By the time Pulte executives stepped up to the microphone to talk to analysts Thursday (July 26) it was old news that nearly three-quarters of a billion in land- related impairments had caused the company to lose more than twice as much in the second quarter of this year as it made in Q2 last year. Those numbers had been out for more than a week.
Of more interest was the news of what it's expecting for Q3. Management could only answer part of that question.
"We've got a great backlog in the second half and a leaner overhead structure," said CEO Richard Dugas. "Assuming that the housing market doesn't take another big step down here" the company is predicting a "modest" profit of 10 to 20 cents a share.
Here's the other shoe--that profit prediction doesn't include any potential land-related charges, the lead weight that caused the company to lose $2.01 a share in the second quarter. The company adjusted its owned land worth by taking $561 million in impairments in 212 of its communities.
As for the end-of-year predictions, company officials could not offer a full outlook. But they do have goals for the end of the year, improving the company's cash position to $1 billion; have no debt on its revolving line of credit and ratcheting down its net debt capitalization to the low 30-percent range.
That kind of focus on cash preservation and creation as well the downsizing of the organization to match the market will help company survive the downturn "regardless of when it turns," said Dugas. "We've stopped trying to predict bottom."
Dugas also expressed hope that the company's focus on moving spec houses and curbing the construction of new spec houses will allow it to begin focusing again on building more pre-sell homes, with higher margins, in this quarter, said Dugas.
The company also reported that sales in its Del Webb active adult communities still appear to be holding up better than its all-age products whose ability to sell their existing homes remains the main constraint.
While Del Webb accounts for just under half of the company's total sales, impairments on that land accounted for only about 30% of the total impairments taken in the second quarter.
Pulte also reported that it has put $29 million more into its self-insurance fund after taking a look at its recent lawsuit payouts and recalculating its future potential liabilities.
Pulte late yesterday (July 25) reported a loss from continuing operations during the second quarter of 2007 of $507.6 million, or $2.01 per share, including impairments, land-related charges and restructuring charges or$749.4 million. The loss compares with income of $243.9 million from continuing operations for the same period in 2006. Consolidated revenues for the quarter were down 40% to $2.0 billion.
Home building settlements were down 42% for the quarter to $1.9 billion, with a 40% decrease in closings to 5,938 homes and a 4% drop in average selling price to $320,000 proving the culprits. Including the impairments, the pre-tax loss in home building was approximately $803.2 million, compared with prior year pre-tax income of $380.8 million. The loss reflects a decline in gross margins to -18.6% from 21.1% in second quarter, 2006, combined with an increase in SG&A as a percentage of home sale revenues to 15.5% compared with 8.0% for the same period last year. The company also took a pre-tax restructuring charge of approximately $40 million during the quarter, or $0.10 per share on an after-tax basis, related to the restructuring plan announced by the Pulte in May.
Net new home orders were off 20% to 7,532 homes, valued at $2.4 billion, down 22% from last year's second quarter. Pulte cut its backlog from 19,516 homes to 14,298 during the second quarter, representing a value of $5.2 billion versus $6.9 billion (19,516 homes) at the end of last year's second quarter. At the end of this year's quarter, the debt-to-capitalization ratio was 37.9%.
Pulte's financial services operations reported pre-tax income of $6.6 million for the second quarter 2007, compared with $15.1 million of pre-tax income for the prior year's quarter. The decrease in second quarter 2007 pre-tax income was primarily due to a 44% decline in mortgage loans originated during the quarter compared with the prior year's quarter. The mortgage capture rate for the quarter was approximately 93%, compared with 91% for the same quarter last year.
"As reported in our preliminary release last week, the homebuilding industry continues to face an extremely difficult environment that includes record existing and new home inventory levels, intense price competition and weak consumer sentiment for housing," said Richard J. Dugas, Jr., Pulte CEO."Pulte continues to focus on reducing its land and speculative home portfolio, and properly adjusting overhead spending to put us in the best position to navigate through this continued severe downturn."
For the six months ended June 30, 2007, Pulte Homes' loss from continuing operations was $593.2 million, or $2.35 per share, compared with prior year income from continuing operations of $506.5 million, or $1.95 per diluted share. Consolidated revenues for the period were $3.9 billion, down from$6.3 billion for the first six months of last year. Revenues from home building settlements for the period were $3.7 billion, down 40% from the prior year. Lower revenues for the period resulted from a 3% decrease in average selling price to $325,000, combined with a 39% decrease in the number of homes closed to 11,358.
Home building pre-tax loss for the period was approximately $951.6 million, compared with pre-tax income of $758.4 million for the prior year period.The pre-tax loss for the period reflects a decline in gross margins to -4.3% from 22.0% in the prior year period, combined with an increase in SG&A as a percentage of home sale revenues to 15.6% compared with 8.9% for the same period last year. Home building pre-tax loss includes approximately$881.5 million of pre-tax charges, or $2.19 per share on an after-tax basis.
For the first six months of 2007, Pulte's financial services operations reported pre-tax income of $19.8 million, compared with $64.4 million in the prior year. The prior year results reflect a first-quarter gain of approximately $31.6 million from the sale by Pulte Mortgage LLC of its investment in a Mexico-based mortgage-banking company. In addition, lower loan originations for the six-month period, down 41% to 10,458 mortgages, also contributed to the decline.
"In part due to our relatively strong backlog position, combined with lower overhead spending going forward, for the third quarter of 2007 we are projecting income from continuing operations in the range from $0.10 to $0.20 per diluted share, exclusive of any additional impairments or land-related charges," said Dugas. "Due to the lack of longer-term earnings visibility and the difficult market conditions that persist, we are not at this time providing guidance for any period beyond the third quarter of this year."
