Mobile Home Makers Poised for Recovery
The mobile home business looks as if it’s been struck by a tornado.
Many of the top manufacturers -- including Riverside-based Fleetwood Enterprises Inc., the industry leader -- are gushing red ink, and this year’s first-quarter sales were the lowest in 40 years. Countless factories and dealer lots have closed nationwide, a glut of repossessed homes has depressed prices and a credit crunch has undermined sales.
“This is probably the worst contraction that this industry has undergone,” losing an estimated 45% of its manufacturing capacity, said industry analyst John H. Diffendal at BB & T Capital Markets.
But legendary investor Warren Buffett’s growing stake in the manufactured home business may signal that a long-awaited turnaround is in the works. In April, Buffett’s Berkshire Hathaway Inc. agreed to buy Clayton Homes Inc., the industry’s third-largest player, for $1.7 billion.
Buffett’s presence in the industry -- his firm also has agreed to help finance Oakwood Homes Corp. during its reorganization -- is a mixed blessing for Fleetwood, which also ranks as the nation’s largest recreational vehicle manufacturer.
Fleetwood will now be competing against a rival backed by Berkshire Hathaway’s enormous financial power and relationships. Clayton Homes, based in Knoxville, Tenn., is already a highly regarded company that has managed to remain profitable despite the tough times.
“Long term, they will be more competitive than they have been because of [Buffett’s] great financial strength,” said Fleetwood’s president and chief executive, Edward B. Caudill.
But Caudill says having Buffett in the game lends greater credibility to a troubled sector that has been shunned by many investors. Fleetwood already has seen some indirect benefits. Since the Buffett-Clayton Homes deal was announced, Caudill said, he has received calls from at least 10 investors or lenders suddenly interested in the industry.
Fleetwood stock, after bottoming out at nearly $3 a share in March, has more than doubled since, with much of the gain coming after Berkshire Hathaway announced its Clayton acquisition.
On Friday, Fleetwood shares on the New York Stock Exchange fell 6 cents to $7.62.
The manufactured-home industry was “kind of a dirty word” on Wall Street, said Caudill, a veteran of truck manufacturing. Buffett “has brought a tremendous amount of sunshine into the business.”
That business has brought Fleetwood nothing but gloom in recent years, obscuring a recent turnaround in its recreational vehicle division and generating more than $100 million in operating losses since 2001. After booming during much of the 1990s, Fleetwood’s manufactured home shipments have fallen by more than half since peaking at 66,227 in 1998. The company has closed more than a dozen manufactured housing plants and scores of sales centers and has laid off thousands of employees.
Fleetwood’s problems in large part reflect industrywide woes rooted in the boom years of the late 1990s. Then, abundant and cut-rate financing boosted sales sky-high, prompting large companies such as Fleetwood to open more retail centers and expand factory capacity. But sales began to weaken along with the economy and then went into a freefall after key lenders, such as Conseco Inc.’s finance unit, left the market in the wake of huge loan losses. Fleetwood and other manufacturers were suddenly caught with surplus factories and staff.
Fleetwood’s headache worsened when it aggressively expanded a company-owned retail network. While rivals such as Clayton Homes have long owned and operated large numbers of sales outlets, Fleetwood was new to the retail game. Its inexperience proved disastrous as sales collapsed, leaving it stuck with large inventories of unsold homes in a market where prices kept falling.
A few other manufacturers just as new to retailing also got burned, but Fleetwood suffered deeply, racking up a $65.2-million operating loss during fiscal 2002.
“Many suffered because they really didn’t know what they got into,” said industry consultant and former Fleetwood employee Steve Hullibarger. “They are paying a pretty dear price, including Fleetwood.”
Industry analysts say it would be relatively easy to spin off the troubled housing operations from Fleetwood, which has been in the business since it began building travel trailer and mobile homes more than 50 years ago. After Caudill was named president last summer, some speculated that such a spinoff was in the works.
But Caudill said Fleetwood has no plans to divorce itself from prefab housing, which generates about half the company’s $2.3 billion in annual revenue. “The housing business, long term, is still going to be an excellent business,” said Caudill, referring to strong demand for affordable homes.
Industry observers also voiced support for keeping the company intact in light of signs the manufactured housing industry will hit bottom this year. In addition to Buffett’s pending acquisition of Clayton Homes, the wave of repossessed properties that has depressed prices is expected to crest this year if it has not already, according to analysts.
In fact, if the job market and overall economic growth pick up, the industry would be poised for a strong 2004, said manufactured housing analyst William Gibson at Banc of America Securities.
“They’ve already been through the worst,” Gibson said. “By next spring, it ought to be going gangbusters, which is going to make Warren Buffett look pretty smart.”
