This summary is based on the third quarter fiscal 2007 earnings call conducted by Pulte Homes, Inc. (PHM) on October 25, 2007.
Management:
President, Chief Executive Officer, Director: Richard J. Dugas
Vice President, Investor and Corporate Communications: Calvin Boyd
Vice President and Controller: Vincent J. Frees
Chief Financial Officer, Executive Vice President: Roger A. Cregg
Executive Vice President, Chief Operating Officer: Steven C. Petruska
Key Investors Issues
- The company recorded a loss of $3.12 a share compared to a profit of 74 cents a share last year.
- Net income was loss of $787.9 million compared to a net profit of $190.2 million in the year-earlier period
- Revenue fell to $2.47 billion from $3.56 billion a year ago.
Third Quarter Highlights
Net loss was due largely to sizable impairments and land-related charges, along with good will impairments taken during the period.
These charges result from a weak pricing environment in most major markets in which the company operates.
There was approximately $175 million of net cash generated by the company. Goal was to sell and close homes at reasonable prices to generate cash and the company accomplished that.
Backlog at the end of the third quarter stood at 12,000 units, valued at just over $4 billion, the best among public home builders who have reported to date.
During second quarter of 2007, the company announced a restructuring plan designed to reduce SG&A costs and improve operating efficiencies to match the current demand environment for housing. Progress is evident, as SG&A spend was approximately $65 million lower than the same period last year.
On the house inventory front, the company continues to work toward lower spec inventory levels.
Despite this focus, spec levels remain relatively flat, as cancellations ticked up noticeably given the mortgage turmoil so widely reported. The company remains committed to keeping house inventory levels low.
On the land front, it again reduced level of controlled lots, again with the goal of reducing inventory while navigating through this downturn. Short-term goals remain focused on properly managing inventory, having SG&A expenses match the current demand environment, maximizing sales, and overall balance sheet strength.
The third quarter home building net new unit order rate decreased approximately 37% from the third quarter last year, on 7% less communities versus the same quarter last year.
- Revenues from home settlements from the home building operations decreased approximately 31% from the prior year quarter to approximately $2.4 billion.
- Lower revenues for the period were driven primarily by the lower unit closings that were below prior year by approximately 28%.
- The average sales price decreased approximately 4% versus the prior year quarter to an average of $322,000 per home.
- Land sales generated approximately $31 million in total revenues, which is an increase versus the previous year’s quarter of approximately $16 million.
Home building gross profits from home settlements, including home building interest expense, decreased approximately 149% to a loss of approximately $293 million.
Home building gross margins from home settlements as a percentage of revenues was a negative 12.2% compared with 17.1% in the third quarter of 2006.
The decreased margin conversion versus the prior year quarter is attributed to land and community valuation adjustments, in addition to increased selling incentives. Adjusting the current quarter for land and community valuation charges, the gross margin from home settlements as a percentage of revenues was at a run-rate of approximately 13.4% for the quarter.
The third quarter benefited from the impact of prior quarters land and community valuation adjustments by approximately 150 basis points, or $36 million.
