Earnings Call Transcript - CVCO Q1 2026

Operator, Operator

Good day, and welcome to the First Quarter Fiscal Year 2026 Cavco Industries, Inc. Earnings Call Webcast. As a reminder, this call may be recorded. I would now like to turn the call over to Mark Fusler, Corporate Controller, Head of Investor Relations. Please go ahead.

Mark Fusler, Corporate Controller, Head of Investor Relations

Good day, and thank you for joining us for Cavco Industries First Quarter Fiscal Year 2026 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, Chief Accounting Officer. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets or future market conditions. All forward-looking statements involve risks and uncertainties, which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, August 1, 2025. Cavco undertakes no obligation to revise or update any forward-looking statements, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

William C. Boor, President and Chief Executive Officer

Welcome, and thank you for joining us today to review our first quarter results for fiscal 2026. I'm happy to report it was a very strong quarter. Revenue was up 9.5% year-over-year and 16.6% sequentially. Our operating profit was up about 50% compared to both last quarter and a year ago, all operations contributed to these results, and I'll get into that. Over the last several quarters, we've been executing on a plan to push production up where we have the backlog to support it. Increasing production rates can take some time. So this has been a decision in many of our plants between pressing forward with increases to take advantage of a possible continuation of the positive order trends. We're holding back out of concern that the trend might not hold in future quarters. We have deliberately chosen to press forward with the confidence of knowing our plants can adjust down if necessary. While uncertainty about future quarter demand remains, this quarter our plan paid off. Orders increased resulting in an essentially flat sequential backlog even with our increased level of production. Executing this plan resulted in a record of 5,416 homes shipped this quarter. We're often asked about regional differences on these calls, and I feel that, in most cases, there aren't any headline takeaways. The regions often show differences from quarter-to-quarter, but they tend to keep pace with each other over time. This quarter, I do want to point out that the Southeast region did lag in orders, with Q1 shipments very slightly below the preceding quarter. Our backlogs in the plant serving the Southeast have dropped, and we'll need to watch closely to see if we're able to maintain production levels there. We manage this on a plant-by-plant basis, and it just points to the continuing uncertainty in the overall market. Another noteworthy result this quarter was the increase in average selling price. As we've discussed before, there are several factors affecting our ASP. First is the proportion of company shipments that go through our owned retail stores. This quarter, that driver actually had a downward effect on ASP because sales through our stores were relatively flat while wholesale shipments to third parties increased. Next is the mix of single-section to multi-section home shift. We saw the mix shift towards multi-section homes this quarter, which pushes ASP upward. However, the biggest effect this period was an increase in the average price for both single-section and multi-section homes sold. This is the best approximation for the price of similar products from period to period. So we saw true price appreciation this quarter after a very long run of very modest declines. Whether this first upward move in a while becomes a trend depends on the direction of the industry orders going forward. I don't want to miss the opportunity to point out the strong performance in Financial Services, which turned a significant loss a year ago into a nice profit this year, driven by better insurance results. It's never fun to explain that bad weather was the cause of poor insurance results; no one likes to hear that reason. This quarter, it's only fair to acknowledge that favorable weather contributed to the year-over-year improvement. It's also important to understand that on top of the relatively good weather, we have made very meaningful improvements to our underwriting criteria and policy pricing, which are significantly improving the results under any weather conditions. Our insurance operations have done a fantastic job making sure policies are priced right for their risk, and we expect continuing strong results over time. Shifting topics, a few weeks ago, we announced the agreement to purchase American Homestar. The acquisition, which will use approximately $184 million in cash, is expected to close early in our third quarter. As previously discussed, this deal brings with it an opportunity for significant cost reduction as well as product and retail optimization benefits. Since the announcement, members of our leadership team have had the opportunity to visit many of the American Homestar operations. The introductory visits confirmed what we knew in general and from our due diligence work. This is a first-class organization, and we continue to be very excited about what they will bring to Cavco. The American Homestar acquisition, along with ongoing investments throughout our operations, demonstrates the execution of our capital allocation priorities. We also continued our 4-plus year buyback program, repurchasing $50 million of stock this quarter. Cumulatively, since the initial repurchase authorization in fiscal 2021, we've bought back 16.6% of our outstanding shares. With strong cash flows and a conservative balance sheet, we remain confident that we can repurchase shares without hindering any strategic opportunities. Now I'll turn it over to Allison to give more detail on the financial results.

Allison K. Aden, Executive Vice President and Chief Financial Officer

Thank you, Bill. Net revenue for the first fiscal quarter of 2026 was $556.9 million, up $79.3 million or 16.6% compared to $477.6 million during the prior year. Sequentially, net revenues increased $48.5 million, driven by an increase in homes sold and the average revenue per home sold. Within the Factory-Built Housing segment, net revenue was $535.7 million, up $77.6 million or 17% from $458 million in the prior quarter. The increase is primarily due to a 14.7% increase in homes sold and a 1.9% increase in average revenue per home sold. The increase in average revenue per home was due to product pricing increases and more multi-wides in the mix, partially offset by a lower proportion of homes sold through our company-owned stores. Capacity utilization for Q1 of 2026 was approximately 75% when considering all available production days versus 65% in the prior year quarter. Financial Services segment net revenue was $21.2 million, up $1.6 million or 8.2% from $19.6 million in the prior year quarter. The increase was due to higher insurance premium rates, partially offset by pure loan sales and fewer insurance policies in force. Consolidated gross margin in Q1 as a percentage of net revenue was 23.3%, up 160 basis points from 21.7% in the same period last year. In the Factory-Built Housing segment, the gross profit was 22.6% in Q1 of 2026, consistent with Q1 of 2025. Financial Services gross margin as a percentage of revenue increased to 40.9% in Q1 of 2026 from a negative 0.6% in Q1 of 2025. This increase is primarily due to the insurance division having fewer claim losses from storms, as the prior year period was significantly impacted by multiple weather events in Texas and New Mexico. Selling, general, and administrative expense in the first quarter of 2026 was $69.1 million or 12.4% of net revenue compared to $64.9 million or 13.6% of net revenue during the same quarter last year. The increase was due to higher bonus and commission expenses on higher earnings compared to the prior year. Interest income for the first quarter was $5.1 million, down from $5.5 million in the prior quarter. Pretax profit was up 48.9% this quarter to $65.3 million from $43.9 million in the prior year period. The effective income tax rate was 20.9% for the first fiscal quarter compared to 21.5% in the same period in the prior year. Net income was $51.6 million compared to net income of $34.4 million last year, and diluted earnings per share this quarter was $6.42 versus $4.11 in last year's first quarter. Before we discuss the balance sheet, I'd like to take a minute to talk about capital allocation. During the first quarter, we repurchased $50 million of common shares under our Board-authorized share repurchase program, leaving approximately $178 million under authorization for future repurchases. Additionally, we announced our intention to acquire American Homestar, a transaction expected to utilize roughly $184 million in cash. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions, and consistently assessing opportunities within our lending operation with share buybacks serving as a mechanism to prudently manage our balance sheet after considering these initiatives. Now I'll turn it over to Paul to discuss the balance sheet.

Paul W. Bigbee, Chief Accounting Officer

Thanks, Allison. In the quarter, we had a decrease in cash and restricted cash of $6.9 million, bringing our balance to $368.4 million. We generated $55.5 million of cash from operating activities, reflecting solid operating performance for the quarter. We used $7.7 million in investing cash flows for new equipment in certain facilities and used $54.7 million in financing activities, primarily due to stock buybacks. Comparing the June 28, 2025 balance sheet to March 29, 2025, the increase in accounts receivables related to organic growth in the Factory-Built Housing segment with unit shipments up 7% in the first quarter of 2026 versus the sequential quarter. Inventories increased from higher finished goods of company-owned retail stores as well as higher raw material purchases to support increased production. The decrease in prepaid expenses and other current assets is a result of lower federal income tax prepayments primarily related to timing. Increase in long-term commercial loans receivable is a result of increased lending under these programs as a result of larger sales volumes. Accrued expenses and other current liabilities are up from the increased compensation and bonus accruals on higher earnings, increased insurance loss reserves and higher customer deposits. And finally, as previously discussed, treasury stock increased due to stock buybacks executed during the quarter. Now I'll turn it back to Bill.

William C. Boor, President and Chief Executive Officer

Okay. Thank you, Paul. Michelle, let's go ahead and open up the line for questions.

Operator, Operator

And our first question comes from Daniel Moore with CJS Securities.

Daniel Joseph Moore, Analyst

The plan clearly worked, as we saw a significant increase in new orders this quarter. Is that level of ordering continuing into fiscal Q2, showing any signs of acceleration? Or do you anticipate it will taper off in the upcoming quarters?

William C. Boor, President and Chief Executive Officer

Yes. I don't have specific comments on expectations. The summer months can typically lead to a slight slowdown from a seasonal standpoint, but overall, we see continuity at a high level. I'm not observing any market indicators or feedback suggesting a decline. I also keep track of the HUD code shipments data, which, despite being somewhat of a lagging indicator, has shown strong performance recently. We remain positive about the quarter and believe we executed well as a company. There is ongoing uncertainty, so we need to remain vigilant.

Daniel Joseph Moore, Analyst

Very helpful. You mentioned the Southeast. I mean, obviously, Florida has been challenged for a while. Are you seeing any incremental softness?

William C. Boor, President and Chief Executive Officer

Yes, thank you. I want to clarify something because I realize I didn't express it clearly. Florida has been facing its own challenges for quite some time, and I don't anticipate any improvements there. Overall, the real estate market in Florida has been struggling. We are managing to maintain our position and feel positive about where we stand. However, I want to emphasize that my previous comments were broader and mostly excluded Florida, which operates quite independently. Looking at the Southeastern states, I don’t want to give a pessimistic impression. The situation has been steady. As I mentioned, we are focusing on the backlogs we have, and our plants have done an excellent job of increasing production in that area. In comparison to other regions, Florida was a bit of an underperformer for us this quarter in terms of quarter-over-quarter activity. I’m trying to convey this as clearly as possible: it's not a dire situation, but it was the slowest of our major regions in what was otherwise a fairly positive quarter-to-quarter outlook.

Daniel Joseph Moore, Analyst

Got it. Okay. I'll follow up offline. But ASPs gave great color, greatly appreciated. Between the two factors, is it more a function of passing on inflation and input costs? Or is the mix meaningful improving as well?

William C. Boor, President and Chief Executive Officer

Yes, the mix shifted slightly towards multiple section homes, which is an upward trend. However, the key factor this time was the appreciation in the average selling price of the same product. We analyzed the aggregate performance of single-section homes and multi-section homes in terms of their average selling prices, and this quarter, both saw an increase. It's been a long time since we've experienced this level of price appreciation, especially after adjusting for product mix and the proportion sold through our retail stores. I want to emphasize this because we've had ongoing discussions about the slow decline we've noticed in pure pricing over several quarters. This time, we saw a significant upward movement, which is encouraging. As for your other question regarding whether this change was due to tariff pressures, I want to clarify that while tariffs had some impact, it's primarily about pricing where the supply and demand for our products was strongest. Although tariffs influenced costs, I don't see price increases solely as a reaction to rising costs if the market doesn't support it. Therefore, I view the price movement as an independent data point, distinct from our cost structure.

Daniel Joseph Moore, Analyst

Okay. Very helpful. I know you don't give guidance. Financial Services had a really solid quarter. Just curious what you've seen so far quarter-to-date in terms of claims. Obviously, there's been some well-documented tragic flooding in Texas. I know it's isolated, and your business is a lot more geographically diverse, but what are you seeing so far there?

William C. Boor, President and Chief Executive Officer

Yes, you've stated that accurately. The situation there is indeed tragic. However, from a claims perspective, it hasn't resulted in a significant number of claims, likely due to the sparse population in the areas affected by the flooding. Overall, we're not experiencing an unusual volume of claims from this event. From a business standpoint in insurance, things appear to be quite good. We do make it a priority to diversify our risk across different geographic regions and other factors. There’s nothing substantial to report regarding this event or any recent events.

Operator, Operator

Our next question comes from Greg Palm with Craig-Hallum.

Gregory William Palm, Analyst

I wanted to clarify some of the previous questions about regional differences. Regarding your comments on the Southeast region, are you seeing increased competition there, or is it more related to consumer traffic rates and slowing deposits? Could you elaborate on that? Also, the Southeast is quite broad; are there specific states you want to highlight or any particular points?

William C. Boor, President and Chief Executive Officer

Yes. We evaluate our plants that service that area, which have a wide service radius. We're considering areas up to North Carolina and Virginia, essentially from Georgia through North Carolina and Virginia. I appreciate you bringing this up, as I want to clarify. We experienced a significant increase in orders recently, although in the Southeast, they remained relatively flat. This indicates we're not facing a major downturn. The reason I mentioned this is that we have been directed to increase production on a plant-by-plant basis where we believe there is sufficient backlog. My main point was regarding that strategy. I'm not certain how this will unfold, but we need to examine each plant in that region, as order rates there have trailed behind other regions lately, resulting in a drop in backlogs due to increased production. Consequently, we may need to consider scaling back some of those production increases. I'm not making any predictions; I'm highlighting the differing trends in these regions. If there's one area we are closely monitoring to see if our backlogs remain stable alongside order rates in the coming quarters—allowing us to sustain the heightened production levels—it would be the Southeast. While it hasn't been a downturn, we are experiencing a flat period in a country where other regions are performing well.

Gregory William Palm, Analyst

Okay. That's helpful. What are you seeing from the community channel and some of the bigger buyers there? Any change relative to kind of what you're seeing in the dealer channel?

William C. Boor, President and Chief Executive Officer

Yes, I don't think anything significant has changed. After we resolved the inventory issue that we discussed for quite some time, which we determined was over last December, the shipments have returned to their historical levels in the industry. They've averaged about 30%, roughly one-third, when factoring in builders and developers alongside communities. There is some typical fluctuation in those figures, but I believe they are currently in that range.

Gregory William Palm, Analyst

I would like to take a moment to discuss gross margin. Can you comment on input costs and whether you can quantify the impact of tariffs, particularly regarding steel or the components you use? Was the effect significant? Are you able to provide any quantifiable insights? This question arises in the context of much higher year-over-year production rates, although factory margins have remained relatively flat. I'm trying to understand the relationship between these factors.

Allison K. Aden, Executive Vice President and Chief Financial Officer

Thanks for your question. Due to delays in many of the tariffs and the time it takes for costs to impact our cost of goods sold, we didn't see the full effect of tariffs in the first quarter. We estimate that the total impact in Q1 was approximately $700,000 in additional expenses affecting our cost of goods. If the currently proposed tariffs go into effect, we expect this impact to increase in future quarters. There hasn't been anything significant this quarter, but we are closely monitoring it. Additionally, the key components affecting our margins are the prices of the commodities we primarily use, such as lumber and OSB. While the prices for these commodities can be volatile, we've recently benefited from relatively low and stable prices. However, there's always the possibility of price increases. We monitor the indices for these commodities, as any changes in their prices typically reflect in our cost of goods sold within about 60 to 90 days. Considering all these factors is essential for understanding our cost-related margins.

Gregory William Palm, Analyst

Got it. And then maybe just last one, shifting gears again, just to the regulatory environment. Can you provide maybe any update? I know there was a recent bill that was introduced about chassis removal. So maybe you can just give us some insight into what that potentially could mean and just the overall process of putting that into a law, if that's the case.

William C. Boor, President and Chief Executive Officer

The Senate Committee advanced a bill last week, which I believe you're referring to. What was particularly encouraging was that there were about eight subsections in that housing bill, one of which was specifically focused on manufactured housing. One important takeaway for me is that manufactured housing is being recognized as a significant part of addressing the affordable housing challenges and supply issues we are encountering. Additionally, as you mentioned, the chassis removal from the federal definition was included, which I feel optimistic about. This has been a topic we've discussed before. While it will require some effort and time, I believe that its removal from the definition could lead to substantial innovation within our industry, enabling us to expand into urban areas, for instance. That’s a major positive. There were also mentions about encouraging local municipalities and states to improve zoning, though those statements were quite general and not specifically aimed at manufactured housing. Nevertheless, it's encouraging that Congress recognizes zoning as a critical barrier to increasing the availability of homes and housing units. If I were to express any disappointment, it would be that while Congress is looking to provide some support and funding for community preservation and development, they seem to focus on resident-owned communities. In certain cases, that can be beneficial, but it doesn't always live up to expectations and sometimes doesn't work effectively. Therefore, it's a bit concerning that the bill does not seem to include the successful for-profit community ownership model. Overall, I think it’s a positive step forward and reflects the efforts we've made in Washington to elevate manufactured housing in the conversation. I feel we are making real progress. Did I cover everything you wanted to know, Greg?

Gregory William Palm, Analyst

No. It was more the better. I appreciate the color.

Operator, Operator

Our next question comes from Jay McCanless with Wedbush.

Jay McCanless, Analyst

I want to focus on the gross margin for a moment. Given that volumes and pricing are up for singles, doubles, and OSBs, which are at multi-decade lows, I am surprised the gross margin remained flat year-over-year. Can you explain what caused that? Also, if it was due to sales mix or geographic mix, is that trend continuing into the second quarter?

Allison K. Aden, Executive Vice President and Chief Financial Officer

We experienced an increase in throughput for the quarter, which allowed us to better utilize some of our factory overhead. Although we absorbed some additional costs due to tariffs, our margins are significantly influenced by the comparison of this quarter to the same quarter last year regarding pricing. We saw several positive developments in our gross profit and gross margins for the quarter. Additionally, in Financial Services, we noted an increase compared to the previous year.

Jay McCanless, Analyst

Okay. So it's more just geographic mix? And also, are you seeing that in the second quarter kind of that same thing developing?

Allison K. Aden, Executive Vice President and Chief Financial Officer

I think it's probably a little too early to comment on the second quarter. One thing we are closely monitoring is the unfolding tariff situation. As we have shared before, we purchase many lighting, electrical, and plumbing components as well as windows and doors, and most of these are sourced from China. So that will be our focus as the tariffs continue to develop.

Jay McCanless, Analyst

Okay. And then I know that there's been a couple of price increases announced for roofing. Has that started to impact Cavco's income statement yet?

Allison K. Aden, Executive Vice President and Chief Financial Officer

Nothing that we can really comment on at this point, nothing significant.

Jay McCanless, Analyst

Okay. And then if we could just talk about Chattel mortgage, where are rates right now? And I guess the other question is, are you guys seeing and what the site builders have talked about where people just aren't as confident maybe as they were this time last year? And maybe talk about that and then also where rates stand at this point?

Mark Fusler, Corporate Controller, Head of Investor Relations

Yes, I'll start with the rates, Jay. So it's actually been really consistent since we last reported our fiscal year-end. So it's still in that 8% to 9% range.

William C. Boor, President and Chief Executive Officer

Yes, I think the indicators of confidence fluctuate almost weekly, if not daily. In my view, this trend has been present for several quarters now. People are attempting to interpret the macroeconomic landscape, and there is definitely some uncertainty on the part of potential buyers. We observe this uncertainty more in closing rates, while traffic tends to fluctuate within a relatively narrow range. Closing rates are a better indicator of people's willingness to make purchases, as there are many individuals in need of homes who contribute to traffic numbers. The challenge lies in whether they feel confident and are willing to commit to a deposit and finalize the purchase, which can be negatively affected when confidence decreases. To answer your question directly, the situation is constantly changing, reflecting the uncertainty we've discussed. This quarter, we saw a significant increase in orders, which suggests that either confidence improved during this period or that pent-up demand for housing is overcoming those concerns. It's difficult to determine, but we're pleased with the uptick. We plan to continue to engage with this trend while staying prepared to adapt, as predicting the future remains challenging.

Operator, Operator

Our next question comes from Jesse Lederman with Zelman & Associates. It's changing all the time, and that's the uncertainty we've been talking about. This quarter, orders showed a pretty big uptick. So that indicates that either during this quarter there was a bit more confidence or it suggests that the pent-up demand for housing is overcoming that concern. It's difficult to determine, but we believe we experienced a nice uptick this time. We're going to continue to focus on it, and we need to be prepared to adjust. It's challenging to be more predictive than that.

Jesse T. Lederman, Analyst

A nice job on the quarter. I'd like to ask another question on the tariffs. So I guess, just $700,000 of impact in the COGS from tariffs. Is the expectation still about 5% to 8% of the materials might be the impact from tariffs?

Allison K. Aden, Executive Vice President and Chief Financial Officer

Yes. Let me clarify that by putting it into dollar terms for clarity. We estimate that the total impact could range from $2 million to $5.5 million per quarter if the current tariffs are fully enforced. I hope this information is helpful.

Jesse T. Lederman, Analyst

Got it. Okay. Yes, that is helpful. So I guess the $2 million and again, the material is half of the COGS, right?

Allison K. Aden, Executive Vice President and Chief Financial Officer

Yes, they do.

Jesse T. Lederman, Analyst

So the $2 million would represent about a 1% increase to overall COGS from tariffs during the quarter, which seems a bit lower than what you might have been expecting last quarter.

Allison K. Aden, Executive Vice President and Chief Financial Officer

That's correct. Specifically, the impact of increased costs from tariffs in Q1 amounted to $700,000. The situation with tariffs has been fluctuating. However, there's a suggestion in the current discussions that they might increase. When comparing our current outlook to just a quarter ago, it seems that tariff increases might be slower and less consistent. We are monitoring this closely. If we take a broader view, the estimated impact could be $2 million per quarter, which is on the lower end, but as the situation evolves, it could escalate to around $5.5 million. The majority of this impact is likely to come from lighting, electrical, and plumbing components, which we source from China.

Jesse T. Lederman, Analyst

I wanted to ask about the insights from CountryPlace regarding the household income trends of buyers, either through CountryPlace or your retail operations. Specifically, are you noticing any changes in the household income of those making purchases, perhaps comparing quarter-to-quarter? For instance, if this quarter shows a higher household income at retail or through CountryPlace, it might indicate that some buyers are transitioning from existing homes or new homes to manufactured homes. Do you have any information on that?

William C. Boor, President and Chief Executive Officer

Yes. Obviously, when you're originating, you know all that information. So it exists. It's not something that we've tracked very closely at a macro level. So it's an interesting thought and something we'll think about. But I don't have any statistics for you right now on that.

Jesse T. Lederman, Analyst

Okay. And then yes, of course, I think that would be pretty interesting. Allison, you kind of talked from a capital deployment perspective, one of the initiatives you're looking into is assessing some opportunities within the lending operations. Could you maybe provide a little bit more color into what that opportunity might be?

Allison K. Aden, Executive Vice President and Chief Financial Officer

Yes. I mean, strategically, we look at our CountryPlace, which is our mortgage origination component of our organization to be able to provide expanded consumer-based lending programs. So we continue to look at that. And as part of that growth would probably be a combination of somewhere strategically to have an ability to deliver into a forward flow agreement. We have a commitment that we would not carry consumer-based loans on our balance sheet, nor have we. So if we embark on that type of a longer-term strategy, our balance sheet would still very much stay an OEM balance sheet. But this would give us an opportunity to serve a wider base of consumers to help them be able to obtain affordable housing.

William C. Boor, President and Chief Executive Officer

Yes, I want to emphasize that our model is to originate and sell. We do not intend to carry consumer loans on our balance sheet. We keep the servicing rights, which provides us with a consistent revenue stream. That is our fundamental approach. Recently, traditional investors have significantly lowered their loan purchases, leaving us with a decision to make. We have chosen to add some new loans to our balance sheet but ensure that we underwrite them to the standards that external investors expect. Our strategy is to maintain our operations as an originator, with the hope that in the future, possibly by attracting more reliable investors, we will be able to offload these loans and return to our original model. We have not invested much money in this approach on our balance sheet, but we want to communicate that we will occasionally take on loans with the intention of making them sellable in the future.

Jesse T. Lederman, Analyst

Got it. That's helpful. Yes, I think in a lower rate environment, those loans would be an attractive opportunity for an investor to get those off the balance sheet. But it makes sense. It sounds like you're willing to continue to underwrite those just to keep the machine moving from a financing availability perspective. Last one from me, yes, go ahead.

William C. Boor, President and Chief Executive Officer

This is an interesting point. When an investor decides to buy those loans, they typically want to know what is available immediately. Therefore, having a few loans on the balance sheet is beneficial for building those relationships.

Jesse T. Lederman, Analyst

It sounds like a lot of the initiatives you discussed over the past couple of years regarding improvements to underwriting criteria and pricing are starting to pay off with a gross margin around 40 percent. Historically, you've been in the range of about 50 to 55 percent. Is there any reason the gross margin for Financial Services shouldn't at least stay around current levels or even increase a bit toward 50 percent?

William C. Boor, President and Chief Executive Officer

Yes, it's very choppy, right? I mean it's the insurance business, not to minimize the financial or the lending business component of that. But when you're in the insurance business, quarter-to-quarter, it can be choppy. But yes, I don't see any structural reasons why we shouldn't be able to maintain pretty much historic margins with that business. So yes, I appreciate the question because it is hard for you all to keep your bearings with us in Financial Services when quarter-to-quarter, we can see pretty dramatic changes. What I've said in the past, and I still believe is that these businesses give us a solid return on invested capital, and they are complementary to our core business. So we're committed to them.

Operator, Operator

Our next question comes from Daniel Moore with CJS Securities. I don't see any structural reasons why we shouldn't be able to maintain historic margins with that business. I appreciate the question because it can be challenging to keep track of us in Financial Services when we experience significant changes quarter-to-quarter. I have stated before and still believe that these businesses provide us with a solid return on invested capital, and they complement our core business. Therefore, we are committed to them.

Daniel Joseph Moore, Analyst

If you examine your shipments and the HUD code, it's evident that manufactured housing has been diverging significantly from traditional site-built growth rates, especially over the last couple of quarters and notably this quarter. Do you think, Bill, that this is mainly due to a normalization of the builder-developer channel, or do you see this trend across all of your key customer bases, such as REITs and traditional retail?

William C. Boor, President and Chief Executive Officer

I understand your point regarding HUD data and the changes in HUD code shipments compared to site-built homes over the past year or two. The 15% growth in our shipments highlights this contrast against a flat or declining traditional cycle. We have been monitoring this closely, and over the past 1.5 years, HUD has significantly outperformed site-built homes. I track new home sales, as they are similar in timing to our shipments, and it’s clear that HUD has outperformed in that regard. There are many factors at play. Although we are affected by similar macroeconomic influences like interest rates, the cycles for manufactured and site-built housing can differ. About 1.5 years ago, we faced challenges with inventory in our retail channels after interest rates rose, while site builders benefited from low interest rates and a lack of inventory in previously owned homes. This situation seems to have reversed now, as we have cleared up inventory, and the issue of affordability is becoming more prominent. Manufactured housing caters to a different price point, particularly in first-time buyer segments. If the macroeconomy continues to support it, we might see a greater share of new housing units favoring manufactured housing. It's important to note that discussions can vary based on the timeframe considered. We've performed well compared to national HUD code shipment indices, largely due to efforts we've made over the past couple of years. We've established an effective national sales group in wholesale, which we previously lacked, and it's making a noticeable impact. Additionally, we've invested heavily in digital marketing and branding to enhance customer experience. Overall, I believe we've positioned ourselves better competitively in the manufactured housing sector, and this progress is reflected in our shipment movements compared to the industry.

Daniel Joseph Moore, Analyst

Very helpful. My last long-winded question today, I promise. But just I missed the American HomeStar conference call. So you're expanding what is already a strong presence in Texas. Obviously, Texas has always been a big important market for MH, but a little choppier of late. So what are you seeing or hearing from retailers, community developers in that market and your expectations for growth in that market, not next quarter, but over the next 2 to 4 years?

William C. Boor, President and Chief Executive Officer

Yes. I think my answers have been long-winded, not your questions. But Texas, everyone knows how big of a market that is for manufactured housing, and we do have a pretty good presence there. And in the call and otherwise, I've talked about you've got some deals where you are going into new geographies or trying to round out your geographic presence. And you've got others like this one where you're just going to get stronger where you are. And I'm really excited about it from that perspective. We have a lot of confidence in Texas over any strategic timeframe. So really don't do these kind of deals, worried too much about what's going on right now. And what's going on right now in Texas isn't bad. They've been growing. So we're going to have a lot of opportunities for value creation in that deal through cost benefits as well as product and retail optimization. So we're really excited about it. I'm not sure if I'm really hitting hard on your question, and I'm happy to take another shot, Dan, but that's a stab at it.

Daniel Joseph Moore, Analyst

No, that's helpful. Right now, the market is holding up pretty well, and you see continued growth. That's what I was getting at. I appreciate it very much.

Operator, Operator

Our next question comes from Ian Lapey with Gabelli Funds.

John Dundee Lapey, Analyst

Bill and team, congratulations on a great quarter. I have a quick question. Was the $9 million in CapEx for the quarter due to the brand realignment? Also, do you anticipate CapEx returning to the previous levels of about $4 million to $5 million per quarter like it was over the last couple of years?

William C. Boor, President and Chief Executive Officer

Yes, thank you for the question, Ian. The $9 million was not a result of the brand realignment. The only significant impact you might have noticed from that was last quarter when we reported a noncash charge of $10 million related to writing off some intangible value. Moving forward, we shouldn't expect a meaningful effect on the P&L from that change. I want to contribute my thoughts, and then Allison and others can elaborate. The $9 million is actually a positive narrative because we have been investing in our plants. We've successfully made several smaller investments, which, although minor in the grand scheme of the company, accumulate over time. Our recent plant modernizations have been very effective, leading to an increase in non-acquisition capital expenses. So, I encourage you to feel optimistic about that. We are making high-return investments in our plants and expanding our capacity. Do you have anything to add to that?

Allison K. Aden, Executive Vice President and Chief Financial Officer

Yes, that's a very accurate description. Our capital spending will be somewhat inconsistent but within a narrow range, and it will vary from quarter to quarter depending on upgrades and efficiency improvements in our facilities. However, there is nothing in this particular quarterly figure that indicates any kind of upward trend.

William C. Boor, President and Chief Executive Officer

And it's not like a pent-up sustaining capital that's coming due or anything like that. Our plants are in pretty good shape.

Operator, Operator

Our next question comes from Jay McCanless with Wedbush.

Jay McCanless, Analyst

I was just looking at last quarter's transcript, and I think the one thing we haven't talked about is the price competition that you all were seeing last quarter. And just wondering if that's reemerged either what you saw in the first quarter? Or are you seeing any signs of your competitors being a little more aggressive on price in the second quarter to try and drive some volume?

William C. Boor, President and Chief Executive Officer

I would generally say no. If you think of a dial on this, my impression based on the monthly detailed conversations we have with each of our plants is that I’m hearing more of an upward bias in the local markets than a downward one. I want to emphasize this for this quarter because these things can shift. We're not identifying a trend based on just one data point. For this quarter, we noticed a nice increase in both single-section and multi-section homes, which was seen across the board regionally. Therefore, we currently do not have any hotspots where we're experiencing excessive price competition.

Operator, Operator

Our next question comes from Jesse Lederman with Zelman & Associates.

Jesse T. Lederman, Analyst

I want to commend you on the SG&A expenses. It seems that as a percentage of revenue, it's at one of the lowest levels since fiscal '23. I would like to understand if this focused expense management for SG&A is a deliberate choice or if there have been reductions in expenses over time. Any insights you could provide would be appreciated.

Allison K. Aden, Executive Vice President and Chief Financial Officer

Sure. Regarding SG&A, our business model has always focused on keeping a significant portion of SG&A variable. The primary element that fluctuates with sales volume is sales commissions and variable compensation. We pay close attention to fixed costs. Generally, SG&A scales well as our revenue increases, and our approach remains consistent. We are also continuously implementing processes and procedures to enhance our shared services, so as we grow both organically and through acquisitions, our back office can support the field at a lower cost per unit. This aligns with our commitment to maintain a low fixed cost component within SG&A.

William C. Boor, President and Chief Executive Officer

Yes. We definitely want to see what we saw. I mean, get that leverage on the fixed costs as we grow. So I appreciate you raising the question.

Jesse T. Lederman, Analyst

Yes, of course. So the fixed costs really you're talking about are the kind of shared services back-office type stuff, right?

Allison K. Aden, Executive Vice President and Chief Financial Officer

That's correct.

Operator, Operator

There are no further questions. I'd like to turn the call back over to Bill Boor, President and CEO, for closing remarks.

William C. Boor, President and Chief Executive Officer

Thank you. We're nearly at the top of the hour. A lot of good discussion. I appreciate the interest. I really want to acknowledge the execution across our organization that enabled these results this quarter. Over the last several quarters, we underwent a major ERP upgrade, which is always stressful and full of challenges. We rebranded our plants and aligned our product branding in ways that enable the customer experience to improve and enable us to give better lead generation for our retail partners, and we executed a thorough due diligence process and ultimately reached agreement to purchase American HomeStar. So with all this change happening in the organization and despite the ongoing uncertainty in the economy, our operations really delivered the results we've had the pleasure to discuss today. So I really want to thank everyone for joining us and for your interest in Cavco, and we look forward to continuing to keep you updated. Thank you.

Operator, Operator

This does conclude the program. You may now disconnect. Good day.