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Centex Corporation (CTX)

F4Q09 (Qtr End 03/31/09) Earnings Call

May 06, 2009 10:00 am ET


Tim Eller - Chairman & CEO

Cathy Smith - CFO

Mark Kemp - CAO


Ivy Zelman - Zelman & Associates

David Goldberg - UBS

Nishu Sood - Deutsche Bank

Dan Oppenheim - Credit Suisse

Ken Zener - Macquarie Capital

Ray Huang - JPMorgan

Megan McGrath - Barclays Capital

Jay McCanless - FTN Equity

Alex Barron - Agency Trading Group

Eric Landry - Morningstar



Good morning and welcome to the Centex Corporation fiscal year 2009 fourth quarter Earnings Call with senior management.

Today's call will be recorded and transcribed. Today's call will also 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 2. 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 other information, please refer to the forward-looking statements disclosure and the other information discussion on slide 3 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.

Tim Eller

Thank you Laurie, and good morning to everyone. Thanks for joining us for our fiscal year 2009 fourth 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 4 with some commentary on market trends and our performance during the fourth quarter, as well as for the full year. Next, Cathy will discuss details of our financial performance for the quarter and for the year. I'll also offer some closing comments about our merger integration planning with Pulte and then we'll address your questions about our operating results.

In the fourth quarter, and for the full year, we've consistently kept our focus on the fundamentals, selling homes, generating cash and restoring profitability. We've seen a steady monthly sales pace of two homes per active neighborhood throughout the quarter and a consistent pace of closings in each quarter through the year.

Similarly, we sustained a stable healthy backlog of nearly 4,200 homes which is among the industry strongest backlog positions in terms of volume, coupled with cancellation rate that continues to decline.

Margin and pricing pressures continued in most markets and our home building gross margins weakens sequentially from December but improved by 200 basis points year-over-year. The loss from continuing operations narrowed by more than half to $406 million.

The quarter's loss was substantially driven by land related impairments and charges which was a result of continued deterioration on pricing and outlook in certain major markets. I'm pleased that we've generated steady, positive cash flow from home building operations for seven straight quarters now. At fiscal year end, Centex held more than $1.77 billion in cash and equivalents, up from $638 million a year ago.

We are effectively managing inventory levels neighborhood-by-neighborhood to stay closely aligned with the dynamic local market demands. We kept our sights trained on the objective of restoring the organization to profitability by making continued progress and reducing cost for construction and overhead in the quarter, excluding one-time items.

We're well positioned to take advantage of attractively priced lots in land and we're seeing increasing opportunities to do so. We're also moving urgently and purposely to accomplish our proposed merger with Pulte which was announced in April. Our integration planning efforts are on track and running smoothly, and I'll discuss that progress further just before we begin the question-and-answer segment of our call today.

Turning to slide 5. After remaining firmly on the sideline in the December quarter, homebuyers cautiously returned in January, aspired to some extent by historically low interest rates, and they have continued to do so through the last month. For the first time in a decade, we sold more homes in April than March which is typically our best month.

Housing markets are more affordable today than ever before. Interest rates for a 30-year fixed conventional loan hover near 5%, levels not seen in 50 years. First time buyers can qualify for an $8,000 tax credit from the Federal Government, and a number of states are also offering credits. Buyers in this large segment are finding a once in a lifetime opportunity to stretch the purchasing power of their down payments.

Let's combine a few of these factors that's been muted by rising unemployment, accelerating mortgage distress and rising foreclosures that have contributed to already high existing home inventories. These issues continue to dominate national headlines and pressure prices and margins. I'm encouraged that we have seen steady traffic levels in sales recovering modestly from the lows we experienced last quarter.

New single family housing starts are approaching record low levels or the month supply of new home inventories are still near historic highs. We're managing unsold inventory tightly at 2.6 houses per neighborhood. In our model, we're able to effectively balance our sold backlog with planned unsold inventory. To-be-built homes represented about half of our gross sales for the quarter.

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