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Centex Corporation (CTX)

F3Q09 (Qtr End 12/31/08) Earnings Call

February 04, 2009 10:00 AM ET


Timothy Eller - Chairman and Chief Executive Officer

Cathy R. Smith - Chief Financial Officer

Mark D. Kemp - Controller


Ivy Zelman - Zelman & Associates

Joel Walker - SBN Securities

Robert Henderson - Deutsche Bank

Daniel Oppenheim - Credit Suisse

David Goldberg - UBS Securities

Joshua Levin - Citigroup

Kenneth Zener - Macquarie Capital

Robert Stevenson - Fox-Pitt Kelton

Michael Rehaut - J.P. Morgan

Stephen East - Pali Capital

Stephen Kim - Alpine Woods Capital Investors

Megan McGrath - Barclays Capital.

Carl Reichardt - Wachovia Securities

Eric Landry - Morningstar

Alex Barron - Agency Trading Group

Jim Wilson - Jolson Merchant Partners LLC

James McCanless - FTN Midwest Securities



Good morning and welcome to the Centex Corporation Fiscal Year 2009 Third Quarter Earnings Conference Call with senior management. Today's call will be recorded and transcribed. Today's call also will be simultaneously webcast at ir.centex.com.

A copy of today's presentation is now available on the website. As usual, participants must download and advance their own slides during today's conference. Continuing on slide two, Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward-looking. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call.

For further information regarding these risks and uncertainties and Centex's forward-looking statements, please refer to the forward-looking statements disclosure in the presentation and to Centex's reports on Forms 10-K and 10-Q filed with the SEC.

All participants will be in a listen-only mode. There will be a question-and-answer session after management's remarks. (Operator Instructions). In the interest of time we will limit each person to one question and one follow-up question. If you have additional questions following today's call, please contact Matt Moyer, Vice President of Investor Relations at 214-981-5000.

I will now turn the call over to Tim Eller, Chairman and CEO. Please go ahead Sir.

Timothy Eller

Thank you, Melinda and Good morning everyone. Thanks for joining us for our fiscal year 2009 third quarter conference call. With me today is Cathy Smith, our Chief Financial Officer; Mark Kemp, our Chief Accounting Officer and Matt Moyer, Head of Investor Relations.

I'll start our call today on slide three with my perspective on the marketplace and our performance during the quarter. As always provide insight into actions we're taking to navigate this cycle. Next, Cathy will discuss details about our financial performance for the quarter, then I'll offer some closing comments and we'll address your questions.

In the third quarter, disruptions in the economy and the credit markets caused unprecedented buyer hesitancy. As unemployment rose and consumer confidence fell, buyers remained firmly on sidelines. As a consequence, our sales were extremely weak truly in the quarter.

With some adjustments and incentives, sales momentum returned in December and is carried into January. We sold more homes in December than October, November combined and January was better than December. We also protected our backlog. Centex ended the quarter with 4,600 units in backlog, with more than $1.2 billion.

Cancellations were higher as the percentage of sales actually declined sequentially in absolute terms. And by quarter's end, cancellations had declined to the lowest level in two years. Based on my experiences the multiple housing downturns, I believe Centex has taken the right actions to navigate this cycle. We've been consistent with our actions and grounded in current market realities.

We've responded with a strategy that remains centered on selling homes, reducing costs, generating cash and restoring profitability. We're maintaining a strong cash position. Our cash balance increased during the quarter by $200 million to nearly 1.5 billion. We expect to generate positive cash flow from operations in the fourth quarter and for next fiscal year as well. We're aggressively minimizing cash expenditures at all levels of the organization. We've lowered land related spending and intend to reduce it even further in fiscal 2010. We've cut corporate and home building SG&A expenses by 48% from a year ago.

Every expenditure is scrutinized to see if we can eliminate it, reduce it or make it more efficient. And we are continuing to focus on restoring operational profitability. With prices continuing to decline, our efforts to restore profitability are concentrated on aggressively attacking direct construction and overhead costs while preparing for the new land opportunities that will arise.

Since the beginning of the fiscal year, we've achieved direct construction savings that averaged 17% per square foot. We've captured these savings by collaborating with our trade partners to improve production efficiencies in ways that are mutually beneficial.

Overhead costs are also trending down and we're accelerating overhead reductions in response to a deteriorating economy and housing market outlook. Our headcount has been reduced by 30%, since September 30th, and we continue to be aggressive about further reductions.

We further realigned our operations to serve 35 markets from 19 operating divisions. Support functions continue to be centralized to improve efficiencies. We understand the current market realities and the importance of signs (ph) in the organization for what could be a sustained period of low demand.

As the cycle progresses, we'll start to see the banks work through the land and lots they've acquired. We've been in continuous contact with the banks so we can move quickly when the time is right. They're ramping up their processes now and we're prepared to take advantage of a new lower cost land opportunities that we believe will appear in the near future.

Turning to slide five, looking ahead, we're aggressively building a better Centex. Our core operating model is to primarily pre-sell homes to create a quality backlog, then build those homes to a cadence.

In the current environment, we're also staying flexible by maintaining three to five inventory homes per neighborhood, mainly from a natural level of cancellations to serve those buyers who require a faster delivery. A year ago, we launched an operational excellence campaign to standardize our core business processes in ways that will accelerate our recovery and create a sustainable competitive advantage. And we're seeing successes in lower brick and water costs, faster cycle times and lower area rates.

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