American Homestar's Q2 2026: Contradictions Emerge on Tariffs, Southeast Market, and Chattel Rates

Date of Call: October 31, 2025

Financials Results

• Revenue: $556.5M, up $49.0M or 9.7% YOY (prior year $507.5M); sequentially down $0.3M (flat sequentially per management)
• EPS: $6.55 per diluted share, compared to $5.28 in the prior year quarter
• Gross Margin: 24.2% of revenue, up 130 basis points YOY (from 22.9% prior year); factory-built gross profit 22.9% (flat YOY); Financial Services gross profit 55.6% (vs 21.8% prior year)

Business Commentary:

* Regional Market Differences and Production Adjustments: - The company observed significant regional discrepancies in demand, with the Southeast region experiencing a 4% year-to-date decline in shipments and a 10% decrease in July and August compared to last year. - Production adjustments were made, including extended downtime during holidays and reduced production rates, in response to the slowdown in the Southeast region. - Other regions, particularly the Northern U.S., showed strong growth with year-to-date shipments up over 3% and double-digit growth in many states and regions.

• Factory Operating Efficiency and Margin Improvement:
• Factory utilization increased to 75% in the second fiscal quarter compared to 70% in the prior year period.
• The consolidated gross profit percentage of revenue improved to 24.2%, up from 22.9% in the same period last year.

• This increase in efficiency and profitability was driven by adjustments in production levels and strategic cost management, including pricing actions and tariff mitigation strategies.

• Financial Services Segment Profitability Enhancement:

• Financial Services segment net revenue was $21.4 million, up 1.4% from the previous fiscal year quarter.
• The segment achieved an operating profit of $5 million, a significant improvement from a loss of the same amount last year.

• This improvement was attributed to aggressive actions in pairings unprofitable policies and changes in underwriting and claims management.

• Strategic Acquisitions and Shareholder Returns:

• The company completed the acquisition of American Homestar, with over $36 million in common shares repurchased during the quarter.
• Additional investments were made in existing plants, demonstrating strong cash generation and balance sheet strength.
• These strategic moves, including the acquisition and share repurchases, are part of the company's balanced capital allocation approach.

Sentiment Analysis:

Overall Tone: Positive

• Revenue up 9.7% YOY to $556.5M; operating profit ~27% higher than prior-year Q2; net income $52.4M vs $43.8M prior year; completed American Homestar acquisition and repurchased $36M of shares; Financial Services swung from a loss to an $8M profit (improvement of ~$14M).

Q&A:

• Question from Dan Moore (CJS Securities, Inc.): How are orders trending into fiscal Q3 and can you maintain current production entering seasonally slower periods?
  Response: Backlogs stabilized; wholesale orders were slightly down; company is keeping production steady overall while selectively reducing Southeast output and will continue to monitor and adjust.

• Question from Dan Moore (CJS Securities, Inc.): Production rates — you ticked them down in the Southeast but holding overall — is that correct?
  Response: Yes — Southeast production was dialed back; several non‑Southeast plants are increasing production modestly; overall production remains balanced.

• Question from Dan Moore (CJS Securities, Inc.): What are you seeing in the Texas market post-deal?
  Response: Retail in Texas performed very well and is pulling production; management feels positive about Texas demand.

• Question from Dan Moore (CJS Securities, Inc.): Factory-built margins and input cost/tariff pressures going forward?
  Response: Tariffs contributed ≈$2M to Q2 costs; prior guidance range was $2M–$5.5M/qtr if fully implemented; recent Canadian duty increases would add incremental cost while a China tariff delay eases some pressure; pass-through depends on local markets.

• Question from Dan Moore (CJS Securities, Inc.): How are American Homestar trends vs the initial deal metrics and acquisition-accounting impact?
  Response: Homestar will integrate pro rata, is retail‑heavy and expected to add value over time; acquisition-accounting impact on consolidated gross margin should be minimal due to high markability and modest inventory adjustment.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): You've outgrown the industry — what's driving that share gain?
  Response: Outperformance attributed to digital marketing + recent rebranding, expanded national sales capabilities combined with local accountability, and product/retail improvements.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): What percent of homes sold through retail this quarter vs prior periods?
  Response: 22.9% of homes were sold through company-owned retail this quarter, up from 18.9% sequentially and 21% year‑over‑year.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Any color on October activity?
  Response: October showed continuation of Q2 trends with no material discontinuity; Texas retail remained strong.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Will Homestar raise retail share?
  Response: Yes — Homestar historically routed ~60% through company stores; adding their ~20 stores to the ~80-store base will materially increase overall retail integration.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Thoughts on regulatory changes (HUD code, chassis removal, zoning)?
  Response: HUD code update is positive; chassis removal and other reforms could enable innovation and increased production but timing and legislative path remain uncertain; zoning remains a state/local challenge.

• Question from James McCanless (Wedbush Securities Inc., Research Division): Have you modeled post‑Homestar retail/plant split?
  Response: No precise model provided on the call; management expects a roughly pro‑rata increase from adding 2 plants and ~20 stores and will quantify later.

• Question from James McCanless (Wedbush Securities Inc., Research Division): Is the uptick in multi-section homes likely to continue?
  Response: Two quarters showed higher multi-section mix but management views it as normal variation, not a confirmed trend.

• Question from James McCanless (Wedbush Securities Inc., Research Division): Is there a pricing delta north vs south and is northern/modular mix driving ASP?
  Response: Pricing has held across regions; Southeast did not concede price despite lower volumes; northern/modular markets have higher costs directionally but are not seen as a major driver of the ASP increase.

• Question from James McCanless (Wedbush Securities Inc., Research Division): Where are chattel rates today?
  Response: Rates have declined ~70 basis points over the past three months to approximately 8.5% (mid‑8% range).

• Question from Jesse Lederman (Zelman & Associates LLC): Has manufactured housing been included in D.C. affordability conversations?
  Response: Yes — the industry is now central to policy discussions; federal actions can help but many key barriers (zoning) require state/local focus.

• Question from Jesse Lederman (Zelman & Associates LLC): Clarify tariff impact — will Canadian duty increases push you toward the high end of prior range?
  Response: The prior $2M–$5.5M/qtr range excludes recent Canadian duty/antidumping increases; those Canadian actions would be incremental and are not yet fully quantified.

• Question from Jesse Lederman (Zelman & Associates LLC): Any pick‑up in secondary market appetite for chattel loans?
  Response: There is investor interest (notably insurance capital) but transactions are complex; discussions ongoing with no material transactions announced.

• Question from Jesse Lederman (Zelman & Associates LLC): In the Southeast, why maintain price vs lowering to stimulate demand?
  Response: Plants remain profitable and competition has not forced price cuts; management prefers stability and local pricing discipline rather than across-the-board discounts.

• Question from Jesse Lederman (Zelman & Associates LLC): CapEx detail — what are you spending on in plants?
  Response: Typical plant projects are $2M–$5M each; investments target modernization and automation (lasers, floor gantry fastening systems, CDC machines) to raise throughput, safety and quality.

• Question from Dan Moore (CJS Securities, Inc.): What is average chassis cost and percent of homes shipped with chassis?
  Response: Estimated chassis cost about $1,500 per floor; company mix roughly 80% HUD code homes and 20% modular.

• Question from Dan Moore (CJS Securities, Inc.): If chassis removal passes, how would savings be allocated?
  Response: Management expects a middle‑ground split — some savings would flow to margins and some would be passed to customers; timing and magnitude uncertain.

• Question from Dan Moore (CJS Securities, Inc.): Is the recent Financial Services profit level sustainable?
  Response: Much of the improvement (>50%) stems from underwriting/claims changes, aided by benign weather; management views this as a higher baseline of profitability in a typical weather environment.

Contradiction Point 1

Tariff Impact on Gross Margins

It involves changes in the expected impact of tariffs on gross margins, which directly affects the company's financial performance and investor expectations.

What are the potential impacts of the acquisition of American Homestar? - Dan Moore(CJS Securities, Inc.)

2026Q2: Recent changes in Canadian lumber tariffs and duties will increase costs, but the company is focused on leveraging efficiencies. - Allison Aden(CFO)

What is the projected impact of tariffs on COGS? - Jesse Lederman(Zelman & Associates LLC)

2026Q1: Tariffs could impact up to $5.5 million per quarter, with the majority coming from components sourced from China, like lighting, electrical, and plumbing parts. - Allison Aden(CFO)

Contradiction Point 2

Southeast Market Performance

It involves contradictory statements about the performance of the Southeast market, which is crucial for the company's business strategy and regional sales.

Can you break down regional market differences and current order trends ahead of fiscal Q3? - Dan Moore(CJS Securities, Inc.)

2026Q2: The Southeast has shown a decrease in the growth rate but it has stabilized. - William Boor(CEO)

Are there any incremental softness issues in the Southeast region beyond Florida? - Dan Moore(CJS Securities)

2026Q1: Florida has been facing challenges, but the broader Southeast region, from Georgia to North Carolina, has also shown more steady order rates. - William Boor(CEO)

Contradiction Point 3

Chattel Loan Interest Rates

It involves contradictory statements about the interest rates for chattel loans, which directly impacts the affordability and appeal of manufactured housing for customers.

How are chattel rates trending, and what potential impacts could they have on the mortgage market? - James McCanless(Wedbush Securities Inc., Research Division)

2026Q2: Chattel rates have been steady at around 8.5%, declining slightly. - William Boor(CEO)

What are the current rates and confidence levels in the chattel mortgage market? - James McCanless(Wedbush)

2026Q1: Rates remain in the 8% to 9% range. - Mark Fusler(Corporate Controller) and William Boor(CEO)

Contradiction Point 4

Chattel Financing Rates and Trends

It involves differing perspectives on the trends in chattel financing rates, which have implications for affordability and demand for manufactured housing.

How are chattel rates trending, and what impact could they have on the mortgage market? - James McCanless (Wedbush Securities Inc., Research Division)

2026Q2: Chattel rates have been steady at around 8.5%. - William Boor(CEO)

What are your expectations for Q1 production rates compared to Q4? What can you share about customer discussions in retail and community markets and order rate trends in April and May? - Justin Ages (CJS Securities)

2025Q4: Chattel rates have been very consistent, roughly 100 basis points lower than they were a year ago. - William Boor(CEO)

Contradiction Point 5

Retail Sales Through Company-Owned Stores

It involves differing figures and trends in the percentage of homes sold through company-owned retail, which impacts sales strategy and revenue distribution.

What percentage of homes are sold through company-owned retail, and how does American Homestar affect this? - Greg Palm (Craig-Hallum Capital Group LLC, Research Division)

2026Q2: This quarter, 22.9% of homes were sold through company-owned retail, up 4% sequentially. - Mark Fusler(Director of Financial Reporting & Investor Relations)

Can you explain the reasoning and feedback behind the rebranding efforts? - Greg Palm (Craig-Hallum)

2025Q4: In '15, it was about 12.5%. Today it's about 14.5%, much of that has come from the acquisitions. We're going to go to 20%. We believe we can reach that level in the next two to three years by acquisition and organic. - William Boor(CEO)