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Pulte Homes Fourth Quarter Earnings Call |
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Author: Maclintosh Kuhlengisa
123jump.com
Last Update: 7:12 AM EST February 09 2008
123Jump:
The home builder reported a net loss of $893 million or $3.54 a share from $8 million or 3 cents a share in the prior year due to sizable impairments and land related charges as well as declining revenues. The industry is severely impacted by the housing downturn and the company continues to focus on achieving its internal sales and closing goals and centering on being cash flow positive in all of its communities, by continuing to eliminate land acquisition and development spending.
Investors Question and Answers
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This summary is based on the fourth quarter earnings call conducted by Pulte Homes Inc. (PHM) on January 31, 2008.
Management:
- President, CEO: Richard Dugas
- Executive VP, CFO: Roger Cregg
- Executive VP, COO:] Steve Petruska
- VP Investor and Corporate Communications: Calvin Boyd
Key Investors Issues
- Revenues dropped 34% to $2.9 billion from $4.4 billion in 2006.
- The firm realised a loss of $893 million or $3.54 a share, down from $8 million or 3 cents a share in the prior year.
Full Year Highlights:
- The firm reported consolidated revenues of $9.3 billion, a decrease of 35% from $14 billion in the prior year.
- It also reported a loss of $2.3 billion or $8.94 per share, compared with earnings of $690 million or $2.66 per diluted share in the prior year.
- The Company ended the year with $1.1 billion in cash and no debt outstanding under its $1.86 billion revolving credit facility.
Fourth Quarter Highlights
Consolidated revenues were $2.9 billion, a decline of 34% from prior year revenues of $4.4 billion driven by lower unit closings that were below prior year by 31%.
- Home building net new unit order were 4,562 homes, valued at $1.2 billion down 29% from the last year on 8% less communities.
- The average sales price decreased 6% versus the prior year quarter to an average of $319,000 per home.
- Land sales generated $77 million in total revenues which was an increase from $32 million in the prior year.
- Home building gross profits from home settlements, including homebuilding interest expense for the quarter decreased versus the prior year quarter by approximately 99% to approximately $3 million.
- The Homes'' ending backlog as of December 31, 2007 was valued at $2.5 billion (7,890 homes), compared with a value of $3.6 billion (10,255 homes) at the end of last year''s fourth quarter.
Net loss from continuing operations was $893 million or a loss of $3.54 per share from a net loss of $8 million or 3 cents per share in 2006 on lower sales and margins.
- Gross margins from home settlements as a percentage of revenues was one-tenth of one percent compared to 11% in 2006, attributed to lower closing volumes, land and community valuation adjustments in addition to increased selling incentives.
- Adjusting for land and community valuation charges, the gross margin from home settlements as a percentage of revenues was at a run rate of approximately 11.6%, as the firm benefited from the impact of prior quarter’s land and community valuation adjustments by 338 basis points or $94 million.
- Homebuilding interest expense decreased to $72 million from $93 million in the prior year.
The total gross loss from land sales was $56 million mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition in the amount of $66 million which is included in the land cost of sales.
- The gross profit contribution from specific land sales transactions were $10 million and land sales transactions included single family custom lot sales along with residential and commercial land parcels.
- SG&A expenses as a percentage of home sales was 8.9% or $247 million, a decrease of $59 million versus the prior year quarter.
- Mortgages capture rate was 91% as the mortgage origination dollars decreased $1.2 billion or 42% when compared to the same period last year and this decrease was related to the overall volume decrease in the homebuilder closing activity for the quarter.
- The average FICO score of the loans closed for the period was 738 with 82% of the loans averaging a FICO score greater than or equal to 681.
The firm ended the period with a cash balance of $1.1 billion, increasing $959 million, sequentiallu, while total inventory decreased $780 million.
- House inventory, excluding land decreased $480 million related to the seasonal increase in home closings for the quarter.
- Land inventory excluding adjustments decreased $300 million as land relief offset rolling lot option take downs and land development spending.
- After generating $1 billion in net cash, the firm paid down $25 million on its revolving credit facility and has no outstanding balance drawn on the facility at the end of the quarter.
No shares were repurchased during the quarter and the company has $102 million remaining on its current authorization.
- Settlement revenues declined 35% from the 2006 level as home closing decreased 31% for the same period.
- Average sales price was also down 6% and signups totaled $1.2 billion as the average sales price for signups were 17% lower from the same period a year ago and unit volumes decreased 29% year over year.
Macro-economic Review:
- Factors such as high cancellation rates, elevated supply of for sale homes, both new and existing and the tightening of mortgage availability worsened as the year progressed.
- By the end of the year gross margins remained under pressure as the competition for home sales intensified during this market downturn.
- Consumer confidence continued to be depressed, particularly with higher energy prices and the fear of a recession on the mind of many potential homebuyers.
- The presence of the charges reflected the continued decline in sales and the ongoing pressure on home prices due to increased competition.
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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.
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