In the end, Pulte Homes came close to breaking even for the fourth quarter of 2009, losing $117 million, or $0.31 per share, compared with the $0.19 per share analysts had expected.
But consider the balancing act required for Pulte to come close to equilibrium.
It took an $800 million tax refund, made possible by a recent tax law change, to defray $926 million worth of charges, including a $563 million decrease in goodwill. That was triggered by the company's stock price fall between the Pulte's August merger with Centex and an Oct. 31 testing date. "We fully appreciate that you still have to count all those costs," CEO Richard Dugas told analysts during the company's Tuesday morning conference call.
Negating those two extraordinary, one-off events, he said that Pulte has "significantly moved the needle on profitability."
But Dugas stopped short on promising 2010 in the black, saying only: "We are much closer to being profitable than many expected."
Progress has been made in the company's new orders, which are up 32% combined for Centex and Pulte over the past year. Gross margins, before the impact of impairments, land-related charges, and expenses related to the merger, were another bright spot at 14.2%.
In terms of efficiencies, Dugas said the merger is already on track to save the company $440 million by the end of 2010 and is expected to generate $350 million in annualized savings by the end of 2010's first quarter. The company's SG&A expenses are at $188 million combined, which is a reduction of $17 million from what Pulte's were alone, Dugas said.
Dugas also announced that the company will soon begin to use its new post-merger name, Pulte Group, in honor of the 60th anniversary of Bill Pulte's construction of the company's first home.
The conference call also highlighted Pulte's approach to managing the housing downturn. The company's strategy has diverged from its counterparts in two main ways. First, it has chosen to keep more of its land holdings than other builders, who have generally rushed to sell to generate cash and tax write-offs; and second, Pulte has remained wary of building spec homes as a way of capitalizing on the current tax credit-fueled new-home buyer market.
For example, while Pulte did sell some "non-core assets" at the end of 2009 (which genererated $90 million in revenue and created a loss of $98 million on the deals), the company generally has held onto its land, declaring its holdings are well located and would be difficult to buy back later at its current carrying costs.
Dugas confirmed the company's land-hold strategy Tuesday, saying that the much-predicted flood of bargain priced lots in quality locations has not emerged. "'A' location lots remain scarce," he said. "The company's ample lot position puts Pulte Homes in a very strong position to manage through the downturn."
If Pulte needs liquidity, Dugas said, then the company has extra land to sell to builders. However, with $1.9 million in cash on hand, cash doesn't seem to be a near-term concern for Pulte.
Pulte has also resisted the temptation to build more spec homes in order to have inventory ready for tax-credit buyers, who must sign a contract by April 30 and settle on the home by June 30. Instead, the company has embraced Centex's practice of selling homes prior to construction, which typically generates broader margins on the sale.
"We are firm in our conviction that the large spec buildup only leads to large discounts in the future," Dugas said, adding that Pulte has learned from its past mistakes. "We got caught with a lot of inventory in a bad time in the market, and it depressed our margins dramatically, and we are not going back there, God willing."
Dugas added that he doesn't think the focus on pre-sales, rather than quick delivery homes, has hurt Pulte's sales. "Thirty-two percent growth over pro forma numbers shows that we didn't give up a helluva lot in volume," he said.
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.
Learn more about markets featured in this article: Detroit, MI.