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Cavco Looks to Another Housing Acquisition

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February 1, 2011 by   Leave a Comment

Even as manufactured-home sales continue at their lowest levels in about 50 years nationwide, Phoenix-based Cavco Industries Inc. is attempting to grow more by buying another one of its rivals, The Arizona Republic reported.

Cavco in August 2009 bought one of its largest competitors, Fleetwood Enterprises Inc., out of Federal Bankruptcy Court for $26.6 million and now is attempting to buy Dallas-based Palm Harbor Homes Inc., for $57.5 million.

Palm Harbor filed for bankruptcy reorganization in November, and the purchase would be subject to an auction and court approval. The company’s products are sold in Arizona and it has a manufacturing plant in Tempe.

“We are trying to grow in a down market and get positioned for when things turn around. That is our strategy,” Joseph Stegmayer, Cavco’s chairman, president and CEO said on Friday (Jan. 28).

He said a number of rivals have shut down and that Cavco officials believe their balance sheet is strong enough to support acquisitions.

A Palm Harbor purchase would be expected to give Cavco more sales in the Southeast, from Florida to Texas, where Palm Harbor is strongest, Stegmayer said. With the purchase of Fleetwood, Cavco was able to boost is distribution to 35 states, from 10.

Cavco, also a builder of recreational park trailers, is the second- or third-largest maker of manufactured homes. Stegmayer said he couldn’t be sure because Champion Home Builders Co., a Pennsylvania company believed to be among the top three, is private and doesn’t report its sales.

At any rate, he said the potential purchase definitely would not boost Cavco into the No. 1 spot because of the sales power of No. 1 Clayton Homes, a Tennessee firm owned by Berkshire Hathaway and Warren Buffett. Palm Harbor is believed to be the third or fourth largest, ranking behind Cavco, Stegmayer said.

Over the past two years, the manufactured-home business sold the lowest number of homes since records were first kept in 1959, Stegmayer said. About 50,000 homes were sold nationwide in 2009 and 2010. Cavco expects to sell about 5,000 in its current fiscal year, which ends March 31.

While financing has become more available for qualified buyers, he said the biggest problem is a lack of confidence.

“Our retailers say customers come in and look,” he said. “But they just don’t want to make a decision now because they lack confidence in the economy, where the economy is going.”

The company last week reported net income of $24,000, or 0.4 cents a share, for the quarter ending Dec. 31, compared with a loss of $1 million, or 16 cents a share, a year earlier.

“That’s not a lot of profit this quarter but a big swing from last year, so we are pleased to move from the red to the black,” Stegmayer said.

Net sales grew 9% to $39.6 million compared with the same quarter a year earlier. It was the first quarter since the Fleetwood purchase in which sales could accurately be compared with the previous year.

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