Whether Pulte Homes' second quarter was good or bad depends on what numbers you look at and who's interpreting them.
"You can see a glass that is half full or half empty," CEO Richard Dugas told analysts during the company's Tuesday morning conference call.
Dugas, focusing on the half-full part, emphasized the improvements seen in the second quarter compared with the first quarter in 2009 versus the second quarter numbers in 2009 compared with the second quarter in 2008.
Net new orders were up 11% from the first quarter, with the company selling in 9% fewer communities. The company's cancellation rate was stable. Backlog was up 28%. And it has made significant progress in reducing speculative home inventory. Then there's the $1.6 billion in cash Pulte has managed to squirrel away. (More earnings details here.
From the half-empty perspective, the company lost $189.5 million, or $0.74 a share, which was higher than the analysts' average prediction. And the year-over-year quarterly comparisons are hard-hitting. Home building revenue fell by 59%, driven by a 54% fall in closings and a 9% fall in selling price.
The one thing the numbers for the first half of the year indisputably show, said Pulte executives, is stability.
"Overall there has been a sense of stability as we move through the weeks and months," said COO Steven Petruska.
Whatever is happening with the market itself, Pulte's big challenge is to return to profitability. "We have to get back to making money," Dugas said bluntly.
The company's large number of speculative homes has been making that an even more elusive task, especially as the company has been meaningfully discounting them to move them off the books in recent months. The inventory of unfinished homes fell 42% in the past year.
That's still far short of the company's goal to have only one finished home available in each community. The spec-lite model is different from other public builders who have been increasing their speculative home inventories because those are what are selling faster for them. Plus, ready-to-move-in homes make it easier for them to close a sale in time to take advantage of the government's $8,000 tax credit for first-time buyers.
Pulte, however, doesn't sell to many first-time buyers, Dugas pointed out, and the margin difference between a "dirt" home sale and a spec home sale is about 600 basis points for Pulte, enough to create a "recipe for margin pressure."
"The goal is profitability, not units," said Dugas. Then, emphasizing the point again later, he said: "Our view is profitability over size every day."
The issue of appraisals coming in short of sales price has impacted Pulte some, executives said, but they have been aggressive about fighting it, not just because it hurts the company's sales revenue for the sale of that house, but because it can depress future sales prices in the neighborhood.
"I would tell you that clearly in 90% of the cases we are challenging the appraisals," said Petruska. "We don't want to hurt our own comps as we move forward. I would tell you that in probably 75% to 80% of the cases, we get some increase in value on the challenged appraisal."
The end result is that it slows closing down by 30 to 45 days. "But it's the right thing to do," Petruska said. "It helps maintain pricing on dirt sales, and it's right for the people in those communities."
Tuesday's earnings call was most likely the last Pulte will hold before it merges with Centex, which is scheduled for this quarter. Shareholders of the two companies are voting on the merger, and the two companies' boards will meet to approve on Aug. 18.
Dugas said the company's estimates of $350 million in yearly savings because of the merger are holding up under current market conditions and more scrutiny. Clearly the merger will result in even more layoffs, though Dugas did not elaborate on the numbers.
"We have already identified almost the entire corporate and field organization that will run the new company," he said. "In many ways it truly will be a new company."
While the company's management is clearly Pulte-centric, Dugas said the company will be using best practices from both companies going forward.
The two companies together will have "unmatched capabilities," he said. "We can see this merger acting as an accelerant for Pulte Homes, allowing us to achieve quickly greater efficiencies."
"The combination of Pulte with Centex will get us there faster," he continued. "It is a powerful combination."