For Immediate Release
Chicago, IL - May 23, 2012 - Today, Zacks Equity Research
discusses the U.S. Homebuilders, including
Vulcan Materials Company
A synopsis of today's Industry Outlook is presented below. The
full article can be read at
The average selling prices (ASPs) are improving for most
large-cap homebuilders due to changes in the community/product mix.
ASPs have gained from increased sales in high-end communities of
California, Arizona, Colorado and Florida where home prices are
Given the scenario, large builders are taking away share from other
undercapitalized small/medium-sized private builders on the back of
overall housing demand, stronger capital and better land positions.
) strategically focuses on acquiring new home sites that would
boost margins and percolate down to the bottom line. The company
focuses on high-margin, well-positioned communities and avoids
fringe or tertiary markets where price is the only driver. The
company's focus on quality instead of quantity is benefiting
margins and boosting new sales orders.
) has started rolling out communities in highly desirable
submarkets, which allows it to sell larger, higher-priced homes,
driving up the ASP. KB Home is also targeting higher income,
first-time and move-up buyers -- all of whom are more inclined
toward buying a new home rather than buying a foreclosure.
) is continuously evaluating its assets and prioritizing markets
and projects in order to appropriately allocate capital. The
company is divesting lower-margined projects and exiting
non-performing communities which no longer fit in the company's
operating strategy. Such a policy frees up cash to invest in other
potential opportunities which generate higher returns.
Cost Saving Initiatives
Most housing companies resorted to cost reduction strategies in
order to cope with the challenging industry conditions like a
sluggish US homebuilding industry and raw material cost inflation.
Most of these companies have taken action to improve their
operating and financial performance.
PulteGroup made significant workforce reductions and is also
aggressively working to reduce overhead costs. In 2011, the company
consolidated its field organization and select corporate functions.
It also consolidated its regional operations in Arizona, Florida,
New York and New Jersey and merged its West and Central area.
Management's concerted efforts to reduce overhead costs pulled down
selling, general and administrative (SG&A) expenses
substantially in 2011. This subsequently acted as a tailwind for
margins. The company is also adjusting the contents of its homes
and building smaller floor plans to suit the needs of
Home improvement products-maker
) took initiatives like business consolidation, system
implementations, plant closures, improvement in the global supply
chain and headcount reductions to contain costs. These initiatives
are expected to result in about $150 million of gross cost
reduction before inflation in 2012.
Construction aggregates maker
Vulcan Materials Company
) has invested in a new Oracle-based ERP and Shared Services
platform which allowed the consolidation of the company's eight
divisions into four regions. The system also streamlined its
support functions, thereby reducing related positions and overhead
The company has also announced two other initiatives: a Profit
Enhancement Plan and planned asset sales, in order to improve
earnings and cash flows, pay off debts and thereby strengthen its
overall credit profile.
The Profit Enhancement Plan is designed to reduce costs as well as
enhance profitability by streamlining the management structure over
the next 18 months. The plan is expected to improve EBITDA by $100
million on an annual basis by 2014.
Under the planned asset sale, the company plans to divest its
non-core assets over a period of 12 to 18 months in order to
improve the company's liquidity position and earnings. These sales
are expected to generate after-tax net proceeds of $500 million.
Though cost-saving initiatives will hurt earnings in the near term,
the overall growth profile of the homebuilding companies will get a
boost over the long haul when the housing market fully
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KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
MASCO (MAS): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
VULCAN MATLS CO (VMC): Free Stock Analysis
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