Home builders everywhere are looking for signs of recovery, but Standard Pacific Homes CEO Ken Campbell remains cautious about getting excited over improving home sales contracts in the last quarter. They could be, after all, just a fluke of seasonality and pent-up demand from an abysmal fourth quarter. “I wouldn’t jump to the conclusion that the market is improving," Campbell said during the company’s conference call Friday, May 8. “I think it is kind of dangerous to extrapolate from current conditions.”
Yet there are a lot of positives. “Where we are today is ahead of where I thought we would be,” he said. “If you wanted to be rosy, you could look at things like the cancellation rate in the first week in May is in the single digits. That hasn’t happened since we’ve started keeping track, five years ago.”
“In the first week of May, we sold more houses than we did in the first week of May last year,” Campbell continued. And, while traffic is down by half, it’s improved in quality.” We are getting less window shoppers. People aren’t doing it for fun as much anymore.”
“We’ve actually raised prices in a couple of communities,” he said. “You probably remember when some of us used to do that in every community every month.”
Still, the Standard Pacific CEO is not convinced those signs of improvement will continue. “I’m still kind of nervous for the second half of the year as unemployment continues to grow," he said.
So the company that Campbell has shrunk to roughly 900 people, down 380 since the end of 2008 and more than 50% since the end of 2007, will continue to cut positions and costs. “We took a pretty big chunk out of it,” Campbell said. “We have got to finish that.” Soon the company’s head count will be closer to 800, he said. Standard Pacific is also continuing to try to build the same quality house less expensively through value engineering and supply chain improvements.
It’s not doing what many other builders are doing--building smaller homes for a lower price point.
“We are going to reinforce our positions at the higher end of the non-Bob Toll business,” Campbell explained. “We are going to stay at this price point that is slightly higher than others. We think the market for this product is big enough.”
And the company is holding the line on deep discounting. While that might lower the number of sales, the improved margins should make up for it, he said.
The builder has also mothballed communities that it thinks have future promise rather than sell homes for less now in those developments. It left the Chicago market completely, spending $7.3 million to exit a joint venture in that market. It’s also moved out of Jacksonville, Fla., and parts of South Florida until things get better. “If we can’t make money, we will just get smaller,” Campbell said.
Campbell said he is thinking about ways to improve Standard Pacific’s high debt margin to give the company a “longer runway.” Separately, he’s considering seeking investment cash so the company will be able to invest in land in 2010 when he expects land prices will be better.
“If I see a great opportunity [this year], I might get frisky and go do something,” he said. “But we think it’s going to get better next year.”
In terms of quarterly numbers, the company logged a $49.5 million net loss or 21 cents a share, for the first quarter of ’09, a performance that solidly beat analysts’ expectations. Asset impairment charges of $30.8 million had a heavy impact on that total. Without the impairments, the company would have come close to break even with a $2.8 million loss. In the same quarter of 2008, it lost $216.9 million in the same quarter of ’08.
It delivered 687 homes in the quarter, versus 1,036 in 2008; the builder had a backlog of 689 homes compared with 1,488 from 2007.
Standard Pacific had $668.3 million in cash on hand on March 31, an increase of $41.9 million from the quarter before.
Home building debt was decreased during the quarter by $75.1 million through repayment of $35 million in bank credit facilities and a discounted purchase of its senior notes for $26.9 million. After the quarter ended, the company paid off the $124.6 million balance on its 5 1/8% notes due this year.
The company managed a positive gross margin of 3.9% percent versus a negative 33.8% from the same quarter of the year before.
Teresa Burney is a senior editor at BIG BUILDER and BUILDER magazines.