Palm Harbor Homes CFO: FY08 profit "not certain"
Palm Harbor Homes, Inc. (Nasdaq: PHHM) CFO Kelly Tacke said fiscal year profitability for the maker of modular homes is not certain. Tacke made the comments during a morning conference call.
“As a result of our goodwill being impaired, our recent losses, we reviewed our deferred tax assets for impairment and despite our sequential improvement this quarter, profitability for this fiscal year is not certain,” Tacke said. “These accounting adjustments did not impact the company’s fundamental financial condition, which is solid.”
After Tuesday’s close, Palm Harbor said its second-quarter revenue fell to $144.6 million, below Wall Street projections of $152.4 million and from $179.4 million a year earlier. The Dallas, Texas-based firm’s net loss for the three months ended Sept. 28 was $98.1 million, or $4.29 per share, widely missing analyst estimates of a $0.05 loss per share and compared with a loss of $5.3 million, or $0.23 per share, during the same period of 2006. The results, however, include non-recurring, non-cash charges of $95.7 million, or $4.19 per share, related to the impairment of Palm Harbor’s goodwill and deferred tax assets.
The charges are confined to the company’s factory-built housing segment, Tacke said. The subprime fallout and a decline in order shipments in Florida, California and Arizona contributed to a $78.5 million impairment of intangible assets, she said. Accordingly, the chief financial officer said Palm Harbor recorded a reserve against the company’s deferred tax assets, resulting in a tax expense of $15.3 million.
“When we return to profitability, we will reestablish our deferred tax assets through reduced income tax expense,” Tacke said.
The appraisal values of Palm Harbor’s homes are declining due to greater availability of lower-priced site-built homes, the firm said in a statement. The company said valuations have been damaged by the volatile subprime mortgage market, which has increased the number of repossessions and defaults.
During the second quarter, the number of factory-built homes Palm Harbor sold declined to 1,473, down about 19% from 1,809 homes a year earlier.
“We do not see the factory-built housing business recovering soon. As the last publicly traded, vertically integrated company in this industry, our housing segment generates more revenue per sale and higher margins than our competitors,” CEO Larry Keener said.
Being vertically integrated has allowed the company to build “a very profitable finance and insurance business.”
The company expects ongoing sequential improvement, higher margins and lower selling, general and administrative costs in the third and fourth quarter.
“Sometime during those two quarters, hopefully we’ll be able to come to you and tell you we made money,” Keener said in response to an analyst’s question about when the company expects a return to profitability. “That’s our plan and it’s proceeding at pace.”
The company expects a demand slowdown during the fall and late winter in the Texas region, the chief executive said. Texas accounts for about 40% of the firm’s revenue, he said.
“The dynamics right now in the marketplace, based on history, say that next year should be a pretty good year in the region,” Keener said. “We would not be opening a fourth production line if we thought the business had leveled out in the region.”
In midday trading, PHHM shares are down 4.03%, or $0.51 per share, at $12.15. Over the last 52 weeks, shares have ranged from $12.04 to $16.25.
