PulteGroup, Inc. (PHM)

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Pulte Homes Inc. (PHM)

Q4 2009 Earnings Call

February 9, 2010 8:30 am ET


Jim Zeumer – VP of Investor and Corporate Communications

Richard Dugas – Chairman, President and CEO

Roger Cregg – EVP and CFO

Steve Petruska – EVP and COO

Mike Schweninger – VP and Controller


Josh Levin – Citigroup

Dave Goldberg – UBS

Carl Reichardt – Wells Fargo

Michael Rehaut – JPMorgan

Megan McGrath – Barclays Capital

Dennis McGill – Zelman and Associates

Ken Zener – Macquarie

Rob Hansen - Deutsche Bank

Alex Barron – Housing Research Center

Joshua Pollard – Goldman Sachs

Dan Oppenheim – Credit Suisse

Joel Walker – FBN Securities



Welcome to the fourth quarter 2009 Pulte Homes Incorporated earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to presentation over to your host for today’s call, Mr. Jim Zeumer. Please proceed.

Jim Zeumer

Thank you. I want to welcome everyone on the call and listening via the Internet to this morning’s call to discuss Pulte Homes’ results for the fourth quarter ended December 31, 2009.

On the call with me to discuss our results are Richard Dugas, Chairman, President and Chief Executive Officer; Steve Petruska, Executive Vice President and Chief Operating 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 www.pulteinc.com will accompany this discussion. Given our merger with Centex and the resulting impact on our reported quarterly results, we have expanded the slide content. We believe these slides will greatly assist the understanding and analysis of our quarterly performance and we strongly encourage everyone to review this material.

As a reminder, on August 18th, 2009, Pulte Homes completed its merger with Centex Corporation. Unless otherwise identified, results reported in the release and on this call reflect the inclusion of Centex’s operations for the entire fourth quarter although prior period results have not been adjusted for this merger.

Finally, I want to alert everyone listening on the call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Pulte Homes 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 Pulte's Annual Report on Form 10-K for the year ended December 31, 2008 and this morning’s press release for a detailed list of the risks and uncertainties associated with the business. Certain statements made during this call also contain references to non-GAAP financial measures. See this morning’s press release which is available on our corporate website Pulte.com for a reconciliation of non-GAAP financial measures to comparable GAAP numbers. As always, at the end of our prepared comments, we will have time for Q&A. We will wait until then to open the queue for questions.

I will now turn the call over to Richard Dugas for opening comments. Richard?

Richard Dugas

Thanks, Jim and thank you to everyone joining us on the call today. From sign up pace and margins to cost controls and cash accumulation, Pulte Homes’ fourth quarter results demonstrate another quarter of improvement in key business and financial metrics.

Our operations are clearly making important strides as we continue to advance on our primary financial priority which remains consistent profitability. Pulte Homes’ fourth quarter results reveal a number of very positive data points. That said, accounting charges related to goodwill, land and merger costs make this quarter more challenging to interpret. As we did in the third quarter we will do our best to isolate the significant charges taken in the quarter in order to provide better insight into the performance of our ongoing operations. Roger will provide more details on the quarterly financial results and at a high level there are several key metrics I would like to highlight.

First, order rates for the quarter were up 113% on a reported basis. The 100+% increase obviously reflects the merger with Centex. If you look at the results on more of a pro forma basis our Q4 signups were also very strong showing an increase of 32% over combined Pulte and Centex numbers for the same period last year.

Along with strong orders, we realized continued expansion in gross margin which was 14.2% for the quarter before impairments and merger related costs. Margins expanded every quarter in 2009 as we worked hard to lower our construction costs while improving our selling position by moving towards a build to order model. There is still much work for us to do but we made steady progress over the course of 2009 and expect further margin improvement in 2010.

Along with reducing our cost of goods, we are realizing similar success in lowering and leveraging our SG&A. Fourth quarter SG&A for the combined businesses was $188 million which is down more than $17 million from Pulte stand-alone last year. SG&A costs as a percentage of homebuilding revenue dropped 170 basis points as we realized meaningful overhead leverage on the volume delivered in the quarter. When you stop to consider we are now running two businesses versus just one last year this absolute reduction in overhead clearly demonstrates how aggressively we are attacking these costs.

Adjusting for the charges taken in the quarter we have significantly moved the needle in profitability through the gains we have delivered in both margin and overhead leverage. We fully appreciate you still have to count all of the other costs but driving the business to and ultimately beyond break-even are critical next steps to consistent profitability.

That brings us to the question that seems to be on everyone’s mind. Can Pulte be profitable in 2010? We stopped providing guidance two years ago but I think it is important we help to set expectations. As demonstrated in the fourth quarter on an adjusted basis we are much closer to being profitable than many expected. Organizationally we have positioned the business to be profitable in 2010 but success ultimately requires ongoing stability in market demand and associated pricing.

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