On the back of 619 home deliveries in the fourth quarter of 2010, Standard Pacific CEO Ken Campbell wasn't exactly macho about the $4.3 million in net income the company had to show for its efforts in Q4.
The $4.3 million income minus $23.8 million in one-time costs related to Standard Pacific's significant refinancing of $575.7 million in pre-2016 debt and $2.3 million in impairments totaled to a loss of $21.9 million
What Campbell did enthuse about as he addressed Wall Street home building company analysts Thursday afternoon was what the Standard Pacific team did to achieve that "unimpressive" net income figure and what the government did not do.
In accounting for the 2010 year that was, Campbell outlined three areas--balance sheet management, operations, and strategic planning--in which Standard Pacific executed essentially as planned. As he looks ahead at the 11 months remaining in 2011, Campbell told analysts, "We're excited about the future."
On the finance front, StanPac shifted huge amounts of debt maturities to beyond 2016, believing that the current trajectory of recovery from the downturn meant that it would need more ramp-way to pay back what it owed. What's more, the capitalization plan allowed StanPac to buy almost $400 million in new lots in 2010 and spend another $600 million in 2011 during the softer time of the market when it can get more for less.
Operationally, Standard Pacific disciplined itself to an above 22% gross margin on its delivery of 2,646 new homes in 2010, an industry standard. At the same time, it has redesigned its full line of home plans and plans to net an increase of 20% in neighborhoods across its footprint, with about 50% of the new communities where it operates predominantly in Northern and Southern California.
Campbell's strategic planning for Standard Pacific stems from his belief that the rebound will be so tepid over the next couple of years that the best thing a home building company can do is to buy land at opportunistic lot prices now and operate as lean and profitably as possible on an almost flat pro forma. To that end, Campbell's got general and administrative costs on a level line from quarter to quarter, with sales and compensation costs shifting to reflect increases or decreases in sales volume.
For Standard Pacific, Campbell sees a year ahead that nets out not so different than 2010, with a couple of important distinctions. One is more black ink. The other is community count. All told, he said, StanPac will be opening 60 new communities in 2011 (and will close out on about 30 by the end of the year), netting a 20% increase. Forty of the 60 new neighborhoods, he said, should open in the next five months.
"Our team is really excited about all the new communities. There's a lot of work involved in opening new communities, but that's what they do, and they're having a lot of fun with it," Campbell said.
Despite conventional wisdom that new communities' absorption rates are a little faster coming out of the gate, StanPac is modeling per community pace flat with 2010. At the same time, against a slightly larger universe of new-home deliveries and "taking a little more than our fair share," StanPac does expect order growth in 2011.
Some of the analysts raised concern that commodities inflation may work its way into home builders' costs this year. On that matter, Campbell simply said the costs Standard Pacific was capturing by virtue of doing things smarter with materials, its processes, and design, would offset any materials price pressure.
Campbell sees gross-margin pressure coming from continued downward pressure on prices, at least through the first half of this year, flattening during the third quarter, with a bit of an uptick toward the end of 2011.
The $600 million Standard Pacific will spend on land, Campbell said, more than likely will occur parcel by parcel, most often via developers rather than through banks.
"We haven't found the banks' model to be one that works for us," Campbell said, adding that often those large amorphous property portfolios contain a lot of land StanPac would not want. Rather, he said, the firm would probably pick up most of its new ground by leveraging relationships it's had with developers for many years.
"We're going to put our chairman [Standard Pacific founder Ron Foell] to work," to make the calls to those ranch owners and longtime, mostly California sellers. "$600 million sounds like a lot of money," Campbell said. "But, you get a big deal in California for $30 million, and it's l60 lots."
Ahead, Campbell sees a glacial recovery, calling for about 350,000 new-home deliveries this year, 400,000 in 2012, 500,000 in 2013, and a "normal" rate of about 835,000 in 2015.
"With 2.5 million population growth each year, that means normally an increase of about a million households. They gotta go somewhere, so you have to figure there's pent-up demand."
And, by the way, Campbell added, "It looks like we're going to have a spring selling season, given what we're doing" without federal government stimulus handing home buyers tax credits on their purchases.
In January, he said, traffic and orders are "single-digit" percentages lower than they were this time last year and well ahead of where they were a month ago. So, comping to tax credit-fueled months of January through April 2010 may not be as painful as it might have been.
Beyond that, Campbell said, who knows? "You get past first quarter, and you're crystal-balling."