Cavco Industries Inc

NASDAQ:CVCO

Earnings Call Analysis

Cavco Industries Reports Strong Revenue Growth Amid Challenges

Cavco Industries experienced a robust net revenue growth of 12.3%, totaling $507.5 million in Q2 2025, driven by a 15.7% increase in homes sold. However, gross margins declined to 22.9% due to lower average selling prices and losses in financial services. The impact of recent hurricanes delayed $4 million in revenue, although production remained steady with a capacity utilization of about 70%, rising to nearly 75% excluding downtime. Looking ahead, Cavco remains optimistic, guided by an expectation for revenue growth and a backlog increase of 20%. The board also authorized an additional $100 million for share repurchases.

Q2 Fiscal 2025 Overview

In the second fiscal quarter of 2025, Cavco Industries posted net revenues of $507.5 million, marking a 12.3% increase from $452 million in the prior year. This growth was propelled by a 15.7% rise in homes sold, which reached a total of 486.3 million in the factory-built housing segment. Sequentially, revenues increased by $29.9 million, highlighting a strong recovery from previous quarters.

Impact of Recent Hurricanes

The company faced challenges due to Hurricanes Helene and Milton, which affected operations in Florida and the Southeast. Despite the storms resulting in about $4 million in delayed revenues and approximately 15 to 20 production days lost, the impact on infrastructure was minimal. Overall, Cavco demonstrated resilience by quickly ramping production back to normal levels.

Sales Performance and Backlogs

Cavco's backlog grew by approximately 20% during the quarter, which corresponds to 8 to 10 weeks of production. The strong demand across all three sales channels—dealer, community, and builder-developer—signals a shift towards stability and recovery in the housing market, particularly in the Southeast and Texas regions. However, Florida remains a laggard in sales performance.

Margins and Cost Management

The overall gross margin for the second quarter decreased to 22.9%, down from 23.7% year-over-year, primarily due to losses in financial services and lower selling prices in the housing segment. Financial services revenue rose to $21.1 million, showcasing a 17.6% increase, but its gross margin plummeted to 21.8% from 35.9% in the prior year due to storm-related losses.

Capital Allocations and Share Buybacks

Cavco continued its strategy of enhancing shareholder value, completing $44 million in share repurchases, bringing total buybacks to $347.6 million since the program's initiation. The Board has authorized an additional $100 million for future repurchases, underpinning the commitment to managing the balance sheet effectively. Cash and restricted cash increased to $386.2 million.

Outlook and Guidance

Looking ahead, Cavco’s executives are optimistic about the demand levels as the industry has seen a return to a shipment pace of approximately 103,000 units per month, up from 88,000. However, they expressed caution regarding how quickly market recovery will materialize, particularly in Florida. There are also expectations for improved margins in the next quarter, driven by a conducive environment for lower input costs, particularly in lumber and OSB.

Strategic Initiatives

The company is exploring acquisition opportunities within the manufactured housing sector and remains focused on enhancing its production capacity. Investments have targeted operational efficiency improvements, highlighting a proactive stance in addressing current market dynamics.

Earnings Call Transcript 2025-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter Fiscal Year 2025 Cavco Industries, Inc. Earnings Call Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

[Mark Fusler, executive]

Good day, and thank you for joining us for Cavco Industries Second Quarter Fiscal Year 2025 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, including statements of 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. I encourage you to review Cavco's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, November 1, 2024. Cavco undertakes no obligation to revise or update any forward-looking statement, 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 Boor, executive]

Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results. I want to start by addressing the recent hurricanes affecting Florida and other states in the Southeast. As everyone on the call knows Hurricane Helene hit right before the end of Q2 and Hurricane Milton struck in early October, which is our existing Q3. Recognizing that many others were not as fortunate, we were relieved that our employees throughout the region and their families survived the storms, although many experienced significant property damage. Clearly, they and many others are dealing with a long process to regain some normalcy after the cleanup and rebuilding process or as the cleanup and rebuilding process unfolds.

Like every catastrophic weather event, it's awesome to see the resiliency shown as our employees made their way back to work to continue producing and selling vitally needed homes. Relative to what was feared, our operations experienced minor damage and raw material losses. It could have been much worse, but our folks did a great job preparing for the storms. And through the efforts of our committed coworkers, production and retail downtime has been minimized.

Since I know it's top of mind, I'd like to address the business impact of these storms upfront, and then we'll cover the quarter more generally. First, our insurance operations were not impacted as we do not actively write insurance policies in the affected areas. As indicated, physical damage to our operations and raw material losses were minimal.

Regarding the quarter results, Hurricane Helene resulted in delayed net revenue of approximately $4 million from the second to third quarter because conditions prevented us from completing shipments of finished homes. We also wanted to provide some perspective on the impact beyond Q2, specifically how much production time was lost.

On a combined basis, we estimate that through a combination of pure downtime and slowed operations, we lost the equivalent of 15 to 20 production days across our Florida and Georgia plants. The real question is how quickly and how fully the Southeast market recovers to its pre-storm health. We're optimistic about this based on the last few weeks of activity.

Now switching to the overall discussion. We felt very good about our results this quarter and the continuing progress we're showing as we ramp production in line with the improving market. Units shipped in the quarter were up 15.7% over last year's quarter. Capacity utilization was up sequentially from 65% to 70%, and that includes additional days taken around the 4th of July. So our running pace was closer to 75% capacity utilization.

In addition to shipping more homes, strong orders resulted in our backlogs growing approximately 20%. The quarter ending backlog represents about 8 to 10 weeks of production. There continues to be a wide range of backlogs across our operations with some plants ramping production as quickly as possible to keep backlogs in check and a few still needing more orders. Generally, we've been encouraged by the continued market growth we're seeing.

For what seems like a very long time, we've been talking about slow community and developer order rates due to their inventory challenges. It was about this time last year that we discussed our expectation that it would improve over calendar 2024. That's what we've seen. And while every community in development has a unique inventory situation, we feel the recovery is mostly behind us. This quarter, we had growth in all 3 channels: dealer, community and builder developer.

The business model continues to generate cash with our ending total balance of $7 million after $44 million of share buybacks in the quarter. As indicated in our press release, our Board has authorized an additional $100 million for share repurchases, which is incremental to the remaining amount in the prior authorization. So we continue to have this important tool to responsibly manage the balance sheet.

With that, I'd like to turn it over to Allison to discuss the financial results in more detail.

[Allison Aden, executive]

Thank you, Bill. Net revenue for the second fiscal quarter of 2025 was $507.5 million, up $55.4 million or 12.3% compared to $452 million during the prior year. Sequentially, net revenues increased $29.9 million, driven by an increase in base business units sold, higher average selling prices quarter-over-quarter and increased revenues in financial services.

Within the factory-built housing segment, net revenue was $486.3 million, up $52.3 million or 12% from $434.1 million in the prior year quarter. The increase was primarily due to a 15.7% increase in homes sold, partially offset by a 3.1% decrease in average revenue per home sold from the prior year quarter. The decrease in average revenue per home was primarily due to a lower proportion of homes sold through our company-owned stores, and to a lesser extent, palette pricing decreases, partially offset by more multi-wide in the mix. Factory utilization for Q2 of 2025 was approximately 70% when considering all available production days, but was nearly 75%, excluding scheduled downtime for the 4th of July holiday when many of our plants were closed all week. Utilization was approximately 60% in the comparable period.

Financial Services segment net revenue was $21.1 million, up $3.2 million or 17.6% from $18 million, primarily due to higher insurance premium rates. Consolidated gross margin in the second fiscal quarter as a percentage of net revenue was 22.9%, down 80 basis points from 23.7% in the same period last year, primarily due to losses in financial services and lower average selling prices in the factory-built housing segment. In the factory-built housing segment, the gross profit decreased 30 basis points to 22.9% in Q2 of 2025 versus 23.2% in Q2 of 2024, driven by lower average selling prices, partially offset by lower input costs.

Financial Services gross margin as a percentage of revenue decreased to 21.8% in Q2 of 2025 from 35.9% in Q2 of 2024. The increased division -- the insurance division was significantly impacted by Hurricane barrel with the loss from the event at our reinsurance limit of $4 million.

Selling, general and administration expenses in the second quarter of 2025 were $67 million or 13.2% of net revenue compared to $61.5 million or 13.6% of net revenue during the same quarter last year. The increase in these expenses was primarily due to higher variable compensation based on improved earnings, higher share-based compensation due to improving performance measures and additional expenses from acquired retail locations.

Pretax profit was $55 million, up $3.2 million or 6.4% from $51.7 million for the prior year period. Net income to capital stockholders was $43.8 million, up $2.3 million or 5.5% from $41.5 million in the prior year period.

Diluted earnings per share this quarter was $5.28 per share versus $4.76 per share in last year's second quarter.

During the quarter, we repurchased nearly $44 million under our Board authorized share repurchase program. Cumulative repurchases stand at $347.6 million since we began the program in the fourth quarter of fiscal 2021. As announced in our latest press release, the Board has expanded the program, authorizing an additional $100 million. This leaves $153.4 million under authorization for future repurchases.

Now I'll turn it over to Paul to discuss the balance sheet.

[Paul Bigbee, executive]

Thanks, Allison. In the quarter, we generated an increase in cash and restricted cash of $7.3 million, bringing our balance to $386.2 million. Cash provided by operating activities was $54.7 million, as Allison discussed. Cash used in investing activities was $5.7 million, reflecting capital expenditures to enhance manufacturing capabilities. And finally, cash used in financing activities was primarily due to share repurchases, highlighting our commitment to enhancing shareholder value.

Comparing the September 28, 2024, balance sheet to March 30, 2024, the increase in accounts receivables related to organic growth in the factory-built housing segment. The overall value of investments has remained relatively stable with more investments transitioning to current as time passes and as shorter duration bonds in our portfolio are approaching maturity. The increase in short-term consumer loans receivable is primarily a timing difference between higher originations of loans held for sale in excess of actual sales.

Current liabilities are up from increased compensation and bonus accruals on higher earnings, increased loss reserves for previous storms and higher customer deposits. Stockholders' equity edged up $8.6 million to just over $1 billion.

The last thing I wanted to call out is in yesterday's earnings release, we presented on the September 28, '24 balance sheet, the number of shares for outstanding common stock and treasury stock, which do not impact the amounts reflected in the balance sheet or earnings per share data. These will be updated in the 10-Q to be released later today to increase treasury shares by [ 108,801 ] and decrease outstanding common shares by the same amount. Now I'll turn it back to Bill.

[William Boor, executive]

Thank you, Paul. This was another encouraging quarter showing improvement from the time of the interest rate pullback. We have seen the industry drop to 88,000 HUD shipments following the 2022, 2023 run-up in interest rates, and now the latest monthly shipments data indicates 103,000 unit pace. There's certainly risk and uncertainty in the macro environment, but based on what we're seeing in the market and the undeniable need for our products, we're optimistic about demand and we're pressing forward to provide more homes.

Gigi, would you please open the line for questions?

[Operator]

[Operator Instructions] Our first question comes from the line of Daniel Moore from CJS Securities.

[Dan Moore, analyst]

Let me start with maybe just a little bit more color on what you're seeing from an overriding demand perspective, more from a geographic perspective, maybe where you're ramping production as quickly as possible and where orders are still lagging? And then you mentioned all 3 markets are now kind of back to growth, just what you're seeing in terms of sequential improvement in the community and REIT businesses?

[William Boor, executive]

Dan, thanks for the question. Yes, we've been, in a lot of these calls, talking about the consecutive string of increasing sales orders, which did continue. It was -- and I've said this many times, it's not dramatic, but it's kind of been a steady increase. And so that's kind of the highest level.

As far as regions and I'll even add product specific, I think where we're seeing plants have the highest order rates and the biggest backlog build, regionally, the Southeast has been very strong. Texas and that area has been strong as well. That's been consistent. Florida, we talk about the Southeast and then Florida stands out as its own market and Florida continues to lag. And so some of our thinnest backlogs happen to be in Florida. But I also brought into the question, kind of adding to your question a little bit, there's also a product trend, I guess, that we're seeing. And our plants that make lower price point products, whether they're single or multi-section, but lower price points seem to be the ones that are having the most market activity and the biggest backlog builds as well.

So hopefully, that covers kind of what you're looking for on regional differences and I'm adding in that product list as well.

As far as the segments, we tend to historically combine builder developers and when we talk about communities. So I know there's interest in both separately, so trying to be more conscious of that. And as I said in my remarks, all 3 channels, the retailer, the communities, kind of the land lease communities and the builder, developer channels were up for us this quarter. And it's always interesting when we spend a lot of quarters talking about inventory builds in the channel and then the seemingly long time it takes to work them out.

You kind of have to try to feel your way to when you think that's just not a big impact anymore. And I don't think I'm really jumping the gun by saying we're pretty much getting there. I mean the communities have been -- they've had high inventories. We've talked about that a lot on these calls. Enough of them have gotten their inventories under control that we're starting to feel like we're getting back to closer to that 1:1 ratio of them setting a home, getting a resident in a home and then being ready to order the next. So we feel pretty good about that.

And when you think about wholesale shipments, that's been a bit of a drain on wholesale order rates as they work that inventory off. So it's a bit of a tailwind developing in that regard.

So Dan, let me know if I touch on everything you're interested in there?

[Dan Moore, analyst]

Glad and more, absolutely. Obviously, I appreciate the color as it relates to the disruptions. Great to hear obviously that you made it through with minimal physical damage as well as the employees more importantly. Backlog is up 20% again and then offsetting that, some downtime from Florida and Georgia that you'll probably work hard to try to make up. So just how do we -- how are you thinking about production and shipment growth in Q3 relative to what we just saw in Q2 when you put all those puts and takes together?

[William Boor, executive]

Yes, specifically focused on the Southeast, I mean you captured the points, which I appreciate that -- and I will say it's hard to say minimal on anything related to that stuff. In the scheme of the scope of the company, the damage to our operations was minimal. But certainly, we have things there that we're working through. So yes, the kind of waved at this, I guess, in my comments. We're less 15 to 20 days of -- or equivalent days of downtime in that region. Some of that did happen in Florida plants that didn't have much of a backlog. So while I never like to lose time in production in a wave that's almost like market downtime. And some of it happened in Georgia plants where we actually have very healthy backlogs.

We'll work to try to catch that up to the extent we can because they've got the backlog. So work some overtime and try to do our best to catch it up in the third quarter. But when it boils down, the bigger question as opposed to production capability is really the bounce back of retail activity, right? I mean that's really what I'd focus people on. And we don't have a crystal ball on that. But for a couple of weeks, as you'd expect, in some of the areas in that region, there was really next to no activity because people are dealing with damage and the storm effect itself. But then we've had just a couple of weeks since that we've tried to get a feel for how things are bouncing back.

There are areas, there are spots there that you just -- it was devastation, right? But when you think about the region more broadly, we're seeing the health come back when we talk to retailers and even our own stores in the region. So in this early stage of trying to evaluate that bounce back, we're pretty optimistic, but it's got to play out. And so that's really the third quarter question I don't have a very clear answer for.

[Dan Moore, analyst]

Understood. I guess maybe one more and I'll jump back. But just bigger picture, in the past, you've spoken about kind of changes in HUD code. Is there anything that you're seeing recently are being proposed that could create more of a tailwind looking beyond the next few quarters? And I'll broaden out beyond HUD code to just general changes in zoning, et cetera, what you're seeing there?

[William Boor, executive]

Yes. Dan, everything I'll say is kind of stuff we've talked before, I think it's just a continuing story and your perspectives, right, that it's a long-term story. I think the recent HUD code changes were very directionally positive, even enabling multifamily to be coded HUD code. So all that stuff is going to facilitate innovation in our industry, and it's going to -- and that innovation is going to facilitate creating the kinds of products that can go into more urban areas, for example. And then that touches on the zoning. I don't have really anything to update to that discussion.

As I've said for a long period of time, I think where affordability is the worst, that's where municipalities are challenging their thinking and trying to figure out how to open up to really a better option for housing and more close-in in urban areas, which is factory-built housing. So I feel good about the directional trend, and it's always just been a question of how fast and when.

[Operator]

[Operator Instructions] Our next question comes from the line of Greg Palm from Craig-Hallum Capital Group.

[Greg Palm, analyst]

Wondering if we can dig into the volume numbers a little bit more and not just the quarter, but kind of the implied order rate, the backlog growing. It implies that you are gaining some share versus the industry. So I'm curious to kind of get your thought whether that is geographically based, in terms of which areas are maybe performing the best, whether it's more of a product? You kind of alluded to some kind of changes in product mix or some trends you're seeing out there, maybe you're able to adapt to that a little bit quicker. Just any kind of broad thoughts on the outperformance would be great as a starting point.

[William Boor, executive]

Yes. Thanks for the question, Greg, I'm sitting here kind of trying to sort a couple of thoughts, and it's interesting because I probably should take the win that you're kind of offering up to us. But I remember it wasn't that long ago that the same calculations were showing us losing share. And I think the moral of that story to some extent is these quarter-to-quarter shares can really move quite a bit. That's not to take away from the fact that I do think we've had our foot on the gas trying to ramp production up. So I do think we've earned the volume growth that we've had. Those -- I'll take you back a little bit further. I mean when the industry was really slowing down, we maintained relatively high shipments compared to the industry. And then when that became the comp a year later, it looked like we were lagging the industry. So just gives an example of how much those numbers can move a bit.

As far as regionally and product, I think we've had a big focus in our company of trying to rehire and do all the things early that you need to do. We've kind of decided to plan on an optimistic view of the market, knowing that we've demonstrated in the past our ability to slow down, if that's what happens and is necessary. And so we have been pushing. We've added -- I've mentioned this on previous calls. In the last couple of years, we added a national sales team that we never had in this company before to supplement the plant-specific work on sales, and I think that's really helped us, both up our game and generally in sales, but also give a better focus on REITs and community operators that I think is taking hold.

So we are doing some things, and I don't mean to take any excitement away from the market shares. I'm thrilled that we're gaining in the numbers, but I do think there's a lot of variability in those numbers, too.

[Greg Palm, analyst]

Yes. Okay. That makes sense. If I could shift over -- staying on the factory-built segment, but the margin, if I think about where volumes were in the quarter and whether this is a year-over-year basis or sequentially, but volume is up quite a bit. So capacity utilization, better input costs down deflationary, yet gross margin was up just a little bit sequentially, and it was down on a year-over-year basis. And I'm looking just specifically to factory-built housing segment.

Anything that you want to point out? And I just thought it might have been a little bit better just given everything that we've talked about, but just curious if there's anything else behind the scenes?

[Allison Aden, executive]

I mean the only thing to keep in mind that and we talked about from time to time on really the ASP driving kind of the largest part of the margin. And the ASP year-over-year decrease that we saw was primarily due to a lower proportion of homes sold through our company-owned stores, as we described. And when they're in a lower percentage going through retail, then we have -- we get less retail pricing in our ASP and more wholesale pricing, which serves to drive the ASP down a bit. So that is a factor that you [indiscernible] consider.

[Greg Palm, analyst]

Yes. Okay. That makes sense. And then I guess, lastly, capital allocation, obviously, buyback front and center, but curious if you've got any kind of update on M&A pipeline, your appetite, kind of anything you're seeing out there in the market related to that?

[Allison Aden, executive]

Yes. Thanks for the question. I think somewhat recent examples of our capital commitment was our purchase of Kentucky Dream Homes, which was a manufactured housing retailer. And before that, Solitaire Homes, the manufacturer and retailer. And our capital priorities remain planned improvement to improve capacity and also efficiencies in our plant. Future acquisitions are certainly on the horizon, and we have a process internally. It's ongoing betting evaluations of these opportunities. And we also continue to look at opportunities to expand in the lending operation.

And again, this quarter, we announced our Board once again showing support by authorizing another $100 million allocation for purchase buyback of our shares, which we use in a responsible manner as we've demonstrated that after the last 7 quarters to really manage our balance sheet and our cash in a responsible manner to our shareholders.

[William Boor, executive]

I'll tell you, just to add to that. We've been -- I think we would say that if we had $1 dollar to spend, we'd probably spend it in growing our existing plant capacities. And we've had a number of projects that we've been able to invest in over the last couple of years, and I host of them looking forward that they're the ones we really love. They aren't all the time very huge, but putting several million dollars into a plant is something we're always looking to do, and we've been doing that pretty regularly. So we grow the capacity of the existing system with a lot of focus.

And then your specific question about M&A, I'd give a similar answer that we usually give, and it's not just because it's a standard answer, it's because it's how we feel about it. There seems to always be incremental M&A opportunities in this industry. And so you have to stay tuned, and you have to hopefully be a buyer that they want to work with. And we always have some level of discussion about acquisition opportunities. And I think you will see us, over time, continue to be active in that space.

[Operator]

Our next question comes from the line of Jay McCanless from Wedbush.

[James McCanless, analyst]

I wondered if we could kind of stick on that average price topic for a minute. You look back at fiscal '23, probably the peak of the market at 106,000, almost 107,000, and now you're running close to like 98,000, 99,000. Is there any way to know if we're close to an inflection point on pricing, whether it's through an expansion in retail sales or just product mix as you see coming over the next few months. I don't know if you'll have any larger longer-term view about that and where you think pricing might go over the next couple to 3 quarters?

[William Boor, executive]

Yes. I guess what I would say is most every quarter that we've reported, we've tried to give a feel for how much of the ASP -- and I know we're not always incredibly precise with this, but how much of the ASP is driven by different factors. Because I think -- I mean correct me if I'm wrong, but I think what you all are most interested in is if the same product was sold a year ago and today, what would be the difference in the price. And the -- what I'd call it kind of the slow leakage of ASP that we've had, I guess, over the last -- I lose track of time, over the last 2 years, it has not been primarily same product. There is some same products are down, but other factors have really driven a lot of the ASP, whether it's ratio of homes sold through our distribution or product shifts from single-section to multi-section homes.

So I guess, I feel like, in hindsight, just giving you kind of my transparent view about this, I feel like it's surprising that the industry could go down to 88,000 shipments for a period of time, and we wouldn't see more same product price reduction. But ultimately, what's going to drive an inflection point on the same product turning around and going up is obviously demand. We've gotten back up to about 103,000 unit pace. We've seen backlogs build in a lot of the industry's plants, but not all of the industry's plants. But if we start to see plants fill up, and we're back at 80% utilization or higher and backlogs are generally going up across the industry, that's when I think you obviously see that ECON 101 price inflation.

And I'd say the progress from 88,000 industry shipments to 103,000 is obviously heading in that direction. I don't think I can call it any more precisely than that, though, for you, Jay.

[James McCanless, analyst]

That's great and good color. Could you also talk about where Chattel rates are right now? And if we've seen any improvement or decrease in those versus where we were last quarter and last year.

[Mark Fusler, executive]

Yes, Jay, this is Mark. They've been pretty steady in the last few months, but they are slowly declining from where they were last quarter. So at this point, we have a high -- high 7% range. So there's some that are quoted in the high 7s and then it looks like they're topping down in the high 8s about 8.8%, 7.5%.

[Operator]

Our next question comes from the line of Daniel Moore from CJS Securities.

[Dan Moore, analyst]

One more forward-looking question. I'll take a shot at least just given the challenges with weather in the Southeast and ASPs ticking a little lower. Just how are you thinking about factory-built gross margin Q3, the remainder of the year relative to what we experienced this quarter, any movements in lumber or other input costs, good guys, bad guys as we kind of think about the next couple of quarters?

[Allison Aden, executive]

Yes. I mean the way that we think about gross margins is, first, obviously, the pricing piece component is the largest factor. And I think we discussed that earlier on the call. And to your point, another large element to gross profit is the cost of materials. And for us, like all builders, it's primarily lumber and OSB. And I think we've talked about this before, but pricing for those materials is about a 60-day lag from what the commodity rates are that we can all see in the market to where they're incorporated into our margins. And we have seen them a relatively flat rate in OSB, in particular, come down a little bit. So eventually, like all the commodities, it will factor its way through.

And also just for our gross margins, as you can see it in the -- you can see in our history, too. As we continue to ramp our top line factory-built housing as again, we have seen that in the past, we'll experience leverage on our factory overhead COGS component. As we have discussed, we've seen extremely both on the COGS and on the SG&A, trying to keep both of those expense components as variable as possible.

[Dan Moore, analyst]

Very helpful, Allison. And last one, just obviously, there's near-term interruptions from -- in Florida and Georgia. Midterm, how do you think about how much of a boost you might expect from demand either from rebuild, reconstruction and as well as maybe potentially replenishing FEMA inventories at some point. Or is that just too much -- too difficult in terms of TBD, but any thoughts there would be appreciated.

[William Boor, executive]

Yes. I guess my thoughts just watching these things play out over time is we know that there's increased demand, right? We know that supply has been taken out. We're not supply on the existing stock has been taken out, if you want to think about it that way. And so we know that there's an increasing demand. It's been interesting when you watch and you've been in the industry for a while, too. It's been interesting to watch these catastrophic weather events because sometimes the -- we don't see as much of a surge in demand over a short period of time. It tends to feather its way back in. So I guess that's my expectation. I've kind of lowered my expectation about how quickly we see dramatic increases in demand after these things. So we know that it creates demand. And I can't put it any more. I mean, even I think it was Hurricane Ian, is that right a couple of years ago in Florida, we're still seeing areas that have not yet replenished from that storm.

So it can be drawn out. Your question about FEMA is an interesting one. FEMA has had what I thought was a pretty public call with manufacturers across the industry, basically just saying, they would think we're going to be ordering some homes, but nothing really tangible that I know of has happened from that at this point. But it sounds like there's a possibility that FEMA or even some of the state relief housing, we could have some orders in the industry and hopefully, in the near term. But nothing tangible there I could report on, Dan.

[Operator]

At this time, I would like to turn the conference back over to Bill Boor, President and CEO, for closing remarks.

[William Boor, executive]

Thank you. Just kind of stand on that theme, I want to once again share our ongoing concern for the folks affected by the storm, and our appreciation for impressive efforts our teammates continue to make to provide homes for deserving families. Thank you for joining us today and for your interest in Cavco. We look forward to keeping you updated.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.