This summary is based on the first quarter fiscal 2008 earnings call conducted by Pulte Homes Inc. (PHM) on April 24, 2008.
Management:
-
President and Chief Executive Officer: Richard J. Dugas, Jr.
-
Executive vice President and Chief Operating Officer: Roger A. Cregg
-
Vice President and Controller: Vincent J. Frees
-
Executive Vice President and Chief Operating Officer: Steve Petruska
-
Investor Relations: Calvin Boyd
Key Investors Issues
- The company reported a net loss of $696.1 million, or $2.75 per share, compared with an $85.7 million or 34 cents net loss in 2007.
- Consolidated revenues were $1.4 billion, a decline of 23% from prior year revenues of $1.9 billion.
- Net new home orders were 5,402 homes, valued at $1.5 billion, which represent declines of 36% and 50%.
First Quarter Highlights
The company reported a net loss of $696.1 million, or $2.75 per share, compared with an $85.7 million net loss for the prior year or 34 cents per share as the environment remains depressed.
- The net loss included $663.6 million of pre-tax charges related to inventory impairments and other land-related charges.
- Consolidated revenues were $1.4 billion, a decline of 23% from prior year revenues of $1.9 billion.
- Settlement revenues declined 22% as home closings decreased 13% for the same period and average sales price were also down 11%.
- Sign-ups totaled $1.5 billion as the average sales price for sing-ups were 21% lower from the same period a year ago and unit volumes decreased by 36% year-over-year.
- Net new order dollars represent a composite of new order dollars combined with other movements of dollars and backlog related to cancellations and change orders.
Homebuilding net new owner rate decreased approximately 36% from the first quarter last year, as revenues from home settlements for the home building operations decreased 22% from the prior year quarter to $1.4 billion.
- Lower revenues reflected lower unit closings that were below prior year by approximately 13%.
- The average sales price decreased 11% versus the prior year quarter to an average of $295,000 per home.
- Land sales generated approximately $2 million total revenues which is a decrease of the previous years quarter which was approximately $39 million.
- Home building gross profits from home settlements, including home building interest expense for the quarter decreased versus the prior year quarter by 330% to a loss of $449 million.
Home building gross margins from home settlements, as a percentage of revenues, was a negative 32.1% compared with 10.9% in 2007, with the decrease attributed to lower closing volumes, land and community valuation adjustments, in addition to increased selling incentives.
- The current quarter benefited from the impact of prior quarters’ land and community valuation adjustments by approximately 486 basis points for approximately $68 million.
- Additionally, home building interest expense increased to approximately $58 million versus $48 million in the prior year.
- The firm tested approximately 175 communities for potential impairment and valuation adjustments and recorded valuation adjustments on 150 communities, of which 80 communities, or 53% have been previously impaired.
- The total gross loss from land sales posted for the quarter was approximately $63 million due to the fair market value adjustment for land being held for disposition.
The gross profit contribution from specific sales transactions were $1 million for the current quarter, with land sale transactions including single family custom lot sales along with residential and commercial land parcels.
- About 68% or $449 million of the total charges for the quarter were concentrated in the Florida and Southwest recording segments.
- The market conditions throughout these segments continue to be challenged to an oversupply of new and existing home inventory, low buyer demand, and a declining market price environment.
- In the Southwest segment, 47% of the charges were related to communities not yet open to sale, resulting from the deteriorating market pricing and the start-up timing in life of each phase.
- SC&A expenses as a percent of home sales for the quarter was 14.5%, or $202 million, a decrease of $80 million in the prior years quarter.
- Home building operations backlog was 8,559 homes valued at $2.6 billion.
-
Financial Services Operations income of $15 million, was up $2 million due to the adoption of two new accounting pronouncements.
- These led to the recognition of approximately $8 million of revenue offset by lower revenues by decreased volumes of approximately $6 million.
- Non-agency originations fell from 29% of origination dollars funded last year to 4% this quarter.
- The level of adjustable rate mortgage product originated decreased from 15% of origination dollars funded from the warehouse line in 2007 to 4% this quarter.
- Pulte Mortgage capture rate was 90% and mortgage origination dollars decreased by $340 million or 30% as a result of the volume decrease in the home builder closing activity for the quarter.
- Average FICO scores for loans closed for the period was 741 versus a score of 744 for the same period last year.
Operational Perspectives:
- The home-building environment has continued to erode during the first three months of 2008, as extremely high levels of inventory, primarily existing home inventory, combined with very weak demand for new housing, has left the industry in a difficult spot.
- Despite the significant headwinds the entire industry is encountering, Pulte made progress in many key areas in the first quarter.
- The firm had $1.1 billion of cash on hand and no debt outstanding under the revolving credit facility.
This level of cash was higher than internal projections largely due to relatively strong sales and closings bringing cash in, plus the receipt of a $212 Million tax refund in the first quarter.
- Lower overhead costs were a result of SC&A expenses being significantly lower than last years first quarter as the firm continues to size its business for reduced demand levels and the result is a leaner overall structure.
- Across the country the overall sales environment continues to be difficult and there is substantial evidence that downward pressure on sales prices continues for both new and more recently for existing homes.
- Builders are intensely competing for the attention of a diminishing pool of buyers who are ready to make a home purchase decision.
- The firm is encouraged by the recent discussion in Congress to address housing with an eye toward helping the overall US economy and many of the initiative being discussed would certainly aid housing in reaching a level of stabilization so desperately needed.
Strategic Review:
