The Aphorism, “A Rising Tide Lifts All Boats” May Define Clayton Homes’ Value To The Manufactured Housing Industry.
Warren Buffett’s yearly check-in with his shareholders is a closely watched event, both on Wall Street and on Main Street. The 87-year-old billionaire CEO of Omaha-based Berkshire Hathaway wrote in his folksy and blunt style about his 2017 successes, bemoaned a lack of good deals, shared his thoughts about building wealth, and analyzed Berkshire-held investments — including the accomplishments of Clayton Homes.
Berkshire Posted $29 Billion Gain From December Tax Cut Law, Says Buffett’s Letter
According to Buffett’s letter, published on February 24th, Berkshire Hathaway saw its net worth grow $65.3 billion last year, boosting its per share book value by 23%. He noted, however, that only $36 billion came from Berkshire’s business operations.
“The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code,” he explained. The new law cut the corporate tax rate from 35% down to 21%, a change that has boosted the earnings of scores of U.S. companies.
He did let investors know why Berkshire Hathaway, which is now sitting on a record $116 billion in cash, didn’t pull the trigger on any mega-deals last year. The biggest thing missing from the deals Buffett reviewed was one of the key qualities he looks for when buying a company: “a sensible purchase price.”
Holding himself and his company to this standard, Buffett couldn’t find much to buy in 2017. He did write in his shareholder letter that the company had entered into a partnership agreement to purchase Pilot Corp. based in Knoxville, Tennessee, initiated by Kevin Clayton, CEO of Clayton Homes. This was the one of the few “sensible” acquisitions the company was able to make in 2017. Pilot Roadside Services manages 27,000 associates at about 750 locations throughout North America.
Clayton Homes To Expand On-Site Building Operations, But Emphasis Remains Manufactured Homes
A longer East Tennessee holding of Berkshire Hathaway also was noted in Buffett’s letter:
“ Clayton Homes acquired two builders of conventional homes during 2017, a move that more than doubled their presence in a field that Clayton only entered three years ago. With these additions — Oakwood Homes in Colorado and Harris Doyle in Birmingham — expectations are that 2018 site-building volume will exceed $1 billion.”
“Clayton’s emphasis, nonetheless, remains manufactured homes, both their construction and their financing. In 2017 Clayton sold 19,168 units through its own retail operation and sold wholesale another 26,706 units to independent retailers. All told, Clayton accounted for 49% of the manufactured home market last year. That industry-leading share — about three times what our nearest competitor did — is a far cry from the 13% Clayton achieved in 2003, the year it joined Berkshire.”
Is Clayton’s Success and Dominance Good For The Overall Manufactured Housing Industry?
The aphorism “a rising tide lifts all boats” may define Clayton’s value to the manufactured housing industry.
The meteoric rise of Clayton Homes to dominate the factory-built housing industry is quite remarkable, considering the housing crash and recession of 2008-2010 that, for all intents and purposes, could have virtually eliminated the industry.
Many of us that tried to survive that dark period will recall the disappearance of retail and wholesale financing sources available to retailers and manufacturers, with over half of all independent retailers and several major manufacturers forced into bankruptcy or shuttering their doors.
Clayton was the exception; they had the resources to weather the financial storm. The company was able to prop up many independent retailers by providing a wholesale and retail financing source, as well as acquire several manufactured home builders. These builders include some of manufactured housing’s oldest and most respected brands — that would otherwise have been forced to leave the industry. In addition, by carrying homes from a variety of builders at their retail locations, Clayton was able to stimulate competition among home builders to drive the overall growth of the industry — while also ensuring the quality of their own product and the greater satisfaction of both their customers and their employees.
It’s only natural for some in the industry to complain that Clayton is monopolistic and self-serving. Others will say they are shrewd and opportunistic. Perhaps we should visualize where we’d be today without their contributions to the benefit of the industry as a whole.