PulteGroup (PHM)

Q1 2011 Earnings Call

April 28, 2011 8:30 am ET


James Zeumer - Vice President of Investor Relations

Roger Cregg - Chief Financial Officer and Executive Vice President

Michael Schweninger - Principal Accounting Officer, Vice President and Controller

Richard Dugas - Chairman, Chief Executive Officer, President and Member of Finance Committee


Daniel Oppenheim - Crédit Suisse AG

Nishu Sood - Deutsche Bank AG

Stephen East - Ticonderoga Securities LLC

David Goldberg - UBS Investment Bank

Jack Micenko - Susquehanna Financial Group, LLLP

Michael Rehaut - JP Morgan Chase & Co

Josh Levin - Citigroup Inc

Alex Barron - Agency Trading Group

Robert Wetenhall - RBC Capital Markets, LLC

Michael Smith - Oppenheimer

James McCanless - Guggenheim Securities, LLC

Michael Widner - Stifel, Nicolaus & Co., Inc.

Adam Rudiger - Wells Fargo Securities, LLC

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Joshua Pollard - Goldman Sachs Group Inc.

Joel Walker - FBN Securities

Jonathan Ellis - BofA Merrill Lynch



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Good day, ladies and gentlemen, and welcome to the First Quarter 2011 PulteGroup, Inc. Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jim Zeumer. Please proceed.

James Zeumer

Chanel, thank you. Good morning, everyone. I want to thank you for participating in today's call to discuss PulteGroup's first quarter financial results. On the call today are Richard Dugas, Chairman, President and CEO; Roger Cregg, excited Vice President and CFO; Mike Schweninger, Vice President and Controller.

Before we proceed -- before we begin, copies of this morning's press release and the presentation slides that accompanies today's call have been posted on our corporate website at pultegroupinc.com. Further, an audio replay of today's call will also be available on the site later today. Please note that any non-GAAP financial measures discussed on the call are reconciled to the U.S. GAAP equivalent as part of the press release and as an appendix to the call's presentation slide deck.

Finally, today's presentation may include forward-looking statements about PulteGroup's future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slide. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

Now let me turn the call over to Richard Dugas. Richard?

Richard Dugas

Thanks, Jim, and good morning, everyone. Early in March, we released an interim report on PulteGroup's sign-up results for the first 2 months of 2011. I am pleased to report that we have seen a continuation of the positive sign suggested in that initial release and are encouraged by the business trends we have experienced so far this year. Roger will provide a detailed review of PulteGroup's first quarter results, but there are several key points that I would like to highlight first.

At 4,345 homes, reported sign-ups for the quarter showed a slight increase from 2010 before adjusting last year's number higher by approximately 450 units associated with the change in our sign-up reporting process. On an adjusted basis, sign-ups were down roughly 9% on a 5% decrease in community count, a result we are very pleased with, given the competitive environment and the impact of last year's tax credit. Within our Q1 sign-up numbers, we saw a modest selling season begin to develop as customer traffic along with gross and net sign-ups increased from month-to-month throughout the quarter.

In our March press release, we reported January sign-ups of 1,206 and February sign-ups of 1,468 homes. We captured an additional 1,671 sign-ups in March for a total of 4,345 sign-ups in the quarter. These sequential changes demonstrate a positive progression that we view as encouraging. I would note that we realized this sign-up performance without having to increase incentives, thus avoiding that source of potential future margin pressure.

We are also encouraged by the mix of business, which shows stable demand among move-up buyers for our Pulte Homes brand and active adult buyers for our Del Webb brand. Given the influence of last year's tax credit, we weren't surprised to see some year-over-year weakness in demand among first-time buyers for our Centex Homes.

Q1 sign-ups were generated from an average active community count of 800 compared with 842 for the first quarter of last year. However, on a sequential basis, our 800 communities were an increase from 786 in the fourth quarter of 2010. Although community count decreased on a year-over-year basis, we have been successful in converting recently acquired distressed land assets in the community openings. During our last conference call, we discussed how closings from distressed land transactions are expected to climb to 15% or even higher in 2011, up from less than 5% of closings in 2010.

Given our robust land pipeline and the depth of the land positions within our existing communities, growing community count is not a requirement for expanding our business in the future. We continue to drive sales within existing communities and capture the efficiencies and leverage inherent in the strategy. That is particularly true of our Del Webb communities, which have tremendous volume potential. At their peak, several of our larger Webb positions generated more than 750 closings annually. Today, none are close to that type of velocity. So the leverage potential is significant. As baby boomers get more and more comfortable with their overall financial position, many are now choosing to make the move and execute on their decision to enjoy the Del Webb lifestyle.

Overall, given the strong influence of last year's tax credit in pulling forward demand into the first 4 months of 2010, sign-ups being down only 9% for the quarter was ahead of our internal plan. And while limping along at historically low levels, we view current demand in 2011 as much more real and sustainable relative to Q1 2010. With April 2010 marking the end of any tax-driven buying last year, the industry is moving past the year-over-year comp challenge and can look forward to the opportunity to deliver better year-over-year comparisons.

As part of my business reviews during the past couple of months, I toured a number of markets including PulteGroup operations in Florida, parts of the Southeast and the Mid-Atlantic. Anecdotal comments from our field operators support the position that demand feels better with customers looking to fill their housing needs provided they view the product offering as a solid value for their investment.

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