Fleetwood Reports Continued Losses, Debt Violation

Plunging sales of recreational vehicles and manufactured homes handed Fleetwood Enterprises Inc. on Thursday its third straight quarterly loss, which also put the company in violation of a debt agreement that could force the early repayment of an $80-million loan.

Riverside-based Fleetwood, the nation’s largest maker of recreational vehicles, said it won’t be profitable in its fourth quarter and will close six plants. The news sent Fleetwood shares spiraling down $3.10, or 26%, to close at $8.95 on the New York Stock Exchange. Its shares have fallen 44% from a closing high of $16.06 in March 2000.

The company also saw its credit rating cut this week by both Standard & Poor’s and Moody’s Investor Services.

A slowing economy and tightening credit contributed to Fleetwood’s problems. RV and manufactured-home inventories are growing as credit becomes harder to obtain and the number of buyers declines.

“Fleetwood is facing adverse conditions in both of its businesses,” said Michael Crawford, an analyst at B. Riley & Co. in Los Angeles. Fleetwood’s main businesses are RV manufacturing and pre-built housing.

Sales of the company’s RVs in the quarter plummeted 42% to $251 million from the same period a year earlier, said Nelson Potter, Fleetwood’s president and chief operating officer.

The market turned quickly from a year ago, when Fleetwood’s $434 million in RV sales was a record for the quarter.

“We believe the market slowdown is mainly attributable to declining consumer confidence, concerns about the slowing economy, higher interest rates and fuel prices,” Potter said.

RV dealers have slashed the number of vehicles on their lots because they can’t obtain the financing to maintain stock at the high levels of the last year, Crawford said.

The plunge in consumer confidence is especially worrisome for the industry because it is “the one economic variable most closely related to this industry,” Crawford said.

Though the company faces a difficult fourth quarter, Potter believes the industry will turn around.

“The market for RV products has proven to be very resilient in the past, which gives us reason to be optimistic about improved results for the company as general economic concerns abate,” Potter said.

Fleetwood’s revenue from manufactured housing fell 38% to $252 million in the same period.

Crawford said Fleetwood is caught in a shakeout in the industry, which builds sections of homes in factories. The homes sell for $25,000 to $100,000 and are trucked to sites.

Fleetwood made a giant bet on the manufactured-home business with its $259.5-million purchase in August 1998 of Home USA, a chain of manufactured-home sales centers. The company also gobbled up other manufactured-home retailers to build a network that peaked at 245 sales centers.

Since late 1999, Fleetwood has cut that to 220 centers and laid off 5,500 workers, or about 28% of its work force. On Thursday, the company said it will lay off an additional 1,100 workers and will close six plants in California, Indiana, North Carolina, Texas and Virginia by the end of April.

In issuing its negative outlook for Fleetwood’s debt, Moody’s said that continued “challenging” market conditions “will further erode the company’s already weak debt protection measures and financial flexibility.”

Moody’s said the decline in the manufactured-housing business started when the major lenders in the industry tightened credit after a period of aggressive lending. Three companies--Conseco Finance, GreenPoint Financial and Associates First Capital--accounted for two-thirds of the loans to consumers a year ago, according to Moody’s. But after incurring large losses, Associates left the market last year and the other two slashed their lending.

This resulted in a “large rise in repossessed units and a growing overhang in unsold units,” Moody’s said in its report.

Fleetwood’s loss of $205 million, or $6.26 per share, for the quarter ended Jan. 28 compared with a profit of $15.9 million, or 48 cents, a year ago. It included a noncash charge of $163.2 million, or $4.86 per share, for a write-down in the value of Fleetwood’s manufactured-home business. Without the write-off and other nonrecurring charges, Fleetwood had an operating loss of $56.1 million for the quarter ended Jan. 28. Company revenue totaled $510 million for the quarter, a 40% decline from a year earlier.

Fleetwood’s charges and large loss put it in violation of covenants governing $80 million of unsecured debt to Prudential Insurance Co. of America. Fleetwood said it is current in its payments to Prudential but that under some conditions, Prudential could speed up the payment schedule. Moreover, any default would spill over into the company’s other lending agreements.

Fleetwood is negotiating a waiver with Prudential.

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Driving in Reverse

A slowing economy and tight credit have resulted in big losses and a sagging stock price at Fleetwood Enterprises Inc., the nation’s largest builder of recreational vehicles.

Fleetwood Enterprises, quarterly and latest close on the New York Stock Exchange

Thursday:

$8.95, down $3.10

Source: Bloomberg News