Pulte Homes expects to post second-quarter losses of between $2 and $2.10 a share, it said in its preliminary earnings release after market close Tuesday.
Contributing to the loss were closings that fell 40% year-over-year as well as impairment and land-related charges it is still adding up. Pulte expects the charges to fall in the $740-to- $770-million range, accounting for between $1.85 and $1.92 of the per-share fall.
Pulte had expected to break even or realize a 10-cent-per-share loss in the second quarter, but that estimate didn't include the significant land-related write-offs and impairments or the costs of re-sizing its operations.
The company posted 7,532 net new orders for the second quarter, down 20% compared with the second quarter of 2006. It closed 5,938 homes, 40% fewer than last year. And it has 14,928 units, valued at $5.2 billion, in backlog.
"The difficult conditions that plagued the home building industry in the first quarter of 2007 worsened in the second quarter, with increased competitive pricing pressures, elevated levels of new and resale home inventory, and weak consumer sentiment for housing affecting the entire industry," said Richard J. Dugas Jr., Pulte's president and CEO. "Our strategy of maintaining a healthy balance sheet through properly managing house and land inventory levels along with dramatically lowering SG&A costs continues to be our focus during this challenging operating environment."
Toward that end, Pulte (NYSE: PHM) announced a workforce reduction of 16% in May, which came on top of the 25% cut it made last year and earlier in 2007. Those two reductions should leave the workforce with just over 10,000 employees.
Severance pay and other costs of reducing head count, as well as expenses related to merging some of the company's offices, are adding another write-off for restructuring of about $40 million to the company's balance sheet, the company reported Tuesday.
In a note to investors, Michael Rehaut, home building analyst at J.P. Morgan Securities, said the magnitute of the land charges was in line, percentage-wise, with the other large home building companies and that the 20% decline in sales was close to what the street had estimated. "While disappointed by 2Q's charges, we do not believe them to be necessarily worse than the rest of the industry for the quarter," he wrote. J.P. Morgan is mainting its "overweight" rating on the stock. "We base our rating on PHM's P/B [price-to-book value] of 0.88x, a 13% discount to its large-cap peers, which fairly discounts its outlook for charges, but does not give proper credit to its attractive active-adult segment or below average subprime exposure," wrote Rehaut.
Carl Reichardt, home building analyst with Wachovia Securities, noted that the write downs are the largest by any building company in the current cycle. "After taking into account the current charge, the aggregate charges equal approximately 14.5% of year-end 2005 book value," he wrote in a research note. "With no clear indication of price or absorption stabilization, we believe PHM's results signal substantial impairment activity for most other builders who have not yet reported it."