Alicia MacPhee, Pulte Homes' director of sales for the Georgia division, had spent a frustrating day six years ago trying to secure the rights in Acworth, Ga., to post advertising signs for a new Pulte development. "Signage is everything in an area like this," she says. "But at the end of the day, I had nothing."

Knowing it was critical to secure promotional space, Richard J. Dugas Jr., a passionate president for Pulte's affordable Canterbury Communities, accompanied her the next day to lend a hand. "He ended up not paying a dime and got restaurants, a preschool, shops all to agree," says MacPhee. "His biggest asset is ... he's a fabulous communicator."

That, his quick command of details, and a deep understanding of process improvement, among other strengths, helped propel Dugas to the company's top ranks before Pulte's board agreed he was the best candidate to take command as the company's newest president and CEO, effective July 1.

Those strengths will clearly be put to the test. Dugas inherits the helm at a time when Pulte's financial benchmarks tend to trail its peers', and concern for employee morale continues to cause turbulence below the water line. He also comes in as the third CEO for Pulte in less than two years, succeeding Mark O'Brien, who moved from COO to CEO in January of 2002 just as the company had closed on its acquisition of Del Webb, but who ultimately stepped down after a long career at Pulte.

"Obviously, it doesn't give us the same level of consistency that you have at Lennar, Toll, Centex, etc.," says Joe Sroka, of Merrill Lynch, "but I don't think it has proven to be a major liability."

"The smartest way for us to grow,with the least risk and greatest potential, is to grow within the markets we already have." -- Richard Dugas, president and CEO, Pulte Homes However, Dugas may be in a stronger position than his predecessor to unify the company's strengths and move it forward.

He has moved quickly to develop his strategy for growth, framing his focus around three core initiatives: developing great leaders in the company; more clearly delineating Pulte's product offering along 11 well-defined consumer customer groups; and using his process-improvement experience to take Pulte to a higher level of operational excellence (see "Dugas Sets New Course").

Pulte should also get life from its July 2 acquisition of Sivage-Thomas Homes. The Albuquerque, N.M., builder of 1,100 homes last year adds depth to Pulte's entry-level business and increases presence in Phoenix, Tucson, and New Mexico. And the company reported record second- quarter earnings, up 35 percent to $122 million from continuing operation on $2 billion in revenues. Its backlog, the company says, is valued at more than $4.2 billion.

Out of the Shadows

Pulte employees in the field and at the division level say they have genuinely been impressed by Dugas' unpretentious manner, awed by his ability to remember everyone's name, and inspired by his integrity. Many people on the public side of the industry, however, say they don't know much about Pulte's dynamic new front man.

Since joining Pulte in 1994, Dugas has had the benefit of being mentored by industry veterans and the foresight to surround himself with experts in a wide range of business disciplines. Those who've worked with him say it's his knack for facts and analysis, fueled by his passion for the business, that has set him apart from his peers and helped him capture one of the industry's top executive spots -- all by the age of 38.

While he was growing up in Louisiana, Dugas' work ethic surfaced early. He sold archery equipment in his father's sporting goods store to put himself through Louisiana State University. In 1986, he applied his marketing degree to a traditional position with Exxon, running company-operated service stations and supporting field regions with brand initiatives. After learning the ropes in a technical environment, he left in 1990 to join PepsiCo's marketing organization. It was there that he worked his way into the process-improvement/total quality management (TQM) arena and developed the skills to build businesses from the process perspective. As the TQM philosophy began to migrate into the building industry, his experience in that area led to his recruitment by Pulte in 1994.

Working at the corporate office in Bloomfield Hills, Mich., Dugas entered the company as the vice president of process improvement, working directly for then-CEO Bob Burgess. The 18-month stint and his results-oriented business practices brought exposure as well as attention. In 1996, Dugas moved to Atlanta as brand manager and started an entry-level business that ultimately doubled the division's size; sales increased from 900 to more than 2,000 units in a little more than three years. He became division president in 1997 and continued to expand his responsibilities throughout Georgia, the Carolinas, and Tennessee as coastal region president in 2000. In May of 2002, he returned to the corporate office as executive vice president and COO until his most recent promotion, which took effect just one day before Pulte announced it had acquired Sivage-Thomas Homes.

Richard J. Dugas

In Lafayette, La.
Graduated in 1986 with a B.S. in marketing from Louisiana State University
Married to wife Susan since 1989 with whom he has three daughters: Lauren (12), Sarah (10), and Julia (6)
Favorite Musician:
Elton John
Last Book Read:
Wooden by Steve Jamison
Favorite Movie:
"Shawshank Redemption"
His father

Favorite Wine:
LaCrema Chardonnay

Spends His Spare Time:
Fishing "for any kind of fish, anywhere," water skiing with his kids on local Michigan lakes, jogging, and strength training

In these positions, he has gained a reputation as a leader in everything he does. "Richard can go in and get everyone together without trying to intimidate people," says developer John Cowart, president of John Cowart Properties in Norcross, Ga. "He's very talented, and he commands respect just by being himself. It comes naturally. It's a very special trait."

"He has always been one step ahead of the next guy," says MacPhee. "He has immersed himself in this business and has had hands-on experience in every part of it." MacPhee, who worked with Dugas from 1997 to 2002, has seen him dig in wherever he was needed: signing up new home buyers and taking lot deposits, even working the night shift in freezing conditions building a Habitat for Humanity house. "He's no stuffed shirt," says MacPhee. "He never asked us to do something he hasn't done himself."

Dugas describes himself much the same way. "I would like to think that folks don't wash the streets down before I come to town," says Dugas. "I think I'm an easy-to-talk-to executive, and I just want people to tell me the truth."

Facing the Financials

One area where the truth is plain is Pulte's recent financial performance, which has fallen behind compared with that of other big builders. "Relative to the industry, they're definitely not beating anybody in pretty much everything," says Ivy Zelman, senior analyst with Credit Suisse First Boston in New York City. "They don't stack up well to any of the other companies in the [public builder] universe with respect to the one-page metrics that we look at," she says.

That's not entirely true. Pulte's revenue growth of 25.6 percent (as measured by the sales three-year CAGR) exceeds the industry median of 16.4 percent. And its debt-to-total-capital structure is more or less in line with the industry median (43.2 percent vs. 45.4 percent for the industry). However, the company's operations are less profitable than those of the industry as measured by the LTM (last 12 months) EBIT (earnings before interest and taxes) margins -- at 11.0 percent compared with the industry median of 12.83 percent.

Additionally, compound annual earnings per share growth rates (both three- and five-year) are forecasted to be below the industry medians. All this considered, it's no surprise to see that the market is assigning Pulte a P/E ratio below the industry median (see "Pulte Financial Snapshot" below).

Pulte's recent financial results and the belief among some analysts that the Del Webb deal has not performed up to Pulte's financial expectations were among reasons suggested for what prompted O'Brien's somewhat sudden departure.

These are claims Dugas strongly refutes: "That's absolute bunk," says Dugas. "My personal goal with Wall Street is to educate Wall Street about Pulte homes -- Why are we different? What sets us apart from the competitors?" In his mind, there are three differentiators:

  • Complete Product Offering -- "We're the only major builder with the stated goal to serve buyers in all four market segments." Currently, Pulte's business consists of 23 percent first-time/affordable closings, 20 percent first move-up, 20 percent second move-up, and 37 percent active adult.

  • Geographic Coverage -- "We have the largest geographic footprint of any of the national builders, and we feel that's a real competitive strength." While one part of the country may be weak, it's likely to be offset by another area that is growing aggressively. "We feel that makes us a good long-term value."

  • Leading Active-Adult Brand -- "Del Webb gives us the best brand in home building. The active-adult sector represents the largest and fastest-growing demographic in the country. We think it's a terrific place to be invested."

The Del Webb Factor

The Del Webb deal is an important element in Pulte's strategy. As Pulte approaches the two-year anniversary of the Del Webb acquisition, the companies' operations are now fully integrated. And Mark O'Brien and Bob Burgess get the credit for making Pulte and Del Webb one company.

Now under Dugas, Pulte is banking on leveraging the Del Webb brand. The active-adult segment is a "huge, huge piece for us as a company," says Dugas. "We're exporting the Webb model into as many of the markets that we build in as we possibly can." While many of Del Webb's veterans are no longer part of the combined organization, Pulte claims its recent expansion efforts have been encouraging.

The newest active-adult communities are opening with reportedly great success in New Jersey, Massachusetts, and Colorado -- with a total of 16 communities planned for the year. The fact that many of these communities will pop up in non-traditional markets is only the beginning.

"From a financial perspective, the size of the communities will make a lot more sense," says Dugas. "In some geographic areas, we want large, lavishly amenitized communities." In contrast, some locations may feature more modest-size communities than Webb developments of the past. "What we want is a blend going forward," says Dugas. Regardless of the size, "Pulte intends to retain all the lifestyle characteristics of the Del Webb brand."

How important is Del Webb to Pulte's financial future? "I wouldn't say it's the key to their future success," says Merrill Lynch's Sroka. "But I'd say it's the key to their incremental success. This is them saying, 'We recognize this market demand issue. And [buying Del Webb] is the fastest, biggest way to play it.' Unfortunately, it's not something you see play out in one or two quarters of reported earnings."

Despite the challenges, Dugas remains characteristically upbeat, open, and pragmatic. "I don't believe there is any magic banana," says Dugas. "I think success is achieved by a combination of good ideas, well-executed, hard work, and the old-fashioned kind of approach."

Pulte Financial Snapshot
Pulte Homes Industry Median
Sales (3-yr CAGR) 25.6% 16.4%
LTM EBIT Margins 11.0% 12.8%
Debt to Capital Ratio 43.2% 45.4%
Interest Coverage Ratios 5.5 6.1
EPS Growth (3-yr CAGR) 20.9% 30.6%
Return on Equity 18.1% 22.7%
PE Ratio - 2003 7.0 7.4
Price to Book Ratio 1.4 1.7
Goodwill (as % of Equity) 15% 10%
Inventory Turns 1.3 1.5
Source: Credit Suisse First Boston, August 2003, Housing Monthly Report
Industry Median Includes: Beazer Homes, Centex, D.R. Horton, Hovnanian Enterprises, KB Home, Lennar, MDC Holdings, M/I Schottenstein, NVR, Pulte, Ryland, Standard Pacific, Toll Brothers, WCI Communities

Learn more about markets featured in this article: Atlanta, GA.