Standard Pacific Homes teetered on the edge of profitability during its first quarter, losing just $5 million, compared with a $49.5 million loss the same quarter last year. And that's just fine with CEO Ken Campbell.
Campbell isn't expecting big profits this year. That won't come until more people have jobs again and are confident they will keep them, he told investors during the company's analyst call Monday.
"So OK, let's try to make a little money on our current level of sales, sort of treading water," he said. "I'm more interested in being positioned to grow."
The company took some steps toward being in a growth position by embarking on an active land-buying program in its first quarter-- approving $105 million worth of land purchases, 1,800 lots, and spending $50.8 million. April is expected to be an even heavier land-buying period. Standard Pacific has agreed to buy as much land in April as it did for the whole first quarter, Campbell said.
Standard Pacific isn't buying land because it's desperate; Campbell said it still has about five years worth of lots at current sales rates. And the company has not lowered the returns it pencils into the land buys. It's just that more land deals at the right prices are presenting themselves, he said. Plus, should the market turn, the company will need more land. He also added that the company expects to spend $2 billion on land in the next few years if the prices are right, which should help the company be prepared for a turnaround.
Consequently, Standard Pacific is increasing its community count. It bottomed out last year at 124 and has since climbed to 131. Campbell said he expects to add roughly 10 to 15 new communities by year's end and hold near there for now.
New-home deliveries were 537 for the quarter, a 22% fall from the 687 homes it closed in the same quarter last year. Despite that, gross margins climbed to 22.7% from 17.4% because prices were up 9%, largely because more sales were in the higher-priced and recovering state of California and from cost cutting.
New orders also tell a happier story. They were up 3% from 2009, despite a 20% decrease in the number of selling communities. The absorption rate was at 2 per community versus 1.5 last year. Backlog, too, was up 31% to 821 homes versus 689 in the same quarter of 2009.
Campbell said the company is looking at buying land in all its markets with the exception of Las Vegas. That includes Florida, which is still challenging for Standard Pacific, as is Arizona. The company also reported sales are better in California and North Carolina.
According to executives, some of the price increases in homes are due to lowering the amount the company puts toward incentives, but true price increases aside of that are occurring in California.
In response to an analyst's question about whether the company's capital structure can support a strong growth rate, Campbell said: "We could easily support getting to 8,000 to 9,000 homes without any additional funds and slightly decreasing our current leverage. That's based on estimated costs and the lots that we have got out there [today] and spending money on new land."
"I think if we want to grow faster, then we would have to raise more money," he said. It's not out of the question that the company could sell stock to do that. "If the opportunity was there and the investor markets were enthusiastic, we might do that," he added.
In the meantime, the company will be sticking to its current strategy.
"We like our strategy, and we are not going to change it," Campbell said. "We are focused on profit, not on volume, increasing our focus on quality and customer satisfaction. We are trying to move up the price point, concentrate on California and the move-up buyer."
Again, he said there are no plans to start trying to sell more first-time buyer homes as many other public home builders are doing.
"This demand will come back, and it's just a question of when," Campbell said.