Standard Pacific Corp (SPF)

SPF 
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Standard Pacific Corp. (SPF)

Q2 2013 Earnings Call

July 26, 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

Alan Ratner - 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

Michael S. Kim - CRT Capital Group LLC, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Alex Barrón - Housing Research Center, LLC

Michael A. Roxland - BofA Merrill Lynch, Research Division

Brendan Lynch - Sidoti & Company, LLC

Buck Horne - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Standard Pacific Homes 2013 Second 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 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 would like turn the call over to Scott Stowell, President and CEO. Please go ahead, sir.

Scott D. Stowell

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

Our strong second quarter performance reflects a continuation of the first quarter's positive momentum, focused execution of our strategy and an improving housing market. The demand and pricing power we experienced in nearly all of our markets has resulted in a growing backlog with growing margins, which we believe are strong indicators of future performance.

Net income for the 2013 second quarter was $43.1 million or $0.11 per diluted share as compared to the $14.3 million or $0.04 per diluted share for the 2012 second quarter on revenues of $434 million, which were up 58% year-over-year. Pretax income was $51.1 million, up 254% from the $14.5 million achieved during the prior year period. Net new orders were also up 37% as compared to the 2012 second quarter, resulting in a 79% increase in the number of homes and 116% increase in the dollar value of our backlog as compared to the prior year. The 1,516 orders we generated during the quarter represented our highest level of quarterly activity since the second quarter of 2007.

Driving these solid financial results were significant increases in both our average selling price and our gross margins from home sales. Our average selling price of homes delivered for the quarter was $397,000, an 18% increase from the prior year period. And our gross margin from home sales was 23.7%, a 320 basis point increase when compared to the same period. This gross margin strength also helped to drive our industry-leading operating margin, which stood at 11.1% for the 2013 second quarter, a 590 basis point improvement over the prior year.

The significant increase in our gross margin reflects our ongoing community-by-community evaluation of our value proposition to tactically raise sales prices and reduce incentives as demand warrants. During the second quarter, we were able to raise base prices at over 87% of our communities with same-store ASP from home sales up 16% year-over-year and 6% quarter-over-quarter, while at the same time maintaining our targeted absorption rate for the quarter of plus or minus 3 homes per community per month. As a result of this pricing discipline, we're able to end the quarter with an ASP and backlog of $417,000 and a backlog gross margin of 25.2%.

As we have said repeatedly, our objective is to maximize the value of every homesite that we own. To that end, we will continue to set price in our market, emphasizing margin over sales pace, particularly in what we continue to believe are the early stages of this housing recovery.

Turning now to land. As we discussed last quarter, we expect land acquisition and development to remain a significant focus for us in 2013 and continue to target a total 2013 land spend in the $600 million to $900 million range. During the quarter, we spent nearly $300 million on land and land development. Our second quarter activity included the acquisition of approximately 30 current and future communities, consisting of approximately 3,000 homesites from affiliates of Florida-based Centerline Homes. This exciting acquisition complements our existing operations, bolstering our target move-up position in a number of important markets, including South and Central Florida and Charlotte, North Carolina.

As we move forward, we will continue to strategically acquire land, including through the acquisition of builders and larger land portfolios when those opportunities meet our underwriting criteria. And as we noted last quarter, we intend to continue to capitalize on the early mover advantage we have earned in the land market, focusing our division operators on creating value through longer-term land opportunities that leverage our strong master plan and development capabilities.

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