Cavco's Q2 2026 Earnings Call: Contradictions Emerge on Regional Production, Tariff Impacts, and Pricing Strategies

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 (essentially flat)
• EPS: $6.55 per diluted share, compared to $5.28 per diluted share in prior year quarter
• Gross Margin: Consolidated gross profit 24.2%, up 130 bps YOY (22.9% prior year)

Business Commentary:

* Revenue and Operating Profit Growth: - Cavco Industries reported net revenue of $556.5 million for Q2 FY2026, up 9.7% year-over-year, with operating profit up 27% compared to last year's Q2. - The growth was driven by focused execution across operations, increased production, and higher average selling prices.

• Regional Market Differences:
• Year-to-date national shipments increased over 3% through August, with notable regional disparities. Some regions, particularly in the northern U.S., showed double-digit growth.

• The Southeast region experienced a slowdown, with shipments down 4% year-to-date and 10% in July and August compared to last year.

• Impact of Tariffs and Raw Material Costs:

• The estimated impact of tariffs on Cavco's costs in Q2 was approximately $2 million, with expected future costs varying depending on tariff increases, particularly in Canadian lumber.

• Despite these pressures, Cavco's financial services segment saw significant improvement, with an increase in profitability.

• Financial Services and Insurance Segment Profitability:

• Financial services segment net revenue was $21.4 million, with a 1.4% increase over the prior year's quarter, contributing to a $8 million profit.
• Profitability was driven by aggressive actions to pare unprofitable policies, changes in underwriting and claims management, and favorable weather conditions.

Sentiment Analysis:

Overall Tone: Positive

• “Focused execution across our operations led to the strong overall results” (Boor); “Revenue was up 9.7% year over year” (Aden); “Operating profit was up about 27% over last year’s Q2” (Boor); “integration is moving quickly and very well” on American HomeStar (Boor).

Q&A:

• Question from Daniel Moore (CJS Securities): Backlog held up despite shipment growth; how are orders trending into fiscal Q3 and can you maintain current production entering seasonally slower periods?
  Response: Wholesale orders were down slightly; backlog stabilized and even edged up in the Southeast; production will remain largely steady with selective slowdowns in the Southeast—management comfortable with current balance.

• Question from Daniel Moore (CJS Securities): How would you describe the Texas market, given its importance and American HomeStar addition?
  Response: Retail demand in Texas is strong and retail teams performed very well this quarter; management feels good about Texas and expects continued pull-through into production.

• Question from Daniel Moore (CJS Securities): Factory-built gross margins ticked up—are these levels sustainable given input cost pressure and tariffs?
  Response: Tariffs are an incremental margin risk (Q2 impact ~ $2M); prior guidance range was $2M–$5.5M/quarter absent new Canadian duties; recent Canadian lumber duty increases would be incremental and depend on ability to pass costs through local markets; current lumber spot prices supported Q2 margins.

• Question from Daniel Moore (CJS Securities): Any update on American HomeStar trends vs the July deal metrics and potential acquisition accounting impacts?
  Response: American HomeStar is integrating smoothly as two additional plants; contribution aligns pro rata with the system and acquisition-accounting impact to consolidated gross margin is expected to be minimal given marketability and rational inventory, with synergies expected over time.

• Question from Greg Palm (Craig-Hallum Capital Group): You’ve outgrown the industry—what are you doing differently to gain share?
  Response: Improvements in digital marketing, rebranding, a newer national sales organization, stronger local accountability, product innovation and training are driving lead generation and share gains.

• Question from Greg Palm (Craig-Hallum Capital Group): What percent of homes were sold through company-owned retail this quarter and how does October look?
  Response: Retail accounted for ~22.9% of sales this quarter (up from 18.9% sequentially and 21% YOY); October continued that strength, particularly driven by Texas retail.

• Question from Greg Palm (Craig-Hallum Capital Group): Regulatory items—HUD update and chassis removal prospects?
  Response: HUD code updates are positive (enables duplexes, reduces bureaucratic letters) and industry is optimistic about chassis removal and broader regulatory changes, but timing and legislative routing remain uncertain.

• Question from Jay McCanless (Wedbush Securities): With American HomeStar’s retail mix, how might the company-owned retail percentage change; any durable shift to multi-section homes and regional ASP deltas?
  Response: HomeStar will increase the company-owned retail proportion materially (their ~60% retail mix); multi-section mix rose modestly this quarter but not yet a confirmed trend; pricing has held across regions and regional ASP differences are directionally present but not a major driver of the quarter’s ASP move.

• Question from Jay McCanless (Wedbush Securities): Channel/financing rates and secondary market appetite for chattel loans?
  Response: Rates have eased ~70 bps to the mid-8% range (~8.5%); secondary market interest exists (insurance-money investors), but transactions are complex and no major definitive program announced yet.

• Question from Jesse Lederman (Zelman & Associates): Financial services improvement—how much is due to underwriting changes vs benign weather; and is manufactured housing getting attention in DC on affordability?
  Response: More than half of the financial-services improvement is from underwriting and claims-management actions (paring unprofitable policies); favorable weather helped; industry and Cavco are increasingly central to D.C. affordability discussions, with active engagement at federal and state levels.

• Question from Daniel Moore (CJS Securities): On Southeast pricing strategy—why not cut price to stimulate orders; and update on CapEx automation projects?
  Response: The Southeast is still operating profitably and pricing has held—management prefers stability over aggressive price cuts; plant investments (~$2M–$5M per plant) in automation and modern manufacturing (lasers, gantry fastening, CDC machines) are ongoing and expected to add throughput, safety and quality.

• Question from Greg Palm (Craig-Hallum Capital Group): What percentage of production is HUD-code (chassis) vs modular and chassis unit cost?
  Response: Approximately 80% HUD-code and 20% modular; an average chassis cost is roughly $1,500 per floor (multiply for multi-section units).

Contradiction Point 1

Regional Market Trends and Production Adjustments

It highlights differing perspectives on regional market trends and the company's strategy to adjust production levels, which could impact operational efficiency and financial performance.

Can you highlight regional market differences and Q3 order trends? How will you sustain production during seasonal slowdowns? - Daniel Moore(CJS Securities)

2026Q2: There is a marked difference between the southeastern area and the rest of the country, with strong growth in many regions across the northern U.S. The company is emphasizing a balanced market approach with adjustments to production levels in the Southeast. - Bill Boor(CEO)

Is the decline in the Southeast region due to competition or slowing consumer traffic? - Greg Palm(Craig-Hallum Capital Group)

2026Q1: The Southeast region had flat order rates while other regions increased. Not a downturn but a lagging region. Plant-by-plant consideration needed to maintain production. - William Boor(CEO)

Contradiction Point 2

Impact of Tariffs on Costs and Pricing Strategy

It involves the discussion of tariff impacts on costs and the company's pricing strategy, which are crucial for understanding financial performance and competitive positioning.

What are your gross margin expectations considering changes in tariffs and other costs? - Daniel Moore(CJS Securities)

2026Q2: Cavco anticipates continued tariff impact, with an expected range of $2 million to $5.5 million per quarter. The company is focused on passing through costs in pricing and leveraging efficiencies. - Bill Boor(CFO)

Has the expected tariff impact remained at 5% to 8%? - Jesse Lederman(Zelman & Associates)

2026Q1: The estimated impact ranges from $2 million to $5.5 million per quarter, mainly from lighting, electrical, and plumbing components sourced from China. - Allison Aden(CFO)

Contradiction Point 3

Order Trends and Production Decisions

It involves the explanation of order trends and production decisions, which are crucial for understanding the company's planning and execution strategies.

Can you outline regional market differences and Q3 order trends? How will you sustain current production levels during seasonal slowdowns? - Daniel Moore (CJS Securities)

2026Q2: Orders are up versus the prior year. When you look at the backlog, it's backlog by month of shipment. We're up year-to-date this fiscal year versus last fiscal year. 99% of the order book is for fiscal 2026. - Bill Boor(CEO)

Can you provide updates on customer discussions across end markets and order rate trends during the quarter? - Dan Moore (CJS Securities)

2025Q3: Orders are driven by market trends, <b>seasonality, and interest rates</b>. Traffic has been healthy even with interest rate adjustments. Expectations for improving weather in upcoming quarters may boost activity. <b>Production decisions are tied to backlogs.</b> - William Boor(President and CEO)

Contradiction Point 4

Pricing Strategy and Regional Differences

It involves the company's approach to pricing and regional differences in pricing, which are key to understanding their pricing strategy and market positioning.

Can you explain the pricing difference between single-section homes in northern and southern markets? - Greg Palm (Craig-Hallum Capital Group)

2026Q2: There is a pricing difference due to higher costs in northern markets, but overall, pricing has held strong across the country, with no significant variations by geography. - Bill Boor(CEO)

Where are the key geographic areas showing strong or weak demand? - Danny Eggerichs (Craig-Hallum Capital Group)

2025Q3: Currently, we have about 34% of our orders produced in the Southeast and about 15% in Texas. And then the rest are produced in our plants across the western United States. - William Boor(President and CEO)