This summary is based on the second quarter fiscal 2008 earnings call conducted by Pulte Homes Inc. (PHM) on July 24, 2008.
Management:
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President and Chief Executive Officer: Richard Dugas
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Executive Vice President and Chief Operating Officer:Steve Petruska
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Executive Vice President and CFO:Roger Cregg
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Vice President and Controller:Vincent Frees
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Vice President, Investor and Corporate Communications: Calvin Boyd
Key Investors Issues
- Revenues from homebuilding settlements decreased 18% to $1.6 billion compared with $1.9 billion in 2007.
- The net loss was $158 million or a loss of 63 cents per share as compared to a net loss of $508 million or $2.01 per share for the same period last year.
- The firm generated 5,133 net new orders and closed 5,438 homes.
Half Year Highlights:
- Net loss was $854.6 million, or $3.37 per share, compared with a $593.2 million, or $2.35 per share, net loss for the prior year period.
- Consolidated revenues were $3.1 billion, down 21% from $3.9 billion in 2007.
Second Quarter Highlights
Home building net new unit order rate decreased 32% from the second quarter last year and 16% less communities versus the same quarter last year and down 7% in communities from year end of 2007.
- Revenues from home settlements for the home building operations decreased 18% from $1.9 billion in the prior year to $1.6 billion, reflecting lower unit closings that were below prior year by 8%.
- The average sales price decreased 11% versus the prior year quarter to an average of $286,000 per home.
- The second quarter land sales generated $25 million in total revenues which is a decrease of $66 million versus the previous year’s quarter.
Home building gross profits from home settlements including home building interest expense increased to a profit of $18 million versus a loss of $353 million in 2007.
- Home building gross margins from home settlements as a percentage of revenues was 1.1% compared with a negative 18.6% in 2007, attributable to lower community valuation adjustments in the current quarter offset by reduced closing volumes and increased selling incentives.
- The current quarter benefited from the impact of prior quarters, land and community valuation adjustments by 717 basis points or $111 million.
- Home building interest expense decreased to $39 million versus $96 million in the prior year.
- The firm recorded valuation adjustments on approximately 48 communities of which 31 communities or 65% have been previously impaired.
- Of the $141 million of land and community valuation adjustments approximately 43% or $60 million were related to Del Webb communities.
The total gross loss from land sales was $43 million, with the loss mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition in the amount of $45 million which is included in the land cost sales.
- The gross profit contribution from specific land sales transactions were $2 million for the current quarter.
- Land sales transactions included single family custom lots, several larger residential parcels representing approximately 900 lots along with some smaller commercial land parcels.
- SG&A expenses as a percent of home sales for the quarter was 11.4% or $178 million a decrease of $118 million or 40% versus the prior year quarter.
- The home building pre-tax loss of $221 million resulted in pre-tax margin of approximately negative 14% on total home building revenues.
- The home building operations backlog was 8,254 homes valued at $2.4 billion.
Non-agency funded originations fell from 21% of loans funded from the warehouse line last year to 1% this quarter.
- The net loss was $158 million or a loss of 63 cents per share as compared to a net loss of $508 million or $2.01 per share for the same period last year.
- The firm ended with a cash balance of just under $1 billion decreasing $83 million from the first quarter of this year.
- House and land inventory ended the quarter at $5.7 billion.
- Pulte homes completed a tender of the 2009 senior notes during the quarter paying off approximately $313 million.
Operational Insights:
- High inventory levels for new and existing homes, tighter mortgage liquidity and a weak consumer demand continues to be the calling card for this industry down turn.
- Cash generation, maintaining a lower cost structure and managing inventory levels continue to be the focus.
- The firm is gaining market share in most of the markets and that is also helping to drive down costs even in the face of ever rising commodity prices.
- It will maintain focus on reducing land inventory, limiting future land investment to current projects and take downs on finished lots where absorption paces and margins are acceptable.
- Cancellation rate was 29% essentially flat as compared with both the first quarter and the prior year second quarter and the cancellation rate of 25% for the Del Webb brand reflects it’s out performance versus the traditional Pulte product.
Regional Operations:
- Sign ups for the Northeast operation were down 38% year over year as a high level of unsold homes continue to be the main problem in the Washington DC and Maryland operations along with a weakening demand environment.
- On a modestly positive note, although sales were lower, the market share in the Delaware Valley has risen making the firm the top builder in that market.
- The Southeast which includes the Carolinas, Georgia and Tennessee while their sign ups declined 27% compared with last year’s second quarter.
