Palm Harbor Makes Good with Modular and Manufactured Homes

Palm Harbor (PHHM) gave a mixed assessment in its first quarter ‘09 filing, during a meeting today. They reported revenues of $130 million (on target) but a drop from $143 million in the same quarter last year. The favorable repurchase of some outstanding debt, coupled with operational profits, led to a quarterly profit of almost $2 million (7 cents per share).

Its a good story in the middle of a struggling industry, where sales are down in some of the key states (California, Florida, Arizona), and where financing markets are an unsettled problem. To make it worse, the cost of commodities is also hurting. Price increases in lumber, gypsum, and steel have all meant about a $1000 increase in production costs for each new Palm Harbor home, according to CEO Larry Keener. Oh, and everyone has too much capacity and a limited amount of room to hold the swelling inventories of already built homes.

How has Palm Harbor managed to turn around its business in a struggling environment?

Palm Harbor indicated that it has strategic responses to the situation. One, they are in the middle of a plan to cut costs. Two, they want to find new markets. Cutting costs is something that they have been doing a lot of already. They have 20 fewer retail dealerships (company-owned and operated) than they did last year (just 87 now). The shuttered 3 factories during the same period.

One area that they would like to reinvigorate are sales where land is utilized to help meet down payment requirements. Land-in-lieu packages, not adequately provided by competitors or GSEs, were good business in the past, according to Palm Harbor.

Finding new markets might be a good idea. Certainly, that is what is going on with the emphasis in military, education, and institutional clients at their competitors. In fact, PHHM reported that they secured an $18 million military contract last year.

One analyst (Michael Chriodooloo) had some positive conclusions to draw from the quarter, noting that the basic financial plan was to make 15 percent at both the construction and retail stage of the business, and then to use that cash to buy back company debt at 58 cents on the dollar.

Then again, Palm Harbor is a different type of firm than say Champion or Fleetwood. Their homes are much more expensive and come with a lot more “upfits” than their rivals. A Palm Harbor home incorporates many interesting styling features. Moreover, they own many of their retail stores. They are able to skip the dealer and control a lot more of the aspects of the buying experience.

Still, its not an easy market. CEO Keener says that “there are fewer consumers in everybody’s sales centres.”

Emerging Trends: Favorable for Manufactured Housing?

Palm Harbor sees changes in the near future in the larger housing market that are favorable for industry:

• Housing will not be an investment, as much as purely a good purchased for shelter.
• Customers will be attracted to smaller homes
• Customers will put a value upon Energy Star products.
• Down payments will be a requirement for financing. Financing will be harder to come by, in general.
• Gas prices will shift demand to older, more centralized neighborhoods. As a result, infill development will make up a greater portion of new construction.

Palm Harbor believes that all of these factors will drive customers back to manufactured housing.

~ by samsondoggie on July 22, 2008.