R. Chad Dreier, CEO, Ryland
I think next year's going to be very good for the big builders in general and particularly for Ryland. Our focus is the same as last year: to grow internally. You've got to be number three or four in the market; that takes cash and staying power, which we have.
We continue to increase margin and to increase our rebates. We get $1,350 per house; that's $400 better than last year. Our goal is to get more. Another thing we try to focus on is options and upgrades, which now average $5,000 per house. Purchasing is another focus. About 52 percent of our stuff has some kind of [manufacturer] contract. I think over the next five years, you're going to see that increase.
We look forward to next year. We love to compete. Regarding land, we have every lot we need for next year, and we're about 60 percent covered for 2004. The things that scare me, aside from the uncertainty of Iraq, are high unemployment and high interest rates, and I don't see that on the horizon.
Stuart Miller, CEO, Lennar
As a company, we've done a lot of work this year to set ourselves up for a successful 2003. We concluded nine acquisitions this year and expanded our geographic scope. Because each of the acquisitions was extremely well planned, we don't have a lot of internal work to do to digest those operations. We continue to be focused on new opportunities; consolidation will continue. By no means will Lennar be sidelined in 2003 simply because we were so active [in merger activity] this year.
As we look ahead to the challenges we face, we see general economic conditions that could affect the larger market overall. As always, we'll be very focused on our balance sheet. With a cash position in excess of $500,000, we expect to have a balance sheet that is very liquid. We are constantly focused on leveraging volume to achieve greater purchasing power.
Andrew Hannigan, president and CEO, Centex Homes
Our top priority this coming year is to continue our strategy for quality growth in our company. We want to grow the top line by 20 percent. As our neighborhoods increase in number from 500 to 600, that will require a lot of new-employee training. On average, we have two field managers and two salespeople in each community, so we can expect to bring in 400 new people — nearly a 10 percent addition to our company. We've identified 10 of the top 50 markets that we're not in — primarily the Midwest and Northeast. We've prioritized those by size, and have already started with the acquisition of The Jones Co. in St. Louis.
We're looking for benefits on margin enhancement through our use of technology in purchasing, sales, estimating, scheduling, and construction. Among other benefits, this will allow for a 10 percent increase in the number of homes our field supervisors would be able to carry.
I'm not too worried about a slowdown. We've had a plan in place that prepares us to help divisions if they are affected. Our issues for 2003 probably stem more from getting neighborhoods permitted. We've found that cities often can't handle the amount of growth that's coming to them. We've tried to get out in front of that by offering them technical expertise.
Mark O'Brien, CEO, Pulte
Our goals haven't changed much. One is to reach $10 per share (Pulte's share price as of mid-November was $7.00). Quality continues to be critical and so are our supply chain initiatives. We need to continue to advance our four product groups and to control scarce land. We want to dominate in our markets. We have prepared to grow organically. For example, we've begun to expand the Webb brand in Pulte markets, including New Jersey, Massachusetts, and Nevada. There's softness at the upper end, notably the coasts, Denver, and Atlanta. But we expect entry level and low-end strength to continue.
Don Tomnitz, CEO, D.R. Horton
Top of mind for us are our people. They continue to perform, and we continue to aggregate market share. We have 52
division presidents. I want them to focus on hitting the budgets and on improving pretax income. Each division should increase pretax income next year on an annual year-to-year basis by 20 percent. I tell them, 'If our Austin division can get 27 percent market share, so can other divisions.' There are advantages of being at the top in a market. You should be able to see the best land deals first and at the best prices. We continue to see an advantage there. Through efficient purchasing, we enhanced our savings by $2,200 per unit. Third, our capital is 500 basis points less expensive than the mid-size builders. Along with our 100-basis point advantage on land and the same on purchasing, we can build side by side [with competitors] and provide home buyers with less expensive homes and continuing warranty service.
Our acquisitions pushed our debt to cap[italization] to just over 51 percent. A goal of ours for next year is to get debt to cap down to the mid 40s.
Bruce Karatz, CEO, KB Home
As we sit here in the fall of 2002, there is the likelihood that the overall U.S. economy will stay soft but that home building will chug along nicely. There's not the kind of job creation we'd all like to see, but 2003 should be very good. At KB Home, we continue to focus on immigrant buyers and to find better, more effective ways to communicate with them. Our call center has five-language capability, and we have recruited more Spanish-speaking personnel at our mortgage company and sales operations. We think we're particularly well situated in our markets to reach these buyers; it is part of our reason for expanding to Florida.
Overall, there are several challenges. The macroeconomic picture is something we don't control. We have to hope we're not headed for a double dip recession — and I don't think we are. Insurance, particularly in California, is another challenge. The thing we can control is the way local government looks at development. We have to be actively involved in the local process, not simply asking for approvals, but making the case that housing is an integral part of the picture — that it's just as important as schools and infrastructure.
Ara Hovnanian, CEO, K. Hovnanian Enterprises
Next year, we'll be focused on numerous things. It will be an important year for us in terms of our technology effort. We're also doing a complete review of our operating processes and looking at our best practices company-wide to determine how to maximize efficiency. This has begun with a pilot in our Virginia division.
I'm always cautious about the overall market outlook. But our excess cash gives us the confidence to know that whatever the economy may throw our way we can handle. The underlying foundation is demographics, and that's predictable: Over the next 10 years, we're creating 11.2 million new households.
Antonio B. Mon, CEO, Technical Olympic
We have a significant opportunity to grow organically, particularly in Florida, Texas, and Northern Virginia. In Orlando, we expect to gain significant market share; in Jacksonville, we are already growing dramatically. We're now the fourth largest, and we think we can get to second or third. We are market driven; we like to move up and down with the food chain. We are primarily a move-up builder, with an average selling price of $260,000. Our strategy is to preserve that market position but to capture additional volume by moving down to lower price points, stopping short of entry level.
For some time, we've been focused broadly on the supply chain, and we're beginning to see the benefits. Other internal changes for us include the integration of our mortgage business and title companies.
Our goal is to be among the top five builders in each market and to be a well-run business. We look at this coming year as an opportunity. We're not afraid of competition.
Bert Selva, CEO, Shea Homes
Rather than undertake any big changes, we're working on continually refining all our processes. As always, we're focused on the customer, particularly to improve post-move-in service. We're also studying how to give customers the features they want. We've begun putting more cost into kitchens, master bath, front elevations, and entries — the areas customers care most about — and not necessarily load up the house with the highest level of products. We're looking ahead to the fact that  could be a slower year. So, our ongoing attention to core fundamentals, including managing inventories and our balance sheet, will continue. As a very profit-driven company, we're always looking for ways to make our homes more efficient.
The major challenge for us is the lengthening entitlement process. In addition, increasing insurance costs are bumping up housing prices. Fortunately, we've got a pretty good land base. That's where we have an advantage over public companies; we can buy a big piece of property without concern of having it on the balance sheet. This also means we have the opportunity to buy wholesale and get nice margins.
Mostly because of the uncertainty over Iraq, we're seeing a little bit of slower traffic. However, our conversion rate has gone up, so the serious buyers are still coming.
Larry Mizel, CEO, M.D.C. Holdings
Photo: Courtesy M.D.C. Holdings
As I look out to the challenges of 2003, I think it's very, very important to focus on each market that we're located in, in order to continuously reassure ourselves that the product we're developing is hitting the sweet spot of the market. Across our different price points, we must be sure we're creating value for the consumer. That means providing a home whose design and experience is one that you can not only see with your eye but you can feel with intuitive instincts. That is a very subtle nuance that we work on. The merchandising and the design is something we spend a lot of time developing. Our strategy is to achieve small, controlled growth. We are such a dominant player in these large markets, we feel we can be selective in how we grow. Our goal over the next 5 years is to beat the marketplace on the top and the bottom line by 15 percent compound annual rate of return.
Our business focus is to maintain a very high quality financial picture. We have no off-balance liability, we have no goodwill; we have a debt-to-cap[italization] of 35 percent to 45 percent.
Two primary challenges are to continue to enhance the quality of our employees through training and to continue to upgrade design and technology. We expect to stick with the basics.
Published in BIG BUILDER Magazine, December 2002