Standard Pacific Homes’ second quarter results even surprised the company’s new CEO Ken Campbell.
“We weren’t sure we would have a spring selling season and we did,” Campbell told investors during a Thursday afternoon call. “New orders were only down 6% from last year, which was, quite frankly, a surprise to me.”
In addition, the company was able to reduce losses for the quarter to $23 million or 10 cents a share. If it weren’t for impairments, the company would have have produced a profit of a penny per share, even despite mothballing 29% of its communities during the downturn. (Standard Pacific's remaining communities are absorbing 2.7 sales a month.)
Standard Pacific also successfully generated cash over the quarter. The builder sold off excess speculative homes, the sales of which were responsible for plumping the company’s cash on hand to $575 million even after paying back debt.
“I think what this quarter is is confirmation that if we say we’re going to do something, we are going to do it,” Campbell said.
Frankness and shoot-from-the hip responses have become trademarks for Campbell, a corporate turnaround specialist placed in the position last December by MatlinPatterson Global advisors, which invested heavily in the builder last year.
Campbell immediately began slicing the company’s ranks down to meet the market demand. This lowered the company’s SG&A costs by 42% from last year, netting an enviable SG&A percentage of revenue of 14.3%, excluding restructuring costs and 15.9% including them, in this most recent quarter. That compares with 19.3% during the same quarter last year.
The recent sales uptick has slowed company cutbacks for now. “I thought we would make significant additional adjustments, but we didn’t," Campbell said, adding that staffing will be revisited at year’s end.
In terms of sales, the current quarter is likely to be slower, according to Campbell. Early sales numbers have dropped by about 15%, but the CEO said that such a slowdown was typical between the spring and summer selling seasons. “We had a spring selling season, and now it appears we will have a summer selling season," he said.
As a result of these improved sales, Standard Pacific has reached its immediate goal: Not losing money. Of course, break-even isn’t as good as making a profit, Campbell said, but he also added that the current situation certainly beats losing $1.2 billion.
The company’s next task will be to “fine-tune” its debt, probably in the next few weeks, Campbell said. The first target is to move out the due dates for between $125 million and $150 million in debt beyond 2013, either through negotiations with major bond holders or, less likely, the issuance of a new note, he said. The company’s issues with its line of credit and term loans are also on Campbell's agenda, which includes modifying covenants “to make our life a little easier.”
Standard Pacific is also positioning itself to pick up good land at better prices, which is one of next year's corporate goals. “We still believe in 2010 there are going to be some good opportunities to buy land,” Campbell said. Banks "can’t hold their breath forever.”
“We have ramped up our efforts in getting into the loop” to find the right land opportunities, he added. “We have hired a senior fellow who has been working the street for a year or two looking for land opportunities,” he explained, adding the new hire has a lot of experience with California land.
After six months of cuts, general executive upheaval, and operating improvements, Campbell said he is happy with the management team now in place. “I think the gang here proved that they could perform among the best of the home builders,” he said. “We have proved it to ourselves, and, now that we know we can be one of the best, I think that will provide the confidence we need to stay there. We haven’t spent our entire history being one of the best home builders, but I think we are going to stay there.”
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.