PulteGroup's CEO Discusses Q1 2012 Results - Earnings Call Transcript

PulteGroup (PHM)

Q1 2012 Earnings Call

April 26, 2012 8:30 am ET


James P. Zeumer - Vice President of Investor Relations

Richard J. Dugas - Chairman, Chief Executive Officer, President and Member of Finance & Investment Committee

Robert T. O'shaughnessy - Chief Financial Officer and Executive Vice President

Michael J. Schweninger - Principal Accounting Officer, Vice President and Controller


David Goldberg - UBS Investment Bank, Research Division

Dennis McGill - Zelman & Associates, Research Division

Stephen Kim - Barclays Capital, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Joshua Pollard - Goldman Sachs Group Inc., Research Division

Stephen F. East - ISI Group Inc., Research Division

Nishu Sood - Deutsche Bank AG, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Alex Barrón - Housing Research Center, LLC

James McCanless - Guggenheim Securities, LLC, Research Division

Susan Berliner - JP Morgan Chase & Co, Research Division

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division



Good day, ladies and gentlemen, and welcome to the Q1 2012 PulteGroup Earnings Conference Call. My name is Catherine, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Jim Zeumer, Vice President of Investor Relations and Corporate Communications. Please proceed, sir.

James P. Zeumer

Okay. Thank you, operator, and good morning to everyone.

I want to thank everyone for participating in today's call to discuss PulteGroup's 2012 first quarter financial results. On the call today are Richard Dugas, Chairman, President and CEO; Bob O'shaughnessy, Executive Vice President and CFO; Mike Schweninger, Vice President and Controller.

Before we begin, copies of this morning's press release and the presentation slide that accompanies today's call have been posted on our corporate website at www.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, including references to gross margins reflecting certain adjustments, is reconciled to the U.S. GAAP equivalent as part of the press release and as an appendix to this 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 slides. These 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 J. Dugas

Thanks, Jim, and good morning, everyone. I'm very pleased to discuss PulteGroup's first quarter results, which demonstrate a continuation of the positive operating trends we have been experiencing for a number of quarters.

Consistent with other signs of an overall improving demand environment for new homes, PulteGroup's first quarter sign-ups grew to just under 5,000 homes as we realized the 15% increase in year-over-year volume generated from 6% fewer communities.

Lowering our community count is among the actions we are taking to help rightsize our balance sheet as we focus on improving our long-term returns on invested capital.

You've heard us say on more than one occasion that U.S. housing demand has been relatively stable for the past couple of years, albeit at reduced levels, barely above 300,000 new home sales annually. Conditions remain challenging, but in Q1 2012, it was the first quarter in several years that fundamental demand came in stronger than expected, allowing us to handily beat our internal forecast for the period. It is important to remember that any improvement in activity is off an extremely low starting point.

Nevertheless, we are very pleased with how the year has started off, including a continuation of better sales activity thus far in April.

So with the understanding that we are still early in the year, there does seem to be a positive change in buyer interest and willingness to sign a sales contract. I don't think it's any single factor but the gradual buildup of multiple conditions that are finally pushing buyers past the tipping point.

First, new home prices and mortgage rates being at or close to historically low levels is not new. These factors, combined with ever more expensive rental rates, however, are beginning to tip the scale toward homeownership being a compelling choice versus rental.

The cost of ownership figures are persuasive enough that current renters really have to consider their options carefully when the lease is ending and a new lease agreement carries another 5%-plus increase in the monthly rates.

Second, for the first time in a while, potential buyers seem to have a greater sense of urgency as they face limited supplies and, in select situations, higher prices.

Said another way, potential buyers are experiencing an increasing fear of loss that a home not purchased today may not be there tomorrow, or if it is, the price could be higher.

Nowhere is this more evident than in Phoenix, where monthly supply of new and resale inventory has dropped dramatically in the past 18 to 24 months. This inventory reduction is leading to stronger new home sales results and the beginnings of pricing improvement in a market that, just 18 months ago, is oversupplied.

Third, while foreclosed or other distressed inventory is certainly still a factor in the market, every day, it gets a little older and a little more rundown. With investors often snapping up the best units available, traditional homebuyers are likely seeing the remaining units as less of a compelling alternative.

And finally, although they're still a very small percentage of overall demand, we are starting to see individuals who struggled with foreclosure or bankruptcy much earlier in the downturn that can now be considered for a mortgage.

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