Despite what he called only a "modest selling season," PulteGroup CEO Richard Dugas told analysts Thursday during a conference call that he was "encouraged" by the company's positive performance progression during its 1Q2011. Gross margins, excluding charges and interest expense, improved, putting Pulte, which has struggled to gain efficiencies of scale since its merger with Centex, further down the path to profitability. In fact, Dugas estimated the company's balance sheet would have only one more quarter full of licks to take before being profitable in the back half of 2011. (Read full earnings results here.)

Dugas outlined three factors that contributed to the gross margin improvement: better home costs, a shift in product mix, and more spec discipline.

During the quarter, costs related to home sales fell roughly 20% year over year on a home sale revenue decrease of 25%; however, proportionally, the costs for 1Q2011 ate up a smaller percentage of revenues than they did during the same period of 2010. Moreover, SG&A dropped from $151 million in 1Q2010 to $136 million during the quarter, as the company continued to realize some benefit from its organizational changes during its 4Q2010. Dugas said he expected the company to reach its goal of $100 million in cost savings by the end of the year.

The company also saw some margin lift from the increase in demand in the move-up market. Dugas said there was a significant shift in its sales mix, as the company's active-adult segment gained strength at the expense of the company's entry-level brand. During the quarter, 37% of the company's sales came from its Centex brand, 35% from its Pulte brand, and 28% from its Del Webb brand. This compares with the 2010 mix breakout in which Centex garnered 43% of company sales while Del Webb nabbed 22%; Pulte numbers were unchanged at 35% of sales.

The company's Del Webb brand typically carries better gross margins, executives said. During 1Q2011, Del Webb gross margins came in at 18% versus 15% for Centex and 17% for the Pulte brand. This pattern had been holding steady for the past two to three quarters, executives said.

Moreover, the company was more disciplined when it came to spec sales, a decision that also fluffed margins. Dugas estimated that a dirt sale had anywhere from 300 to 600 basis points of better margin than a spec sale.

Going forward, Dugas said the company's gross margins would continue to improve as the company took advantage of distress deals and brought more communities online. Dugas acknowledged the company was slower than some peers to aggressively pursue new deals, a decision that led to just 5% of sales last year coming from new communities; he said by the end of 2011, 15% of sales should be tracing to new communities.

With respect to land opportunities, Dugas signaled that opportunities for good distressed land deals appeared to be drying up. This trend was somewhat concerning to Dugas, as he said it could create a situation in which builders will run out of good opportunities to open new communities in 2012.

"Lot scarcity is a very real issue," he said, noting that on average it takes 24 to 36 months (or more) to push land through the entitlement process.

With fewer finished lot deals available in the not-so-different coupled with a lengthy entitlement process to make fresh lots available, Dugas foresaw Pulte having a considerable competitive advantage given its land holdings. At quarter end, the company controlled 144,000 lots, of which approximately 30% were developed.