Pulte Homes' merger with Centex in August makes it difficult to compare how the company performed in its third quarter this year versus last. There were tons of merger costs, and adding the two companies' results together muddle the numbers.
But, rest assured, CEO Richard Dugas told investors Wednesday morning, "Peel back the onion, however, and you will see we are making progress."
While the company booked a net loss of $361 million, or $1.15 a share, much of that was consumed with land impairments ($164 million), merger-related costs ($87 million), and a $47 million charge related to debt payoffs.
Dugas emphasized that the merger is creating bigger cost savings faster than expected. The company had expected the merger would create synergy savings of $350 million a year, and estimates have climbed to $440 million plus another $150 to $200 million in purchasing savings.
"The rationale [for the merger] has grown more compelling in the months since" the merger, Dugas says.
The company has sorted out Centex's assets and liabilities and determined that, in the end, Pulte paid $1.5 billion for the company.
In addition to Centex's brand names, which include more entry-level products and access to markets such as Texas and the Carolinas where Pulte had less of a presence, Pulte also acquired Centex's land assets in the deal--61,988 at the end of September. The combined company has 176,727 lots, 153,618 owned.
That should be enough land supply to last Pulte for awhile. While other builders sold their land at discounts, Pulte has held fast to much of its land inventory. Dugas has argued that the company likes its land assets and that it would cost more to replace them when the market returns.
On Wednesday, Dugas reasserted his belief in the company's land-holding tactic, pointing out that, by and large, banks are holding on to their land and not selling it at bargain prices. He said the few deals for the best land that are happening have a lot of competitive bids from builders desperate to replenish their land supply with lower-cost lots.
"We are left with a well-located and diversified portfolio that is properly valued," Dugas said. "We feel that over time the value in this dirt will show itself."
While Pulte executives dominate the roster of the newly merged Pulte, the company is adopting some of Centex's operating principals, including a push toward selling homes that are built to order, rather than speculative homes, because they tend to yield greater margins and also Centex's cadence model of construction. Cadence applies manufacturing techniques to home building that call for a steady number of homes to be in various stages of construction at all times, evening the flow of the process and creating savings through efficiencies.
Dugas said the company's focus away from building speculative inventory may have caused the builder some loss in sales that might have been generated through the new home buyer tax credit.