uncertainty in the macroeconomic environment remains high, and near-term demand conditions can change quickly, requiring nimble operational adjustment. - Commodity input cost volatility, including recent upward price movements for lumber and steel driven in part by tariffs and producer allocation limits, poses downside risk to manufacturing margins. - The benefits of the new federal housing legislation will take time to materialize, with zoning reform in particular expected to progress gradually due to decision-making at the local level. - All forward-looking statements around future demand, performance, and project returns are subject to inherent uncertainties that could cause actual results to differ materially from expectations, with additional material risks outlined in the company's SEC filings.

Analyst Q&A

• Q: Can you confirm whether the March order pickup held in April and May, where demand is strongest, and if shipments will rise in Q1? /

  A: The March order increase was broad-based across all regions, with the strongest results in the Northwest, Southwest, and Texas. April order rates held steady at March levels, and backlogs grew in all regions through April, with no sharp downturn seen in early May. The broad backlog growth will allow plants that had held back production to increase output, so management expects higher shipments in Q1 FY27 compared to Q4 FY26.

• Q: What are your thoughts on the recently passed housing legislation, and when will benefits materialize? /

  A: Key benefits include permanent chassis removal (which the company is already positioned to support, with benefits layering in over time), zoning reform incentives (a long-term battle that will progress gradually), HUD regulatory primacy (prevents unnecessary cost increases), FHA financing modernization (improves customer funding access), and a critical exemption for land-lease communities from institutional investor bans that averted major market disruption. Benefits will develop gradually over time but are material and impactful for long-term industry growth.

• Q: Why add new greenfield capacity now when national capacity utilization is only 70%? What is the expected margin impact from ramping the new plant? /

  A: The decision is long-term, based on the national 4 million to 6 million housing unit deficit, where factory-built housing is a key solution. Management expects the industry will need additional greenfield capacity to meet long-term demand, and the new plant enables expansion into underserved geographies in the Southwest that the company has previously self-limited due to existing capacity constraints. All projects meet strict return hurdles above the company's cost of capital. Only one line will open initially, with labor and support scaled to ramp volume gradually, so no material margin drag is expected, and the company has a proven track record of ramping new capacity efficiently.

• Q: What are the terms and strategic benefits of the new home loan investor forward flow agreement? /

  A: The agreement requires the investor to purchase a minimum of $25 million of originated loans per quarter over a two-year period. It does not materially change margin profiles for loan originations, but strategically it increases the company's lending capacity in a capital-efficient way. Previously, the company held $35 million to $38 million of loans on its own balance sheet when investor demand was low; the agreement now allows the company to increase originations consistently without growing its balance sheet, matching the company's original strategic plan for the lending business.