Business Overview
Skyline Champion Corporation is a leading producer of factory-built housing in North America, employing approximately 8,600 people. With over 70 years of homebuilding experience and 48 manufacturing facilities across the United States and western Canada, the company is well-positioned to capitalize on the growing demand for affordable housing.Skyline Champion operates in two reportable segments: U.S. Factory-built Housing and Canadian Factory-built Housing. The U.S. segment includes manufacturing and retail housing operations, while the Canadian segment focuses on manufacturing. The company also has a transportation business that engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.
Skyline Champion's portfolio of brands includes some of the most well-known names in the factory-built housing industry, such as Skyline Homes, Champion Home Builders, Genesis Homes, Regional Homes, and more. The company's products range from manufactured and modular homes to accessory dwelling units (ADUs), park models, and modular buildings, catering to the single-family, multi-family, and hospitality sectors.
In addition to its core home-building business, Skyline Champion provides construction services to install and set up factory-built homes, operates a factory-direct retail business with 74 locations across the U.S., and runs Star Fleet Trucking, which provides transportation services to the manufactured housing and other industries.
Financial Performance
Skyline Champion has demonstrated strong financial performance in recent years. For the fiscal year ended March 30, 2023, the company reported annual revenue of $2,606,560,000 and net income of $401,800,000. The company's annual operating cash flow was $222,704,000, and its annual free cash flow was $169,789,000.In the fourth quarter of fiscal 2023, the company reported net sales of $536 million, a 9% increase compared to the same period in the prior year. The number of homes sold in the U.S. increased by 15% to 5,652 units, supported by the acquisition of Regional Homes and the opening of new manufacturing facilities. However, the average selling price per U.S. home decreased by 3% to $89,800 due to changes in product mix and reduced material surcharges.
Gross profit for the fourth quarter decreased by 30% to $98 million, and gross margin contracted by 1,040 basis points to 18.3% due to the impact of a $34.5 million charge related to the remediation of water intrusion issues in homes produced at one of the company's plants from 2016 to 2021. Excluding this charge, adjusted gross profit decreased by 6% to $133 million, and adjusted gross margin was 24.8% of net sales, a 390 basis point contraction compared to the prior year period.
Segmental Performance
The U.S. Factory-built Housing segment reported a 12% increase in revenue during the fourth quarter, driven by a 15% increase in the number of homes sold. However, the average selling price per home decreased by 3% to $89,800 due to changes in product mix and reduced material surcharges.The Canadian Factory-built Housing segment experienced a 23% decline in the number of homes sold, which was partially mitigated by a 4% increase in the average home selling price to $121,200 due to a shift in product mix. The reduction in sales volume can be attributed to a combination of factors, including higher interest rates and economic uncertainties in the region.
The Corporate/Other segment, which includes the company's transportation operations and corporate costs, reported a 17% decrease in net sales during the fourth quarter, primarily attributable to the decrease in recreational vehicle shipments.
Liquidity
As of March 30, 2023, Skyline Champion had nearly $500 million in cash and cash equivalents and long-term borrowings of $25 million with no maturities until 2026. The company generated $4 million in operating cash flows for the fourth quarter, which was adversely impacted by the growth in captive retail inventory balances and independent dealer floor plan receivables.In May 2023, Skyline Champion's Board of Directors approved a share repurchase program for up to $100 million of the company's common stock. This decision reflects the company's strong balance sheet and cash generation, allowing it to maintain a balanced approach to returning capital to shareholders, reinvesting in the business, and pursuing growth initiatives.
Outlook
Looking ahead, Skyline Champion expects to see low double-digit sequential revenue growth in the first quarter of fiscal 2024, driven by the order growth the company has experienced and the ramp-up of production in its manufacturing facilities. The company anticipates that higher income levels, coupled with sustained high interest rates and the shortage of affordable housing, will continue to align well with its pricing and product offerings.However, the company expects a continued decline in gross margins in the near term, influenced by homebuyers increasingly selecting homes with fewer options due to inflationary pressures and persistently high interest rates. Additionally, the ramp-up of new plant operations and the sale of finished goods inventory from the Regional Homes acquisition are expected to contribute to this outlook.
Risks and Challenges
Skyline Champion faces several risks and challenges, including:- Supply-related issues, such as prices and availability of materials
- Labor-related issues
- Inflationary pressures in the North American economy
- Fluctuations in demand for its products due to changes in general economic conditions or homeowner borrowing rates
- Competition and competitive pressures
- Quality issues with parts sourced from suppliers
- Data security breaches and cyber security attacks
- Extensive regulation affecting the production and sale of factory-built housing
- The potential impact of natural disasters on its supply chain, sales, and raw material costs
- Risks associated with mergers and acquisitions, including the integration of operations and information systems