Cavalier Reports Profitable Third Quarter

Business Wire, Nov 3, 2004

ADDISON, Ala. -- Cavalier Homes, Inc. (AMEX:CAV) today announced that the Company posted a profit for the third quarter of 2004, the Company's first quarterly profit of the year. The following table summarizes Cavalier's financial results for the third quarter and nine-month period ended September 25, 2004 (in thousands, except per share amounts):

Third Quarter Ended        Nine Months Ended
                     ----------------------    ----------------------
                     Sept. 25,    Sept. 27,    Sept. 25,    Sept. 27,
                       2004          2003        2004          2003
                     ---------    ---------    ---------    ---------
Revenue              $  60,003    $  63,863    $ 158,124    $ 191,795
Income (loss) before
  income taxes           1,082          364       (1,390)      (6,227)
Income tax provision
  (benefit)                 14         (579)          23         (579)
                     ---------    ---------    ---------    ---------
Net income (loss)    $   1,068    $     943    $  (1,413)   $  (5,648)
                     =========    =========    =========    =========
Net income (loss)
  per share, basic
  and diluted        $    0.06    $    0.05    $   (0.08)   $   (0.32)
                     =========    =========    =========    =========
Weighted average
  shares outstanding:
    Basic               17,936       17,666       17,846       17,666
                     =========    =========    =========    =========
    Diluted             18,187       17,710       17,846       17,666
                     =========    =========    =========    =========

Commenting on the results, David Roberson, President and Chief Executive Officer, said, "We are pleased to report that Cavalier returned to profitability in the third quarter. While our results still reflected the pressures of a challenging marketplace, they nevertheless showed signs of ongoing progress we have achieved this year, stemming from our work to reduce operating costs, lower our break-even point, and enhance our competitive position. On the latter point, we're gratified by the initial success of new products and improved price points we recently introduced. Their ready acceptance among customers and dealers gives us confidence that, even though market conditions remain tough, our business is improving in a fundamental sense."

Roberson noted that, during the third quarter, Cavalier entered into a multi-party supply agreement to build homes for the Federal Emergency Management Agency (FEMA) in the aftermath of Hurricane Charley. The supply agreement contemplates the Company's delivery of an estimated 800-1,000 single-section homes by November. Prior to the conclusion of the third quarter, Cavalier shipped 309 homes under this agreement. "Our participation in the FEMA order provided a much-needed boost to our operations at an opportune moment," Roberson added. "The production activity related to that order enhanced our manufacturing efficiency coincidental with the introduction of new products and pricing in July, adding important momentum to our business until those new introductions have sufficient opportunity to penetrate and turn in the retail marketplace."

Revenue for the third quarter declined 6% from the same period last year. The entire decline was attributable to lower home manufacturing sales, the largest component of revenue, which fell to $56,945,000 for the quarter versus $60,788,000 for the third quarter of 2003. Floor shipments declined 15% to 2,720 floors in the third quarter of 2004 versus 3,193 floors in the same period last year. Revenue from retail sales and financial services were essentially unchanged quarter over quarter.

Despite lower revenue, however, gross profit for the third quarter increased $597,000 to $10,508,000 from $9,911,000. Gross margin for the quarter improved to 17.5% versus 15.5% in the same quarter last year primarily because of higher selling prices, which more than offset the impact of higher raw material costs. Selling, general and administrative expenses were $9,377,000, or 15.6% of revenue, in the third quarter of 2004 compared with $9,382,000, or 14.7% of revenue, in the year-earlier period. The Company had no impairment charges in the third quarter of 2004, but did incur $122,000 in impairment and other related charges in the year-earlier period.

Cavalier's revenue for the first nine months of 2004 declined 18% compared with the first nine months of 2003 as home manufacturing sales fell 18% to $150,353,000 for the year-to-date period versus $184,037,000 in the same period last year. Year-to-date shipments declined 25% to 7,419 floors compared with 9,836 floors in the first nine months of 2003.

Gross profit for the first nine months of 2004 declined $831,000 to $26,819,000 from $27,650,000 due to lower shipment volume for the period. However, gross margin for the first nine months of 2004 increased to 17.0% versus 14.4% in the same period last year, reflecting mainly the run-off of costs related to closed facilities and higher selling prices, which more than offset price increases in many raw materials. During the first nine months of 2004, selling, general and administrative expenses declined 16% to $28,033,000 from $33,343,000 in the year-earlier period, mainly as the Company incurred lower costs from closed facilities in the 2004 year-to-date period; selling, general and administrative expenses, as a percentage of revenue, were 17.7% and 17.4% in the first nine months of 2004 and 2003, respectively. Cavalier had no impairment charges in the first nine months of 2004, but did incur $176,000 in impairment and other related charges in the comparable 2003 period.