Ryan Fuhrmann, CFA
September 7, 2007
As part of its first-quarter earnings release, manufactured home and recreational vehicle maker Fleetwood Enterprises (NYSE: FLE) suggested that subprime challenges could actually end up helping its housing segment. That logic makes sense to this Fool, and I see this as possibly being one of the few ways to capitalize on housing woes — besides going short on anything exposed to the industry.
Granted, the thesis is shaky at this point, because the only way investors could have made money on Fleetwood over the past decade would have been by shorting the stock. Shares reached a peak of around $47 back in March 1999 — a far cry from the $8.96 they’re trading for currently. Prior to the current residential-housing debacle, the manufactured-home industry had its own boom-and-bust cycle thanks to easy credit, oversupply, and a subsequent bust from which it has yet to recover almost 10 years later.
RV-land is doing little better, as high gas prices are holding back the favorable demographic trends that were supposed to lead thousands of baby boomers to retire in a home with wheels, exploring the United States and surprising their children with unexpected visits. That hasn’t happened, causing Fleetwood to struggle royally in both of its divisions.
First-quarter results came in slightly ahead of pessimistic analyst projections, but a turnaround appears far off; total sales fell 4%, and Fleetwood reported another bottom-line loss. Financial results have been dire for so long that management has resorted to offering murky guidance — the most current is that “if conditions remain stable throughout the second quarter, we would expect to see results similar to those of the first quarter.”
It did suggest that “upheaval in the conventional mortgage market” could end up helping manufactured homes as certain homebuyers find it harder to gain approval for loans — especially those buyers considered high-risk. Of course, tougher credit markets could serve to hurt all housing, be it traditional single-family or manufactured homes.
As it stands currently, manufactured-home sales have fallen to less than 30% of the company’s total sales. RV sales should be holding up better, but Fleetwood continues to lose money in the travel-trailer business. The best option may be to sell out to manufactured homebuilding rival Champion Enterprises (NYSE: CHB), as SLS management recently recommended. Further industry consolidation among Coachmen (NYSE: COA), Winnebago (NYSE: WGO), Thor (NYSE: THO), and Palm Harbor Homes (Nasdaq: PHHM) could also help, but for the time being, all of Fleetwood’s businesses are stuck spinning their wheels.
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