Gleanings From Pulte Homes Q2'08 Conference Call

Jul.29.08 | About: PulteGroup, Inc. (PHM)

From Seeking Alpha's Pulte Homes, Inc. Q2 2008 Earnings Call Transcript:

On commodities and the effect on pricing:

Steve Petruska, EVP, COO: “I talked a little bit about commodity prices hitting us in the face. There’s some real reality out there given $130, $140 a barrel oil that are equating to increased cost pressure in our business as well… We’re finding in a lot of our markets that price is not the sole driver… We’re getting down to a price point in new homes that can’t get too much lower.”

 CEO Richard Dugas: “Price is not as elastic as it was… It’s tough out there, the cost pressures on the commodity side are not abating that we’ve seen.” SP: We’re going to see some house cost reduction in certain markets but we’re building smaller houses. Where we’ve seen commodity price increases we’ve been able to leverage some market share gains with our trade base on the labor side. As we talked about in our prepared comments we’re holding our own on that front and probably doing better than most. There’s a day of reckoning coming if oil stays at $130 or $140 a barrel that’s for sure.”

On pricing:

Richard Dugas:  The market is so connected to the resale market and anybody who thought the new home builders could separate themselves from the resale it’s not realistic, 80% to 85% of the market is resale in this country. I think it’s going to be a fairly consistent recovery. The one segment that could see a little bit of out performance is the Webb segment just because there are so many more buyers than there are available communities for that buyer.”

On mortgages:

Michael Rehaut- JP Morgan: "On the sources of mortgage financing you’d mentioned that about 24% of the loans closed this quarter were from FHA. Can you give us a sense also of the amount of loans that you guys originated that had down payment assistance, non-profit down payment assistance programs? Roger Cregg, EVP, CFO: Of the total number of closings that we had in the quarter roughly about 10% were down payment assistance. The first quarter was roughly about 6% for us."

On purchasing land from banks:

Steve Petruska: “The banks are not realistic yet. They’re probably going through some of the same shock that the builders did a couple years ago as we came to grips with what was happening in the industry. Most of our discussions with portfolios that have become available either have too much risk for future development and/or entitlements on some of the lots or if they’re finished lots they’re simply too high priced. We haven’t been able to even remotely look at anything there… I still think that we can be opportunistic when those opportunities come up. Right now they’re not out there and it’s really not on the radar screen. I don’t think for the next six to nine months.”

 Richard Dugas: The banks are not realistic at all in [the Northeast.] …The market is not as bad in that part of the country as it has been in the Southwest or Florida… The bid spread is too wide… Frankly that combined with the fact that builders are not exactly aggressively looking for land I think builders are just beginning to consider that. It still led to this stalemate in terms of no transactions that are happening or very, very few selected transactions.”

On the tradeoff between holding on to land or selling it to get the weight off the books:

Richard Dugas: “I think there are mainly two or three specific reasons. First is that builders that have land are going to be able to capitalize on the recovery first with market share growth through same store sales. Anybody who has to go out and get lots and titled and approved whether they’re finished or not are still going to take some amount of time so we’ll see a recovery first. Secondly, if you have the ability to take the existing land you have and market to fair market value in many cases I think we indicated last quarter we’ve written projects down in some cases to zero. The ability to price new lots coming out is not going to be zero obviously. From a strategic component we feel like it’s much better to hold on to the land you have versus going out to get it because you’re going to pay more for it… The third reason is that because of the lengthy entitlement time that it takes for lots I think there’s a bit of a misperception that finished lots are going to be available everywhere. Many of the lots that builders have walked away from are not completely finished they’re in some stage of entitlement and in many cases may have to go through either a full re-entitlement or at least a partial so it’s going to take some time. Our overall view is that land sales and getting rid of your land and going to asset light strategy is not what a builder would prefer to do if they have the choice. Some that need cash in more desperate situation than others maybe feel the need to do that but in our case since we’re strong on cash and the big reason for that is the finish lot inventory that we have able to harvest cash we prefer to hold on to the land that took us a long time to get.”

On foreclosures:

Steve Petruska: “We don’t track it at all. Anecdotally, we haven’t seen a rash of foreclosures within our own communities. We’ve been fairly fortunate that way. We’ve had some obviously in the suspect markets of Las Vegas and Phoenix but nothing that has grossly impaired our ability to continue to sell in those communities.”

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