管理層發言
Good day, and thank you for joining us for Cavco Industries Second 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 detailed 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, October 31, 2025. Cavco undertakes no obligation to revise or update any forward-looking statements, whether written or oral, to reflect actual 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?
Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results for fiscal 2026. We saw focused execution across our operations that led to the strong overall results we're reviewing today. Revenue was up 9.7% year-over-year and flat sequentially. Our operating profit was up about 27% over last year's Q2 and up 3% over last quarter. All operations contributed to these results, as I'll touch on. I want to start by discussing the general market as there were some notable regional differences. Using published industry data, year-to-date national shipments are up over 3% through August. In many regions, mainly across the Northern U.S., year-to-date shipments are up double digits. Recent months continued to show strong year-over-year shipment comparisons in those states and regions. In contrast, last quarter, we spoke about the Southeast, showing some volume risk. And clearly, the region did slow in the quarter. Shipments in the area bounded by the Carolinas and Tennessee down to Louisiana and East are down about 4% year-to-date and down 10% in July and August compared to last year. The point being industry shipments are currently showing significant regional differences. Shifting to our operations. In recent quarters, we have pushed production across our system, knowing we can adjust back if needed. And we did need to slow our Southeast production in Q2 and the plants reacted well. That reduction was accomplished through a combination of extended downtime during the 4th of July holiday and production rate reductions where plant backlogs were low. Across that Southeast region, we're operating our plants just above last year's pace, while all other regions maintained elevated production rates from Q1 to Q2 and at a significantly higher pace than last year. Pointing out these regional differences is not intended to be alarmist in any way. Sitting here at the end of October, we've seen backlogs in our plants that serve the Southeast stabilize and edge up over the last month. There's nothing systemic we can point to that explains the regional shifts, and we'll keep monitoring and adjusting production to manage appropriate backlogs. On the subject of backlogs overall, we remained at about 5 to 7 weeks. Unit backlog was up slightly quarter-to-quarter. And as explained, that was the result of selectively pulling back on production. Overall, wholesale orders were down just slightly. Turning to average selling price, and I want to really make it clear here that my comments are sequential, not year-over-year. Our consolidated average selling price was up this quarter. When we separate the various drivers, wholesale prices were essentially flat. Pricing did hold up across the board, including in the Southeast, with what I consider to be basically insignificant variation by geography. The significant upward movement in reported ASP was primarily the result of a higher percentage of recognized units from retail and to a lesser degree, a mix shift toward multi-section homes. We've seen a few quarters where multi-section homes increase relative to single sections after a string of quarters where it went the other way. We aren't reading too much into that variation at this point. I spent a lot of time noting the relative strength across the Northern U.S. in comparison to the Southeast because the divergence is noteworthy during a period with continuing market uncertainty. We're making no prediction about forward demand in the Southeast. At the moment, the market seems in balance with manufacturer production. And frankly, there are scenarios that it strengthens and others that it weakens from here. We're comfortable operating in this environment because we've demonstrated the ability to closely monitor and adjust as we did this quarter. I don't want to miss the opportunity to highlight the continuing strong performance in financial services. In the first 2 quarters, revenue is up about 5%. However, operating profit is up $14 million from a loss last year to an $8 million profit this year. This has been driven by our insurance business. Weather has played a part, but the majority of the increased profitability has resulted from aggressive actions taken to pair unprofitable policies and changes that were made to underwriting and claims management. I want to really acknowledge the insurance operation for the great job they've done and it's clearly showing in our results. As previously announced, after Q2 ended, we were able to close the American Homestar acquisition. After almost a month together, integration is moving quickly and very well, thanks to the people from both companies who took advantage of the time between the announcement and closing to plan all aspects of integration. The combined company is off to a great start. The commitment to the smooth transition by the American Homestar leadership has been very apparent, and it's made all the difference. And finally, while I have the floor, I can't help but touch on capital allocation. Allison will cover it in more detail. We continued investing in our existing plants. We closed on the American Homestar acquisition immediately after the quarter using cash on hand, and we were able to repurchase $36 million of our common shares. All of this, of course, was enabled by our strong balance sheet and cash generation, and this balanced capital allocation approach will continue going forward. Now I'll turn it over to Allison to give more details on the financial results.
Thank you, Bill. Net revenue for the second fiscal quarter of 2026 was $556.5 million, up $49 million or 9.7% from $507.5 million in the prior year quarter. Sequentially, net revenues decreased $0.3 million, driven by a decrease in homes sold, partially offset by an increase in average revenue per home sold. Within the factory-built housing segment, net revenue was $535.1 million, up $48.8 million or 10% from $486.3 million in the prior year quarter. The increase was primarily due to a 5.4% increase in homes sold and a 4.4% increase in average revenue per home sold. The increase in average revenue per home sold was primarily due to a higher proportion of homes sold through our company-owned stores with more multi-section homes in the mix and product pricing increases. Factory utilization in the second fiscal quarter was approximately 75% versus 70% in the prior year period. Financial Services segment net revenue was $21.4 million, up $0.3 million or 1.4% from $21.1 million in the prior year quarter and sequentially up $0.2 million. These increases were due to higher premium insurance rates, partially offset by fewer loan sales and fewer insurance policies. In the second fiscal quarter, consolidated gross profit as a percentage of revenue was 24.2%, up 130 basis points from 22.9% in the same period last year. In the factory-built housing segment, gross profit was 22.9% in the second fiscal quarter of 2026, flat with the prior year quarter. Financial Services gross profit as a percentage of revenue increased to 55.6% in the second quarter, up from 21.8% in the prior year quarter. This increase is primarily due to fewer claims from storms in the insurance business. Selling, general and administrative expenses in the second quarter were $72.2 million or 13% of net revenue compared to $67 million or 13.2% of net revenue during the same quarter last year. The increase in these expenses was primarily due to higher incentive compensation and deal costs from the recently announced American Homestar acquisition. Interest income for the second quarter was $5 million, down from $5.7 million in the prior year quarter, primarily driven due to lower interest rates on our invested cash balance. Pretax profit for the second quarter was $67.3 million, up $12.3 million or 22.4% from $55 million in the prior year period. The effective income tax rate was 22.1% for the second fiscal quarter compared to 20.3% in the same period in the prior year. This increase was driven primarily by a reduction in expected tax credits, partially offset by benefits from stock-based compensation. Net income was $52.4 million compared to income of $43.8 million in the same quarter of the prior year. And diluted earnings per share this quarter was $6.55 per share versus $5.28 per share in last year's second quarter. Before we discuss the balance sheet, I'd like to take a minute to talk further about capital allocation. Shortly after the close of the second quarter, we completed the American Homestar acquisition. During the second quarter, we also repurchased just over $36 million of common shares under our Board authorized share repurchase program, and we have approximately $142 million under authorization for future repurchases remaining. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions, assessing opportunities within our lending operation and continuing to buy back shares. Now I'll turn it over to Paul to discuss the balance sheet.
Thank you, Allison. In the quarter, we had an increase in cash and restricted cash of $31.6 million, bringing our balance to $400 million. Cash provided by operating activities was $78.5 million. Cash used in investing activities was $12.4 million and cash used in financing activities was $34.5 million, primarily due to share repurchases. When we compare the September 27, 2025 balance sheet to March 29, 2025, the increase in accounts receivable is related to organic growth in the factory-built housing segment with unit shipments up 2% in the period over the prior year end. Inventories increased from higher finished goods at company-owned retail stores. The decrease in prepaid expenses and other current assets is a result of lower prepaid insurance and prepaid taxes. Property, plant and equipment increased from continued investments in our existing manufacturing facilities. Deferred income tax changed from an asset to a liability primarily due to acceleration of certain expenses that were previously capitalized and bonus depreciation, both due to changes in new tax law. Accrued expenses and other current liabilities increased from higher volume rebates and warranty accruals on increased sales. And finally, treasury stock increased due to stock buybacks year-to-date. As a reminder, we closed on the American Homestar acquisition after quarter end. Therefore, the cash balance does not reflect a reduction for the purchase price, which is $190 million before certain customary adjustments and funded with cash on hand. Now with that, I'll turn it back to Bill.
Okay. Josh, can we open it up for questions?
分析師問答
Our first question comes from Daniel Moore with CJS Securities.
Let me start with Bill, I'm trying to just really good color, obviously, regionally and what you're seeing. Backlog held up nicely despite 5% growth in shipments. Maybe just talk a little bit further about how orders are trending thus far into fiscal Q3 and where you expect to be able to maintain current levels of production as we enter seasonally slower periods perhaps in some of the northern states ahead of next spring selling season?
Yes, I know I provided a lot of information about the regions. It's interesting because people often ask about these areas, and I sometimes brush it off since I don't see major differences. However, there is a significant variation in the isolated Southeastern region. It's important to note that we are also experiencing strong growth in many other parts of the U.S. Currently, we have double-digit growth in a large segment of the country. Regarding orders, our wholesale orders were slightly down this quarter, which isn't unusual as summer tends to behave that way. Looking ahead, I won’t speculate too much, but this quarter is noteworthy. October can be strong, leading into the holidays when things tend to slow down. While we can track seasonality over time, it's really the overall market strength that influences order trends quarter to quarter. I'm not sure I expressed that clearly, but seasonality can often be overshadowed by shifts in market strength or weakness. At the moment, the market feels fairly balanced overall. In that Southeastern region, where I've focused a lot, I sense we are in balance. We had to reduce shipments a bit during the summer for that area, but based on early indicators this quarter, our backlog has stabilized and even grown slightly there. We're in a good position. I can’t predict whether it will strengthen from here, which is likely, or if we might see some weaknesses, but it should be an interesting quarter. Right now, we're quite comfortable with the balanced market. Does that cover everything?
It does. If I heard correctly, your production rates staying relatively steady. You ticked them down a little bit in the Southeast, but kind of holding from here for the interim and waiting to see. Is that the best way to describe it?
Yes, I was probably focused in that comment about the Southeast that we're feeling in balance with where we've adjusted to. The other parts of the country, we have plants that are looking to try to bring on a little production right now. So it's really a very differential situation in operations. And I feel like we've been at a high level, the last several quarters have felt like this. It hasn't been blowing and going, but it's been pretty healthy, and you got to keep your eye on the ball because at a given plant, it can move on you one way or the other. So not intending to be evasive, it's more that we're just seeing all conditions across the country. And outside of the Southeast, we have plants that are still edging it up. We did have a number of our plants outside of the Southeast that from quarter 1 to quarter 2 increased production.
Very helpful. And Texas is obviously a big market for MH and bigger now with American Homestar for you. How would you describe that market? We've seen numbers all over the board in terms of the HUD code shipments. So what are you seeing in that market?
Yes. Well, you guys can see the HUD code stuff. I'm looking here year-to-date, it's almost flat, right, year-to-date cumulatively. And in the early summer, it was down just a little bit in Texas. But I'll tell you what we're feeling. Our retail is primarily based in or centered in Texas. That's starting to not be the case as we've expanded, but it's still the core of our retail business. And we had a really, really good quarter in retail. So the market is there. Our retail guys are doing a great job of going and getting it, which pulls through our production. So we're feeling pretty good about Texas in general, I'd say, right now.
Really helpful. Factory-built gross margins ticked up slightly on essentially flat revenue sequentially. Just talk a little bit about your expectations for the next quarter or 2. Do we see a little more input cost pressure, tariffs, or other running through COGS or are these levels that we just saw this quarter reasonably sustainable, Allison?
Yes. I'll give the tough questions to Allison.
No, thank you for the question. When considering margins, it can be challenging to make projections, but let's discuss a few key elements we typically analyze. The resilience of our business model, especially in light of tariffs, has been evident in our focus on maintaining a high variable cost structure and low fixed costs. Regarding overall margins, we assess the average selling price, and I believe we've effectively addressed our position and explored various alternatives. Let's delve into the cost aspect and tariffs, as these are likely areas of interest for investors. We estimate that the tariffs impacted our Q2 expenses by about $2 million, which contributed to our cost of goods. In our Q1 press release, we shared an estimate that the overall impact could reach between $2 million and $5.5 million per quarter if all discussed tariffs were implemented. Since our Q1 earnings release, the Canadian lumber countervailing duties have increased from 14.5% to 35%, which took effect at the end of July this year. Additionally, a 10% tariff was announced on top of that. These tariffs are now fully in place and have reflected the ongoing fluctuations over the past few months. We monitor this closely as these changes will significantly affect the cost of our homes by raising lumber prices for framing, flooring, and roofing, similar to other homebuilders. We continue to emphasize our efficiency and effectiveness as a manufacturer of affordable housing. Our ability to pass on these costs through pricing will largely depend on local market conditions. A recent positive development is the decision to hold off on increasing China tariffs, which should help us lower our estimates. This will prevent some increases we anticipated for electrical and plumbing materials sourced from China through intermediaries. I went into detail on this to provide a comprehensive view rather than breaking it down piece by piece. All these factors are what we're considering. As we've mentioned, the primary components we use include commodities like lumber and OSB, which all builders can access as seen in the spot market. Generally, the rates and levels in the commodity markets will affect our cost of goods in about 60 to 90 days. Does that clarify things a bit?
It does. No, that is great color. One more and I'll jump back in queue...
I'll just add a couple of comments, Dan. When you're looking at Q2 specifically, you might remember that in Q1, we saw product price increases. We had a strong start to the quarter coming out of Q1 with prices up. And then on the cost side, there are many concerns regarding tariff risks, and we're closely monitoring that. However, in this quarter, we have continued to see lumber at a relatively low cost. It's quite surprising considering the Canadian softwood lumber tariffs and duty increases that have been imposed. We are still observing lumber prices at a low level right now, which significantly contributed to our strong gross margin this quarter. Going forward, a lot of our focus will be on addressing these risks.
Very good. That's very helpful. Last, I want to focus on American Homestar. First, how are the numbers you provided when you announced the deal in July trending? I believe you mentioned $194 million in revenue and $18 million in EBITDA. Has there been any change, positive or negative? Secondly, what should we consider regarding the potential impact of acquisition accounting? This has been a topic we've discussed previously in relation to the initial quarters after a deal.
Yes, good questions. We have had the plants for a month, so I don't have a significant update on trends. They will integrate into our existing system of 33 plants, so that's fairly straightforward. They are more focused on the retail side compared to our previous concentration, which will provide a substantial impact from that area. From a business standpoint, they are integrating as part of our operations and are performing similarly to the rest of the business. I believe we will eventually share updates on integration progress, and I anticipate that we will add meaningful value to this acquisition over the next several quarters. I will let someone else address the question on purchase accounting, as they will provide a better explanation, but it is an important aspect that we have considered.
From the acquisition accounting perspective, we think about the potential impact on the consolidated gross margin level, it's probably going to be pretty small. And the reason for that is if we look at this particular acquisition, there is really a high markability to their type of products. So we'll be able to get to market faster and be more successful out of the gate. Also, in addition to that, their inventory levels are extremely rational. So if we compare and contrast this to, say, the previous acquisitions we've done, where we have had an impact to the consolidated margin, we believe that in this particular acquisition, that will really be very low and pretty uneventful.
Our next question comes from Greg Palm with Craig-Hallum.
I wanted to maybe go back to the market or the industry growth or, I guess, lack thereof. I'm pretty sure that the industry reported or will report, I guess, declines on a year-over-year basis in units for the recent quarter. But you've continued to outgrow the industry by a pretty meaningful amount sort of quarter in, quarter out for the last year plus. So maybe you can just better sort of highlight what are you doing right? What are you doing better? What's allowing you to outgrow the industry to that sort of magnitude?
Yes. I appreciate the recognition. I know that there is volatility in market shares from quarter to quarter. So I'm always a little bit hesitant to declare victory. But we've talked about things over time that we've done that I do think are really settling in. A tremendous amount of work over, frankly, a couple of years where we initially really moved forward in digital marketing. And that really didn't completely take hold until we followed that with the rebranding that we did earlier this calendar year. And the rebranding, again, coupled with digital marketing, I think our ability to generate good leads, customers, consumers that are educated on our products has just stepped forward in a dramatic way from those changes. And we're probably at the beginning of really realizing that. I think that was a strategy that unfolded. It took literally a few years to get to where we are, but I think now it's time to make hay with that. We've also talked about structurally, we were certainly different than the other large players in the fact that you know what we always talk about, we treat this as a very local market. We put a lot of decision-making and accountability on our local operations. And we didn't have a national sales team until the last several years. And the work that's been done by that group to just bring better training and accountability to sales teams across our organization, I think, is starting to gain traction. And it also has improved our selling approach to communities and developers because a lot of those communities and developers, when they're larger organizations, they need to have contact at various levels in the organization. And frankly, we had a gap. And so I think we've closed that gap. I could go on and on. I think our product team has done a really good job of innovating product design. So all these things are focused at trying to not just stay with the market, but to try to gain a little share. And I certainly believe that that's impacting the results.
Okay. Yes. That's helpful color. And then shifting to the mix in the quarter. You mentioned more homes from company-owned retail. Do you have that percent for the quarter and how that compares to both year-ago periods as well as sequentially? And just curious what you're seeing thus far in October as it relates to the most recently completed quarter?
Yes, I can take that, Greg. So this quarter, we're about 22.9% that were sold through our retail channel. And that's up sequentially 4% from 18.9% this last quarter. And then year-over-year, the percentage was 21%. So we're up about 1.9% year-over-year.
And any color on, at least from a high level, what you're seeing in October?
I think there has been a continuation in general. I wouldn't say there has been any discontinuity. Retail has been performing well, especially in Texas, where they have really excelled. I believe they are continuing on that positive trajectory, and the market in Texas is supportive enough for them to significantly enhance their results. The percentages mentioned earlier are mainly same-store comparisons. Although we have expanded the system over time, we've maintained around the 80 retail store level during the comparison period of last year. So, it really reflects same store, same footprint improvements on the retail side. Additionally, as for October, it hasn't shown any signs of discontinuity.
Okay. And just remind us as it relates to Homestar, I mean, presumably that number maybe even goes up a little bit more, all else equal because of the proportion of homes that Homestar was going through company-owned stores, right?
That's right. With the Homestar deal, we go from 31 to 33 plants, and we increase from approximately 80 to around 100 on the store side. I believe I'm accurate in stating that their degree of integration through their retail is about 60%. So 60% of their manufactured homes were sold through their company-owned stores. This shift will positively impact that percentage of integration.
Okay. All right. Lastly, I'm going to throw a broad question at you because there's a whole bunch of different things going on, on the regulatory front, whether it's chassis removal or some of the financing stuff zoning. But just curious to get your high-level thoughts on the potential of some of that and obviously, the longer-term impact of some of that stuff goes through.
Yes. One of the updates that was made is to the HUD code, which we see as a positive change. These updates were long overdue. I've previously discussed the collaborative relationship between our industry and HUD; they don’t regulate us, but we work well together. The recent update allows for the construction of duplexes and even four-plexes, which means we can build more multi-family units now. This change has reduced a lot of the bureaucracy that previously required specific letters for code deviations, addressing many of those issues. It also added costs related to the electrical code, such as incorporating more GFI and tamper-resistant outlets, and it adjusted the strength rating for Southern Yellow Pine. While I'm sharing a lot of detailed information, I believe these cost increases are justifiable and necessary. On a broader regulatory level, we've talked previously about the support for chassis removal, which has bipartisan backing. The key challenge is how to incorporate these issues into larger legislation that can pass. Overall, we're optimistic that the chassis removal will foster innovation. We're also advocating for HUD to be recognized as the sole regulator, which would help prevent the issues that arose with the Department of Energy recently. We're working to ensure equal opportunities for all types of ownership in communities to expand housing options. There’s much happening in Washington, D.C., including significant regulatory changes. I'm always interested in how these changes will progress, as while we may have confidence that they will happen, the actual process can often be unpredictable. We’ll need to stay updated on the timing of these developments. The HUD changes were passed in the Senate as part of the Road Bill and are now pending in the House for consideration.
Our next question comes from Jay McCanless with Wedbush.
So I guess to take the price question a little bit further, you said American Homestar, 60% of their sales go through retail. So at least something more than that 23% going forward. I mean, have you guys even trying to plan out or get an idea internally of what that split could look like?
Yes. I haven't done the calculations, to be honest. It's a straightforward question, but I haven't figured out how much the percentage would increase if everything remained the same. However, you could estimate that our plant ownership is rising. To get an approximation, I would consider that their plants operate similarly to our average plant. So that would be a small increase. Additionally, you have 20 new stores added to what was previously an 80-store retail system, contributing to that percentage. I apologize for not having nailed it down, but I believe we could arrive at a quick estimate.
No, that's fine. I didn't know if that was a statistic you all had ready for the call. I guess the second question is nice to hear a little more about the multi-section business this quarter. Is that something you think will continue? What are you seeing in the backlog right now for the plants?
Yes, we are consistently monitoring the situation and are keen to identify any emerging trends. Recently, we observed a few quarters with minor fluctuations in the opposite direction, and now it seems to be stabilizing slightly. While we have recorded two quarters of an increase in multi as a percentage, I wouldn't classify it as a trend just yet; it seems more like typical variation at this moment.
Got it. And then one last question on pricing. Could you talk about the Southeast region compared to other regions, especially up north? How significant is the pricing difference, and are there some modular units in those northern markets that might increase the average selling price a little bit as well?
I'll have to come back to make sure I understand the second part. The pricing difference, I mean, what's been interesting is that when you look at the change in pricing because obviously, our plants across the country make different products. So it's not apples-to-apples on like a dollar amount of pricing. But the change has held up very strong. And what I was trying to point to is for all the discussion about the drop-off in volume in the Southeast, the Southeast did not give up any pricing. So pricing is holding across the country right now. You asked a question about the Northeast and modular that I'm not sure I captured.
No, I guess let me ask it a better way. If you think about a standard like-for-like single-section home that you sell in your northern markets versus your southern markets, I would assume that there's a price differential just from higher cost markets, et cetera. Is that something you guys have identified or talked about before?
I believe that's generally accurate. Some of the components are modular, and yes, different coatings can increase costs. So, I think you are right. Are you trying to determine if the difference in the mix of non-Southeastern plants compared to Southeastern plants is influencing the increase in average selling prices?
Yes, that's exactly where I'm going for.
I think directionally, it probably is. I don't know that I feel it's that significant, I guess, is what I'd say. I think it couldn't be argued that it's not an upward driver, but I'm not sure it really shows up in the calculations as a significant driver.
Okay. All right. And then the last question I had is about the current chattel rates. Is there any update on the bill since the Senate has passed their version? We need to wait for the government to reopen for the House to pass their side of it. If you could discuss the current chattel rates and any new or interesting updates on the mortgage side that we should be aware of, that would be great.
I want to address the regulatory aspect. There has been significant discussion, and I've been an advocate in Washington for Congress to direct the government-sponsored enterprises to fulfill their duty to serve plans that include chattel lending programs. While I believe the discussion is on the right track, I don't anticipate any immediate developments. So, I wouldn't expect anything significant to emerge from Washington soon, but we are continuing to work on it. As for the rates discussion, I think Mark has the details to share.
Yes. Yes. So on rates, they've been trickling down just a little bit these last 3 months or so, about down 70 basis points to about 8.5%, so mid-8% range now.
Thanks, Jesse. Thanks for the good memory.
High-level question for you, Bill, on kind of the political discourse. Of course, there's been a lot of public chatter between FHFA Director, Pulte and Trump with the larger public site-built homebuilders regarding affordability and increasing production and things of that nature. I was wondering if you've been involved in any conversations where you may be or they may be coming to you in terms of manufactured housing or factory-built housing generally being a solution for affordable housing in this country. Have you been able to kind of input yourself or manufactured housing into those conversations at all over the last couple of months?
I believe that's absolutely the case. I'm speaking not just for myself, but for the entire industry and the industry association, which has done an excellent job. If we look back just a few years, manufactured housing was often overlooked in Washington, D.C., but now it is a central topic of conversation. There has been significant progress in showcasing what our industry can achieve. Both the House and Senate are more aware of manufactured housing now, as I've testified a few times. However, there are still some key actions the federal government could take that would make a real difference. We've discussed issues like the HUD code, the definition of removable chassis, supporting the GSEs, and addressing some of the bureaucratic hurdles often encountered. While I believe they are making efforts in these areas, their ability to directly influence issues is somewhat limited, especially concerning state and local challenges. Zoning issues at those levels significantly restrict the supply of our housing solutions. So, while the federal government can help, their direct impact is less than we might hope. We need to focus on state and local efforts, which is why our industry association is strategically collaborating with states to tackle these challenges. I feel confident that we are not losing visibility or being excluded from essential discussions in D.C. concerning affordable housing at this time.
Great. It's to hear. Next one I think is for Allison on the gross margin. I just maybe want to clarify some things. So it sounded like encouragingly, the tariff impact was at the low end of the $2 million to $5.5 million range in the fiscal second quarter. But given since you gave those numbers last quarter, you've had some incremental tariff increases on Canadian lumber. So it sounds like going forward, you'll be maybe toward the middle to higher end of that $2 million to $5.5 million per quarter range. That's kind of how it sounded. But then I think you made a comment about being encouraged by some other aspects of what you're seeing that it might be toward the lower end. So just kind of hoping for some clarification on the gross margins.
Thank you for the opportunity to clarify. The range we provided last quarter was $2 million to $5.5 million, which remains valid without considering any new Canadian lumber tariffs and antidumping increases. A relevant point is that the China tariff increase has been postponed, which keeps us closer to that range. However, we are also learning about the recent increases in tariffs on Canadian lumber, which are not included in the $2 million to $5.5 million quarterly range. We have not quantified the impact of these increases yet since there are several factors still in flux. Recently, a 35% tariff increase was implemented at the end of July, and in October, there were discussions about another 10% increase. At this point, it is too early for us to define those costs within the range, but they would be additional expenses on top of the $2 million to $5.5 million per quarter range. I hope that helps.
Yes. That's helpful, Allison. I appreciate that. A couple more. I think on last quarter's call, Bill, you talked about kind of the secondary market, you're maybe holding a few more loans on balance sheet, some fewer loan sales. Have you seen any shift since then in the secondary market's appetite for chattel loans? Yes, we've had a lot of productive discussions, and we're making efforts to establish partnerships that will increase our lending capacity. As we've mentioned several times, we're open to holding these loans to a certain extent, but our preference is to find buyers for the loans we originate. There have been numerous conversations, but I don't have a specific update on any breakthroughs at this moment. Regarding the appetite for these loans, I believe there is interest in the market. It's a challenging process, and many of the parties interested in working with originators like us are those managing insurance funds, which align well with our long-term goals. However, reaching a formal agreement with them is intricate, and while their interest is significant, completing these deals requires considerable effort.
Okay. Two more for me. One on the Southeast, you mentioned that you didn't really give up any pricing in the Southeast, which obviously is encouraging. But on the other hand, how do you think through maintaining price, albeit at kind of lower order rates and shipment rates versus perhaps giving up a little bit of price and trying to stimulate some more demand or some more orders to increase capacity a bit?
It's a good question. It allows me to highlight a different aspect of the Southeast discussion. When I mentioned it earlier, I was aware that it might raise some concerns, but my goal was to emphasize the contrast. The capacity utilization in our system, and likely across the industry, is not at a critical level. Plants are operating and generating profit in the Southeast. Each plant is continually making decisions about pricing strategy. Currently, it's far from a critical situation. Companies feel they are receiving adequate orders, and there hasn't been a strong incentive to aggressively lower prices. Generally, our plants evaluate their product against local market options to ensure their pricing is competitive, and I believe competitors do the same. At this moment, no one is overly concerned about the Southeast's direction, nor has anyone decided to cut prices to gain market share. This is reassuring and suggests there is stability, even if it is lagging compared to the rest of the country in terms of market demand. This environment allows us to maintain our course and make adjustments as necessary going forward.
That's helpful. Yes. I guess it sounds like giving the great commentary on the Northeast that's particularly strong, I guess, has made it sound a little worse than it is in the Southeast on a relative basis.
Yes. To clarify, the strength is evident throughout the entire northern region of the U.S. Outside of the localized Southeast area I mentioned, things are generally quite strong.
I would now like to turn the call back over to Bill Boor for any closing remarks.
Yes. Just real quickly, I know we're coming up on the top of the hour. Executing and shifting markets is really what it's all about in this industry, and we continue to tell you all that from a market perspective, there's uncertainty out there. But I think this quarter, kind of showed the nimble approach that we've embedded in our operations, and we're making real-time adjustments as conditions shift. That's what I think we're focused on here because we know the conditions will change, and we just want to react to them very well. As we've discussed over time, in addition to managing the day-to-day challenges, we've undertaken an upgrade to our ERP system. We rebranded it, as I talked about, that improves the customer experience. We've executed the string of modernization projects we just touched on. We completed the large American Homestar transaction, and it's really exciting to see the entire organization rise to all of these kind of extra challenges, which, by the way, are the things that position us for better performance over the long term, while at the same time, the organization is really delivering the kind of results we've discussed today. So I really want to thank everyone for your interest and for joining us, and we look forward to keeping you updated.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.