Fleetwood Gets on the Road Again


By Christopher Palmeri Like one of its top-of-the-line 500-horsepower luxury motor coaches, Fleetwood Enterprises (FLE) is finally kicking into high gear. The Riverside (Calif.) company is one of the nation's largest manufacturers of recreational vehicles and manufactured homes -- two businesses that had stalled in recent years. In its latest quarterly results, out Sept. 7, Fleetwood reported that earnings roared past analysts' estimates, more than doubling to $6.7 million, or 12 cents per share, for the first three months of fiscal 2005.

The stock is up more than 30% in the past year, to a recent $14.40 per share. "It's coming along very well," says Chief Executive Ed Caudill, who joined the company after a management shakeup two years ago. "We still have room to improve."

MISSTEPS AND LOSSES. The recent hurricanes in Florida gave Fleetwood an unexpected boost. Orders for more than 2,000 manufactured homes have been placed in the Sunshine State. In the aftermath of Ivan, even more orders could come in. Fleetwood is also enjoying the benefits of an industrywide boom in recreation-vehicle sales, which were up 20% in first half of this year, to 196,000 units, according to the Recreation Vehicle Industry Assn.

A combination of industry conditions and self-inflicted wounds accounted for Fleetwood's earlier troubles. In response to competitive market conditions and an unhappy shareholder who wanted out of the business, prior management spent more than $350 million to buy back stock from founder John Crean and to purchase independent manufactured-home dealerships. At the same time, sales of those homes collapsed, as lenders cut back on an easy-credit binge that had led to soaring customer defaults and the bankruptcy of Conseco, one of the industry's largest lenders. And in recreational vehicles, Fleetwood's offerings got stale.

The outfit saw its overall sales fall by a third from their peak in 2000. For the fiscal year that ended in April, Fleetwood reported a loss of $22 million on sales of $2.6 billion, down sharply from the $83 million earned in fiscal 2000. Caudill, a long-time executive at truck manufacturer Paccar (PCAR), has been taking steps to improve the product lineup in both of Fleetwood's businesses.

THE RIGHT ROAD. In recreation vehicles, which have been enjoying robust sales despite high gasoline prices, Caudill introduced a number of new products including the Revolution and Excursion, two diesel-powered motor homes whose interior space can be expanded when parked by sliding out portions of the walls. Diesel engines, which are quieter, more fuel efficient, and can haul more weight than gasoline-powered vehicles, have been gaining in popularity among the growing ranks of baby boomer motor-home buyers.

Caudill also has taken steps to shore up the foundation of Fleetwood's manufactured-housing business. He has closed more than a third of the company's unprofitable retail outlets and launched new products like the Entertainer, which includes an in-the-wall home-theater system and extra space for family gatherings.

At the same time, mobile-home lenders are reopening their purses, thanks in part to Warren Buffett's Berkshire Hathaway (BRK), which has expanded its presence as a lender and manufacturer of mobile homes. "We think it has bottomed," Caudill says of the business. "Now it will start picking up."

So, too, has Fleetwood's balance sheet. Earlier this year, Caudill retired $190 million in preferred stock, eliminating $18 million in interest payments. Analysts expect the outfit to earn $31 million, or 58 cents per share, this year on sales of $3 billion, according to Reuters Research. That's a sharp turn in the right direction for Fleetwood. Palmeri is a correspondent in BusinessWeek's Los Angeles bureau. Click here for more Street Wise columns


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