Standard Pacific Corp (SPF)

SPF 
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Standard Pacific (SPF)

Q1 2013 Earnings Call

May 03, 2013 12:00 pm ET

Executives

Scott D. Stowell - Chief Executive Officer, President, Director and Chairman of Executive Committee

Jeffrey J. McCall - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Ivy Lynne Zelman - Zelman & Associates, LLC

Michael Dahl - Crédit Suisse AG, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

David Goldberg - UBS Investment Bank, Research Division

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Alex Barrón - Housing Research Center, LLC

David Neil Williams - Williams Financial Group, Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Standard Pacific Homes 2013 First Quarter Conference Call. Today's conference is being recorded.

Before we begin, I would like to direct your attention to the company's Safe Harbor statement and remind you that this conference call contains forward-looking statements, including statements concerning future financial and operational performance. Actual results may differ materially from those projected in the forward-looking statements. For additional information regarding factors that could cause actual results to differ materially from those contained in the forward-looking statements, please see the company's SEC filings, including reports on Form 10-K and Form 10-Q under the heading Risk Factors.

A question-and-answer period will follow today's prepared remarks. A recording of today's presentation will be available for a replay a few hours after this call ends and will continue to be available on the company's website for 30 days.

At this time, I'd like to turn the call over to Scott Stowell, President and CEO. Please go ahead, sir.

Scott D. Stowell

Thank you, Melissa, and good morning, everyone. With me today are Jeff McCall, our Chief Financial Officer; and John Babel, our General Counsel. I'd like to thank all of you for taking the time to join us today for the Standard Pacific Homes 2013 First Quarter Update.

Our first quarter performance reflects the significant progress we've made as we continue to execute our strategy and the benefit we're receiving from the second quarter -- second consecutive year of a strong spring selling season.

In addition to strong pretax income and profitability, the demand and pricing power we are experiencing in nearly all of our markets is leading to a growing backlog with growing margins, which we believe bodes well for our future performance.

During the first quarter, we earned $21.8 million or $0.05 per diluted share as compared to $8.5 million or $0.02 per diluted share in the prior year period. Pretax income for 2013 first quarter was $35.4 million as compared to $8.7 million in the prior year.

Deliveries were up 48% as compared to the 2012 first quarter, resulting in a 61% increase in home sale revenues on an average selling price of $375,000 which was up 9%.

Net new orders were also up 49% as compared to the prior year period, resulting in a 90% increase in the number of homes and 117% increase in the dollar value of our backlog as compared to the prior year period. The 1,394 orders we generated during the quarter represented our highest level of quarterly order activity since the third quarter of 2007.

Our absorption rate was up 49% year-over-year and up 35% compared to the 2012 fourth quarter. First quarter absorption rates were particularly strong in our home State of California where we have invested over $1 billion during the past few years that we believe leaves us particularly well-positioned to take advantage of the strong demand and pricing power we are currently experiencing in the state.

We were also able to make significant progress with our gross margin which was 21% for the quarter, up from 20.3% for the first quarter of 2012 and up 20.8% from the 2012 fourth quarter. More importantly, gross margin of our beginning backlog expected to close in the second quarter is approximately 22.4% and the gross margin of our entire backlog as of the end of the first quarter was 23.1%. This gross margin strength has helped to drive our operating margin which stood at 7.9% for the 2013 first quarter, a 470 basis-point improvement over the prior year. This significant increase in gross margin reflects our ongoing community-by-community evaluation of our value proposition to tactically rates sales prices and reduce incentives as demand warrants.

During the first quarter, we were able to raise base prices at over 95% of our communities and were able to reduce incentives to their lowest levels in almost 3 years, while at the same time increasing our absorption rate to 2.9 sales per community per month, the highest quarterly absorption rate we have experienced since the first quarter of 2007.

As we have said repeatedly, we will continue to emphasize margin over sales pace, particularly in what we believe are the early stages of this housing recovery, targeting an absorption rate of, plus or minus, 3 homes per community per month with the objective of maximizing the value of every single homesite that we own.

Turning now to land, we recognized early on that having a strategic supply of land at an attractive basis would be essential to our future success. Our early mover advantage of acquiring land at favorable prices in the right locations, first going after finished lots and then leveraging our strong master plan and development capabilities to pursue raw land, has allowed us to stay ahead of the demand curve, avoiding the worst of the hypercompetitive fray that land buyers are experiencing in most of our markets. While others are fighting for near-term for finished lot deals, our operators are positioned to be able to think longer term and are currently spending their time focused on securing land opportunities that will benefit us in 2015 and beyond.

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