PHM Does Not Look Promising

Pulte Homes (PHM - commentary - Cramer's Take) provided the least promising of all of the recent homebuilder conference calls that I mentioned in my preview. The company is still holding a huge inventory of spec houses, and, with the exception of Texas and South Carolina coastal areas, all of its markets are performing poorly. On a positive note, Pulte has a very strong cash position and is reducing its inventories.

My gut tells me that when the housing market rebounds, Pulte will not be the leader of the pack because of its concentration in some of the worst hit markets that will take a longer period of time to heal.

Shares of Pulte are up about 2% in late morning activity, and I would not endorse buying those shares.

The company reported a first-quarter loss per share of $2.75 on revenue of $1.448 billion.

Pulte ended the quarter with approximately $1.1 billion of cash and no debt outstanding on its revolving debt facility. Cash levels were slightly higher than anticipated due to a $212 million tax refund. By the end of the year, the company is targeting a cash position of $2.0 billion to $2.2 billion.

Other metrics:

• Revenue from home sales declined 22% year over year.
• Communities declined by 10% vs. first quarter 2007.
• Unit closings declined 13% year over year.
• ASPs declined 11% year over year, to $295,000.
• Gross margins from home sales were a negative 32.1% vs. a positive 10.9% in first quarter 2007.
• House and land inventory stood at $6.2 billion vs. $7.0 billion at the end of fiscal 2007.
• Lots under Pulte's control declined 7% sequentially, to 147,000.
• The company ended the quarter with 3,400 spec houses, down 9% sequentially.
• The cancellation rate came in at 28% vs. 24% a year ago and down from 40% in fourth quarter 2007.

Impairments and land writedowns totaled $664 million in the quarter, with 68% of these charges based in the Florida and Southwest regions. In the Southwest region, 47% of the charges were related for communities not yet open for sale.

Pre-tax income for the financial services operation was approximately $15 million vs. approximately $2 million in the year-ago quarter. The increase was attributed to a new accounting pronouncement related to the treatment of rate-lock derivatives.

Pulte experienced a favorable mix shift as agency originations were 76% funded from warehouse lines vs. 46% in the year-ago quarter. Non-agency originations funded in that way dropped to 4% from 29% a year ago. FHA loans increased to 12% from 3% a year ago. The mortgage capture rate was 90%. The average FICO score was 741 vs. 744 a year ago.

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.