With three publics reporting, Thursday was a busy earnings day. After Ryland and Beazer, Standard Pacific was the last company to release results.
Boosted by a strong spring sales environment and growth in community count, the builder posted a more than 20% year-over-year increase in orders as community count rose 14% and absorptions increased 5%. Orders in Colorado, Arizona, Texas, the Carolinas, California, and Florida rose 57%, 42%, 32%, 23%, 11% and 11%, respectively. And StanPac’s average sales price on orders increased 9% year over year to $528,000.
“We'd note that Colorado and the Carolinas had the most significant gains in sales pace while Texas was flat year over year,” said UBS’ Susan Maklari in a research note. “Further, the cancellation rate at 11% declined 300 basis points year over year. Unit backlog rose 15% year over year and now represents nearly five months of forward closings based on our estimates. Given our expectations for continued growth in neighborhoods, combined with easier absorption comps over the next two quarters, we look for sales growth through the year."
StanPac’s home building revenues rose 5% year over year and its gross margin was 24.3%, which was less than anticipated by J.P. Morgan’s Michael Rehaut. StanPac expects gross margins of 24 to 25% for the year.
“While SPF’s valuation is below its larger-cap peers, we believe this appropriately reflects our outlook for above average gross margin contraction in 2015, as we believe the company’s near industry leading gross margins have above average susceptibility to mean reversion over the next one to two years,” Rehaut wrote.
Rehaut says StanPac used $94 million of cash from operating activities, driven by $160 million of land purchases and development costs. Because of that, its unrestricted home building cash balance fell to $81 million from $180 million last quarter, driving its net debt-to-cap to 54.6%, up from 53.3% last quarter.
Maklari likes StanPac’s land strategy. “We continue to believe Standard Pacific is well positioned for the recovery and look for it to benefit from management's efforts to opportunistically acquire well positioned land, control costs, and remain focused on the move-up buyer, as we believe this is its core strength,” Maklari says.