This summary is based on the third quarter fiscal 2008 earnings call conducted by Pulte Homes Inc. (PHM) on October 23, 2008.
Management:
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President, Chief Executive Officer: Richard Dugas Jr.
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Executive Vice President, Chief Operating Officer: Steven C. Petruska
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Executive Vice President, Chief Financial Officer: Roger A. Cregg
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Vice President, Controller: Vinnie Freeze
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Vice President, Investor and Corporate Communications: Calvin Boyd
Key Investors Issues
- The net loss was $280 million or a loss of $1.11 per share as compared to a net loss of $788 million or a loss of $3.12 per share for the same period last year.
- Revenues from home settlements for home building operations decreased 37% from the prior year to $1.5 billion compared with $2.4 billion in last year''s third quarter.
Year to Date Highlights:
- Pulte Homes'' net loss was $1.1 billion, or $4.48 per share, compared with a $1.4 billion, or $5.48 per share, net loss for the prior year period.
- Consolidated revenues for the period were $4.6 billion, down 27% from $6.4 billion last year.
Third Quarter Highlights
Home building net new unit order rate decreased 34% from last year on 16% less communities versus the same quarter last year and down 12% in communities from the year end 2007.
- Revenues from home settlements for home building operations decreased 37% from the prior year to $1.5 billion compared with $2.4 billion in last year''s third quarter.
- Lower revenues reflected lower unit closings that were below prior year by 28% and the average sales price decreased 13% versus the prior year quarter to an average of $281,000.
- Land sales generated $13 million in total revenues, which is a decrease of $18 million versus the previous year’s quarter.
- Home building gross profits from home settlements including home building interest expense for the quarter was a loss of $90 million, versus a loss of $293 million in the prior year quarter.
Home building gross margins from home settlements as a percentage of revenues was a negative 6% compared with a negative 12.2% in 2007.
- The change in margin conversion versus the prior year quarter is attributed to lower community valuation adjustments in the current quarter, offset by reduced closing volumes and increased selling incentives.
- Interest expense decreased to $53 million versus approximately $98 million in the prior year and included an additional $19 million of expense related to land and community valuation adjustments taken.
- The total gross loss from land sales was $15 million mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition in the amount of approximately $16 million, which is included in the land and cost of sales.
SG&A expenses as a percent of home sales was 12.7% or $192 million, a decrease of $45 million or 19% versus the prior year quarter.
- The current quarter reflected the reduced cost of expenditures in all categories associated with the decline in volume, and also included $3 million in severance related to overhead reductions.
- The home building pretax loss of $302 million resulted in a pretax margin of a negative 19.8% on total homebuilding revenues.
- Backlog from homebuilding operations was 5,885 homes valued at $1.7 billion.
- The pretax income from Pulte’s financial services operations was $10 million or a decrease compared with the previous year’s quarter of $3 million.
The firm continued to experience a favorable product mix shift into the third quarter as funded agency originations were 99% of loans funded from the warehouse line versus 87% for the same period last year.
- Non-agency funded originations fell from 13% of loans funded from the warehouse line last year to 1% this quarter.
- Additionally, within the funded agency originations, FHA loans continued to increase as they were 30% of the loans funded from the warehouse line in the third quarter versus 24% in the second quarter of 2008.
- The level of adjustable rate mortgage products originated decreased from 7% of the origination dollars funded from the warehouse line to approximately 3% this quarter.
- Pulte mortgage’s capture rate was approximately 93% though mortgage origination dollars decreased $549 million or 39% when compared to the same period last year due to the volume decrease in the homebuilder closing activity.
The average FICO scores of loans closed for the period was 736, remaining relatively flat with the second quarter of 2008 and down slightly from 745 for the same period last year.
- The net loss was $280 million or a loss of $1.11 per share as compared to a net loss of $788 million or a loss of $3.12 per share for the same period last year.
- The firm ended with a cash balance of just under $1.2 billion increasing $186 million from the second quarter of this year, and firm had no outstanding balance drawn on the revolving credit facility.
- House and land inventory ended the quarter at approximately $5.2 billion, decreasing approximately $246 million for the second quarter.
- The firm is currently in preliminary discussions with its bank syndicate to amend the current credit agreement for adjustments in the covenant levels.
Cost Structures:
- From the house cost perspective, the firm continues to analyze each phase of construction process to identify opportunities to improve operational efficiencies.
- The supply contained strategies reach beyond the vendors and suppliers and searches for ways to reduce costs directly with manufacturers.
- Pulte looks for better, more efficient ways to deliver materials to the construction site, partnering with the most efficient providers of these building materials and reducing cycle time it takes to build each home.
