For Pulte Homes, 2007 was all about figuratively making lemonade out of lemons by literally reaming cash out of a home building market that was rapidly drying up.
"For the home building industry, the year 2007 will likely be remembered as one of the most difficult in decades," Pulte CEO Richard Dugas told analysts during the company's Thursday, Jan. 31, conference call. "We had the first annual loss in the company's 58-year history."
Yet despite Pulte's nearly $2.5 billion losses in 2007, mainly driven by the falling value of the company's land and write downs on deposits on lots and pre-acquisition costs, and a $622 million tax valuation write down, it was able to squirrel away $1.1 billion in cash by year's end.
That achievement seems amazing since roughly $985 million of it was generated in the last quarter. On Sept. 30 of last year, the company reported having only $101 million in cash on hand.
Unlike other large builders who have sold off large chunks of land to generate cash, Pulte said it generated $780 million cash through sales of built-out land and homes, some of them spec. Other cash was generated by not spending as much on buying new land and developing it.
"Unlike some other builders, we are not liquidating our land in bulk," CFO Roger Cregg told analysts. "It's from home sales. We do not anticipate any bulk sales at all."
Instead, for the most part, the company is building out communities that are further developed with infrastructure and the related higher carrying and investment costs while mothballing those that exist as raw land and have little carrying costs.
Last quarter, Dugas had called for holding steady on home pricing and not bending to deep discounts other builders were giving. While still holding that as a goal, company officials said they were still forced to discount in some communities where they are competing against companies that are offering lower prices.
Nobody at Pulte is expecting '08 to be any better a year for sales. "The challenging market conditions that plagued '07 will likely plague 2008 as well," Dugas said. "The depth and duration of this downturn remains difficult to determine."
To cope, the company plans to continue to reduce its land inventory through home sales and curb replacing it and working hard to generate cash in every community while decreasing overhead.
Pulte offered guidance for the first quarter of '08, but not beyond. It is predicting a loss ranging from $0.15 to $0.30 per share, not including any land impairments or additional land-related charges.
But Dugas did set another goal for 2008: potentially doubling the company's cash on hand to between $2.0 billion $2.2 billion with $650 million to $850 million coming from operations and another $250 million from a tax refund.
