Centex management reaffirmed its commitment to a strong presence is what it considers roughly 30 core markets on Thursday morning in an earnings call with analysts. After announcing that it was leaving Jacksonville, Fla. as well as Michigan in the last quarter, CEO Tim Eller acknowledged that more market retrenching is likely to come.
When asked what the company planned to do with the cash position it was building up, Eller told analysts to expect Centex to build share in markets that could best support the company's quest for smoother and more predictable cash flow--a benefit of the company's move to a sell-and-build model.
Though CFO Cathy Smith declared, "There are no markets improving," Eller tempered the remark by noting that some markets at least felt like they were getting better, largely due to the decreasing competition brought on by the increasing number of smaller private builders going under.
"It's happening with more frequency," Eller said of failing builders. "For us, it reduces capacity. It reduces the overall number of neighborhoods. The market just feels better because we get more of those sales and our pricing power is supported."
He specifically cited Indianapolis as an example. "There is so little competition left that our sales are improving." In the last quarter, Centex pre-sold most of its homes in the market.
Some in the industry are concerned that this situation may prove temporary. As banks take back more land and inventory and eventually put it back on the market to liquidate and recoup some of their investment, many in the industry wonder about the pricing strategy and subsequent effect it may have on active builders.
Eller however, remains optimistic. "It remains to be seen as to how the banks will deal with it. Generally, they are saying they will try to work it out as opposed to flooding the market with inventory."
Eller noted that Centex is seeing more competitors in every market moving toward a transparent pricing model as a "natural progression." Calling it a "scientific process," he noted that Centex finds it best to price to a level that customers can afford.
"Pricing affects impairments and we are hopeful that the bulk is behind us," said Eller. "There could still be some pressure as we need to continue to qualify our buyers," a continuing challenge for the company. That being said, he affirmed, "we won't chase foreclosures."