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Standard Pacific (SPF)

Q3 2013 Earnings Call

November 01, 2013 12:00 pm ET


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


Ivy Lynne Zelman - Zelman & Associates, LLC

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

Michael Dahl - Crédit Suisse AG, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

David Goldberg - UBS Investment Bank, Research Division

Freda Zhuo - Barclays Capital, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Brendan Lynch - Sidoti & Company, LLC

Michael A. Roxland - BofA Merrill Lynch, Research Division

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



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

Scott D. Stowell

Thank you, Justin, and good morning, everyone. Jeff and I want to thank you all for taking the time to join us today for the Standard Pacific Homes 2013 third quarter update.

Let me begin by providing you our view on the housing market. Rapid home price appreciation, increased interest rates, and economic and political uncertainty have all contributed to an environment that has impacted consumer confidence and tempered the robust demand we experienced during the first half of the year. For those of us focused on the move-up market, where purchasing a new home is often a discretionary choice rather than a necessity, these conditions have translated into a lack of urgency as many potential buyers appear tentative and are delaying making a new home purchase.

We have always maintained that the housing market recovery would likely be an uneven one, and that there would be bumps along the road to recovery. While we are certainly experiencing a few of those bumps now, when looking longer-term, we continue to maintain a cautious but positive outlook.

The fundamentals for housing still look good. Inventory is tight, with limited entitled and developed land in the A locations we target, which should result in continued pricing power and increased absorption over time. Affordability remains high as interest rates remain historically low and new households are projected to be formed at rates that exceed the number of new homes being built for the remainder of the decade, creating a supply-demand imbalance that should favor homebuilders.

With the discipline to execute our strategy and the strong land position we've acquired, I believe Standard Pacific remains well-positioned to take advantage of the long-term housing recovery. The benefit of our long-term strategy continued to unfold as disciplined land buying are up-market focus and new home designs all led to a solid third quarter performance.

Net income for the 2013 third quarter was $58.9 million or $0.15 per diluted share as compared to $21.7 million or $0.05 per diluted share for the 2012 third quarter on revenues of $511 million, which were up 61% year-over-year. Pretax income was $70.1 million, up 220% from the $21.9 million achieved during the prior-year period.

Net new orders were also up 12% as compared to the 2012 third quarter, resulting in a 55% increase in the number of homes and a 93% increase in the dollar value of our backlog as compared to the prior-year period. The 1,217 deliveries we generated during the quarter represented our highest level of quarterly delivery activities since the second quarter of 2008. Driving these solid financial results were increases in both our average selling price and our gross margin from home sales. Our average selling price of homes delivered for the quarter was $420,000, a 14% increase from the prior-year period. And our gross margin from home sales was 25.3%, a 510 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 13.2% for the 2013 third quarter, a 660 basis-point improvement over the prior year.

The significant increase in our gross margin reflects the continued execution of our value proposition. The acquisition of well-located land, thoughtful community layouts and all new home designs that appeal to today's move-up homebuyer have all led to our ability to, community-by-community and lot-by-lot, tactically raise sales prices and reduce incentives as demand warrants.

During the third quarter, despite the headwinds I described earlier, we were able to raise base prices at over 68% of our communities, with same-store ASPs from home sales up 19% year-over-year and 1% quarter-over-quarter. As a result of this pricing discipline, we ended the quarter with an ASP and backlog of $445,000 and an estimated backlog gross margin of 26.7%. As we have said repeatedly, our objective is to maximize the value of every single homesite that we own. To that end, we will continue to set pricing in our market, emphasizing margin over sales pace, particularly in what we continue to believe are the early stages of this housing recovery.

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