Financial snapshots show huge gains.

The Producers: Public Builder Report Card

By Iris Richmond

A glance at the top 10 companies? net income reveals a huge jump over 2000. The group?s average net income was $303 million, three times as much as the year before. The average rose by more than $60 million.

Schuler?s lead in net profits as seen in ?Net Income? chart (below) reflects the boost it received from its purchase of Western Pacific Homes in early 2001 and hints at what D.R. Horton?s numbers could look like next year after purchasing Schuler.

Better balance sheet liquidity, an advantage touted by analysts, will serve builders well now and in the years to come. The ready availability of cash will fund acquisitions, organic growth, share repurchase, and other accretive programs.

Contributing to builders? bottom-line performance is their ability to access long-term capital that offers more favorable terms and reduces debt service. A few years ago, the bulk of builders? debt came from banks. The shorter-term debt ? one to two years ? was used to purchase intermediate-term land.

Today, companies tap the capital debt market, issuing bonds, which extend maturity of the debt to the five- to seven-year time frame. Major advantage: Even if business slowed, they?d be able to turn the land, and generate cash before they?d have to worry about paying back debt.

Ryland Homes, Lennar, KB Home, and D.R. Horton all have no outstanding debt on their bank lines. ?It?s wonderful to be able to tell the banks what to do instead of the other way around,? quips Ryland Homes CEO Chad Dreier.

A second factor affecting net income is that the top handful of companies are starting to realize efficiencies from national purchasing. Both advantages will strengthen over time, creating increasingly formidable adversaries for smaller production builders.

Top 10 by Percent Revenue Change

Builder % Change Gross Revenue
Schuler Homes 133%
K. Hovnanian Enterprises 53%
Meritage Corp. 43%
D.R. Horton 30%
Pulte Corp. 29%
Crossmann Communities 29%
Toll Brothers 23%
Beazer Homes USA 22%
Dominion Homes 21%
Centex Corp. 21%

Top 10 by Net Income

(pre-tax net margin; in millions)

Builder Net Income Pre-tax
Schuler Homes $684 10.0%
Lennar Corp. $418 13.4%
Centex Corp. $371 7.5%
Pulte Corp. $302 N/A
D.R. Horton $281 8.7%
NVR $237 15.0%
Toll Brothers $214 15.0%
KB Home $214 7.1%
M.D.C. Holdings $156 13.4%
Weyerhaeuser Real Estate Co. $149 16.6%

Top Tier in Total Debt

(in millions)

D.R. Horton $2,471
Pulte $2,261
Centex $1,851
KB Home $1,684
Lennar $1,505

Source: Based on trailing 12 months as of Dec. 2001

From Merrill Lynch

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