PHHM Palm Harbor Homes (MM)

Palm Harbor Homes, Inc. (NASDAQ:PHHM) today reported financial results for the fourth quarter and fiscal year ended March 26, 2010.

Overview

Net sales for the fourth quarter totaled $69.4 million compared with $78.9 million in the year-earlier period. Net loss for the fourth quarter of 2010 totaled $21.6 million, or $0.94 per share, compared with a net loss of $9.9 million, or $0.43 per share, a year ago. The results for the fourth quarter of fiscal 2010 include $9.2 million, or $0.40 per share, for restructuring charges related to closing one factory and 23 sales centers. The results for the fourth quarter of fiscal 2009 include a pre-tax gain of $3.5 million, or $0.15 per share, on the repurchase of convertible senior notes, and $2.3 million, or $0.10 per share, for restructuring and impairment charges. Excluding these items, net loss for the fourth quarter of fiscal 2010 totaled $0.54 per share compared with a net loss for the fourth quarter of fiscal 2009 of $0.48 per share.

Net sales for fiscal 2010 were $298.4 million compared with $409.3 million a year ago. Net loss for fiscal 2010 totaled $51.1 million, or $2.23 per share, compared with the net loss of $32.0 million, or $1.40 per share, for fiscal 2009. The results for fiscal 2010 include $9.2 million, or $0.40 per share, for restructuring charges taken in the fourth quarter as described above. The results for fiscal 2009 include a pre-tax gain of $7.7 million, or $0.34 per share, on the repurchase of convertible senior notes, and $2.3 million, or $0.10 per share, for restructuring and impairment charges. Excluding these items, net loss for fiscal 2010 totaled $1.83 per share compared with a net loss of $1.64 per share for fiscal 2009.

Restructuring Activities Completed

Commenting on the results, Larry Keener, chairman and chief executive officer of Palm Harbor Homes, Inc., said, “In light of the ongoing challenges facing our economy and our industry, Palm Harbor has continued to take the necessary steps to revise our operating strategy to meet current and expected demand. Our results for the fourth quarter reflect the restructuring costs associated with the closure of 23 sales centers, one factory and other overhead reductions. With the completion of these actions during the quarter, we believe we are better positioned to effectively operate and achieve profitability in this business environment with a more efficient and sustainable footprint. We are realizing approximately $20.0 million in annual savings going forward and, as a result, we expect significantly better operational results in fiscal 2011.

Business Outlook

“While revenues declined in the fourth quarter compared with the previous year, we achieved a 13 percent increase in total factory-built homes sold. The revenue trend reflects a decline in average selling prices primarily due to restructuring-related discounts, as well as a shift in demand for smaller, less expensive, homes. However, we are encouraged with the overall increase in activity and are cautiously optimistic that demand may be starting to turn around. Year to date industry shipments were almost flat compared with the same period a year ago, however, shipments in the month of March were actually higher, another favorable indicator that we may have reached an inflection point. Additionally, our market share is growing due to an expanded product line, new distribution channels and fewer competitors. More importantly, Palm Harbor continues to offer the most trusted brand name in the industry, with a diverse and affordable high-quality product line, a profitable insurance and finance operation, manufacturing excellence and exceptional customer satisfaction.”

“Looking ahead, we see other signs that business may be improving,” said Keener. “We are encouraged that our annualized revenues are up 21 percent since January. Customer attitudes have been more positive and recent retail traffic reflects a higher quality customer profile. The recently ended homebuyer tax credit no doubt has had a positive impact on revenues and it remains to be seen if this improvement is sustainable. We are pursuing innovative ways to both expand our product offering and reach new distribution channels to further drive revenues. Our commercial activity is gaining traction and we believe this line of business will provide an increasingly important revenue source going forward. As we move into fiscal 2011, we are better positioned to respond to market opportunities and move the Company towards reaching sustained profitability. We remain focused on carefully managing our costs, achieving gross margin improvement and maintaining adequate liquidity to effectively manage our business regardless of the market direction.”

Profitable Insurance and Finance Businesses

“Our financial services operations have continued to make a positive contribution to Palm Harbor’s business through this challenging environment. Standard Casualty, our insurance subsidiary, has been a very consistent performer for the Company with a steady growth in policies written in spite of the precipitous decline in shipments. CountryPlace Mortgage, Palm Harbor’s mortgage lending subsidiary, also remains profitable and fiscal 2010 loan originations were only two percent lower than the previous year in a very tight lending environment. As a new Ginnie Mae approved lender, we expect significantly higher loan originations in fiscal 2011. As a fully integrated company, having a profitable insurance and finance operation provides another distinct competitive advantage for Palm Harbor in today’s market,” added Keener.

Cash Flow Management

Kelly Tacke, executive vice president and chief financial officer of Palm Harbor Homes, Inc., commented, “Over the past year, maintaining a very disciplined focus on controlling our costs and carefully managing our cash flow has been a top priority. As a result of our efforts and restructuring actions, we have reduced our selling, general and administrative expenses by approximately 17 percent in fiscal 2011. Positive cash flows from operating activities for the year were approximately $15.6 million. As we look ahead to fiscal 2011, we remain committed to maintaining a strong balance sheet in light of the ongoing challenges facing our industry and our economy.”

A conference call regarding this release is scheduled for tomorrow, May 26, 2010, at 10:00 a.m. (Eastern Time). Interested parties can access a live simulcast on the Internet at www.PalmHarbor.com or www.earnings.com. A 30-day replay will be available on both websites.

Palm Harbor Homes is one of the nation's leading manufacturers and marketers of multi-section manufactured homes. The Company markets nationwide through vertically integrated operations, encompassing manufacturing, marketing, financing and insurance. For more information on the Company, please visit www.palmharbor.com.

This press release contains projections and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the Company's current views with respect to future events and financial performance. No assurance can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. A discussion of these factors is included in the Company's periodic reports filed with the Securities and Exchange Commission.

PALM HARBOR HOMES, INC.

Statements of Operations

               

(Dollars in thousands, except earnings per share)

For the fourth quarter and fiscal year ended March 26, 2010 and March 27, 2009      

Fourth Quarter Ended

   

Fiscal Year Ended

March 26,

March 27,

March 26,

March 27,

     

2010

   

2009

   

2010

   

2009

(Unaudited)

(Unaudited)

(Unaudited)

Net sales $ 69,351 $ 78,895 $ 298,371 $ 409,274 Cost of sales 59,802 59,686 234,664 312,428 Selling, general and administrative expenses       27,055         28,816         100,209         120,402     Loss from operations (17,506 ) (9,607 ) (36,502 ) (23,556 )   Interest expense (4,469 ) (4,256 ) (17,533 ) (18,265 ) Gain on repurchase of convertible senior notes -- 3,481 -- 7,723 Other income       273         276         2,944         2,095     Loss before income taxes (21,702 ) (10,106 ) (51,091 ) (32,003 ) Income tax benefit (expense)       122         192         (41 )       8     Net loss     $ (21,580 )     $ (9,914 )     $ (51,132 )     $ (31,995 ) Loss per common share: Basic and diluted     $ (0.94 )     $ (0.43 )     $ (2.23 )     $ (1.40 ) Weighted average common shares outstanding: Basic and diluted       22,927         22,875         22,888         22,856    

 

Condensed Balance Sheets

 

(Dollars in thousands)

March 26, 2010 and March 27, 2009

March 26,

March 27,

2010

   

2009

Assets

(Unaudited)

Cash and cash equivalents $ 26,705 $ 12,374 Trade accounts receivables 18,533 23,458 Consumer loans receivable, net 176,143 191,597 Inventories 60,303 97,144 Property, plant and equipment, net 27,251 35,937 Other assets       48,818         51,172   Total Assets     $ 357,753       $ 411,682     Liabilities and Shareholders' Equity Accounts payable and accrued liabilities $ 60,700 $ 64,836 Floor plan payable 42,249 49,401 Construction lending line 3,890 3,589 Securitized financings 122,494 140,283 Virgo debt 18,518 -- Convertible debt 50,486 47,940 Shareholders' equity       59,416         105,633   Total Liabilities and Shareholders' Equity     $ 357,753       $ 411,682    

PALM HARBOR HOMES, INC.

Quick Facts

       

Fourth Quarter Ended

   

Fiscal Year Ended

   

March 26,

   

March 27,

   

March 26,

   

March 27,

     

2010

   

2009

   

2010

   

2009

FACTORY-BUILT HOUSING:

Company-owned sales centers and builder locations:

Beginning 78 86 86 87 Added 0 1 1 1 Closed       (23 )       (1 )       (32 )       (2 )   Ending       55         86         55         86     Factory-built homes sold through:

Company-owned sales centers and builder locations

603 541 2,357 2,932 Independent dealers, builders & developers       171         145         667         954     Total factory-built homes sold       774         686         3,024         3,886     Factory-built homes sold as: Single-section 172 127 654 661 Multi-section 418 407 1,680 2,254 Modular       184         152         690         971     Total factory-built homes sold       774         686         3,024         3,886     Commercial buildings: Number of commercial buildings sold 3 21 50 61

Net sales from commercial buildings sold (in 000’s)

$ 496 $ 6,007 $ 10,796 $ 16,671   Average sales prices: Manufactured housing – retail* $ 65,000 $ 72,000 $ 67,000 $ 73,000 Manufactured housing – wholesale $ 52,000 $ 50,000 $ 52,000 $ 54,000 Modular housing – consumer* $ 168,000 $ 183,000 $ 166,000 $ 175,000 Modular housing – builder and developer     $ 62,000       $ 76,000       $ 71,000       $ 72,000     Homes produced 613 502 2,635 3,268 Internalization rate       73 %       73 %       74 %       69 %   FINANCIAL SERVICES Loan originations: CPM 57 71 288 294   Insurance penetration: Warranty 81 % 89 % 85 % 92 % Physical damage       67 %       68 %       68 %       70 %   * Excludes closing sales centers