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PulteGroup Q2 2010 Earnings Call Transcript

PulteGroup Q2 2010 Earnings Call Transcript

PulteGroup (PHM)

Q2 2010 Earnings Call

August 4, 2010 8:30 a.m. ET


Roger Cregg - Chief Financial Officer and Executive Vice President

James Zeumer - Vice President of Investor & Corporate Communications

Michael Schweninger - Principal Accounting Officer, Vice President and Controller

Richard Dugas - Chairman, President, and Chief Executive Officer


Josh Levin - Citigroup Inc.

David Goldberg - UBS Investment Bank

Ivy Zelman – Zelman & Associates

Joshua Pollard – Goldman Sachs

Michael Rehaut – JP Morgan

Michael Widner - Stifel Nicolaus

Nishu Sood - Deutsche Bank AG

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Alex Barron - Housing Research Center

Jay McCanless – Guggenheim Partners

John Benda – Susquehanna International Group

Jay Chadbourn – Merrill Lynch

Buck Horne - Raymond James & Associates



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Good day, ladies and gentlemen, and welcome to the Q2 2010 PulteGroup, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to your host for today’s call, Mr. James Zeumer. Please proceed.

James Zeumer

Thank you, Operator. I want to welcome everyone to this morning's call to discuss PulteGroup's results for second quarter and six months ended June 30, 2010. On the call with me today are Richard Dugas, Chairman, President and Chief Executive Officer; Roger Cregg, Executive Vice President and Chief Financial Officer; and Mike Schweninger, Vice President and Controller.

For those of you who have access to the Internet, a slide presentation, available at will accompany this discussion. The slides will be archived on the site for the next 30 days for those who want to review it later. As a reminder, on August 18, 2009, PulteGroup completed its merger with Centex Corporation. Results reported in the release and on this call reflect the inclusion of Centex's operations for the second quarter and six months of 2010, although results for the comparable prior period have not been adjusted for this merger.

Finally, I want to alert everyone that certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. PulteGroup believes such statements are based on reasonable assumptions, but there are no assurances that actual outcomes will not be materially different from those discussed today. All forward-looking statements are based on information available to the company on the date of this call, and the company does not undertake any obligation to publicly update or revise any forward-looking statements as a result of new information in the future.

Participants in today's call should refer to PulteGroup's annual report on Form 10-K for the year ended December 31, 2009, and this morning's press release for a detailed list of risks and uncertainties associated with the business. Certain statements during this call also contain references to non-GAAP financial measures. See this morning's press release, which is available on our corporate website,, for reconciliation of the non-GAAP financial measures to the comparable GAAP numbers. As always, at the end of our prepared comments, we will have time for Q&A. I’ll now turn over the call over to Richard Dugas for his opening comments. Richard?

Richard Dugas

Thanks Jim, and good morning everyone. In preparing for today’s discussion, I reviewed our comments from PulteGroup’s last two quarterly conference calls. During those calls, we talked about expectations that new home sales in 2010 would likely be comparable to 2009, and how we had set up our business to be successful in that type of difficult macro-environment.

At the time, we also talked about how important the Centex merger would be in accelerating PulteGroup’s overall pace of operating and financial improvement. The significant gains in PulteGroup’s second quarter financial results demonstrate that we are achieving the goals that we have set for the company.

As Roger will detail in a moment, we continue to realize improvement throughout our operations. As homebuilding revenue roughly doubled to $1.3 billion, homebuilding margins, before land-related charges and interest costs, expanded to 17.2%. SG&A dropped to 11.7% of home sale revenue, and reported earnings per share of $0.20 a share represent a major step in the process of rebuilding shareholder value for our investors.

Successfully executing against a small number of key initiatives helped the company to deliver improved operating and financial results. The company significantly reduced a year over year pre-tax loss of $6 million, which includes $45 million in land- and mortgage-related charges and reflects lower impairments and the benefit of gross margin expansion and better overhead leverage within our homebuilding operations.

In combination with our ongoing work against these key initiatives, the dramatic improvement in PulteGroup’s performance was driven in large part by last year’s merger with Centex. By putting the two organizations together, it allowed us to meaningfully increase the number of homes we delivered and the corresponding revenue we recognized. In turn, having moved quickly to integrate the businesses and capture expected overhead synergies, we were able to realize significant leverage on our SG&A spending, which as a percentage of settlement revenues dropped by almost 600 basis points.

We have been focused on our efforts to reduce overhead costs during the prolonged market slowdown, but achieving these results would have been difficult without the merger. The merger integration is all but complete, but the benefits will continue to support our results for many years to come. As concerns about potential integration risk rapidly dissipate, comments from more and more investors acknowledge the positive business impact the transaction is having on our business.

Overall, we are pleased with our second quarter financial results and the progress we continue to make in strengthening our operations and improving our market position. PulteGroup associates throughout the country have worked hard to close homes, control costs, and execute against our key business strategies. I want to thank them for their continued efforts in support of the company.

Beyond the improvement in our second quarter numbers, we appreciate that the focus of the past couple of months was, and remains, the current state of housing following the April 30 expiration of the federal tax credit. The falloff in demand has been well documented and in truth has likely exceeded just about all expectations.

We believe that it is a positive sign that our demand has been stable since the initial pullback, but overall volumes remain well below normal seasonal demand. There is certainly no shortage of economic research attempting to estimate how much demand was pulled forward, and how long any effects will be felt. Some believe the housing malaise could linger, while others think that some level of rebound could be evident within months. And while the industry could experience a modest seasonal lift in the back half of the year, within PulteGroup we’ll continue to err on the side of caution in terms of how we manage our operations until a more sustained rebound is evident.

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