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Standard Pacific (SPF)

Q4 2013 Earnings Call

February 06, 2014 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


Alan Ratner - Zelman & Associates, LLC

Stephen F. East - ISI Group Inc., Research Division

Michael Dahl - Crédit Suisse AG, Research Division

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

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

David Goldberg - UBS Investment Bank, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Alex Barrón - Housing Research Center, LLC

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



Good morning, and welcome to the Standard Pacific Homes 2013 Full Year and Fourth Quarter Results 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'd like to turn the call over to Scott Stowell, President and CEO. Please go ahead.

Scott D. Stowell

Thank you, Tracy, and good morning, everyone. I'd like to thank all of you for taking the time to join us today for the Standard Pacific Homes 2013 full year and fourth quarter update.

I'm proud of our strong 2013 financial performance, which reflects the significant progress we've made executing our strategy. We achieved the fourth most profitable year in the nearly 50-year history of Standard Pacific Homes despite 2013 being the sixth worst year on record for new home sales. We also performed well when comparing progress from 2012 to 2013, more than doubling our net income per diluted share, excluding the reversal of our $454 million deferred tax asset valuation allowance in 2012, from $0.21 for the full year of 2012 to $0.47 for the full year 2013. Our pretax income increased to $285 million (sic) [ $257.7 million] in 2013, compared to $78 million in 2012. For the quarter, we earned $64.8 million, or $0.16 per diluted share, with pretax income up 205%, to $101 million from the $33.1 million, we earned in Q4 '12.

New home deliveries were up 40% year-over-year to 4,602 homes, and up 38%, compared to 2012 fourth quarter, with home sales revenue up 60% to $1.9 billion for the full year, and up 58% for the quarter. Our average selling price increased to $413,000 for the full year, up 14% from 2012, and $446,000 for the quarter, up 15% from Q4 of last year. This increase in average selling price reflects real pricing power and the mix shift that has occurred from the execution of our move-up strategy. For the full year, over 72% of our deliveries were from the move-up and luxury categories.

We were also able to make significant progress with our gross margin which was 24.6% for the full year, up from 20.5% for 2012, and 26.8% for the quarter, up from 20.8% in the fourth quarter of 2012. This gross margin strength helped to drive our industry-leading operating margin from home sales, which stood at 15.5% for the 2013 fourth quarter, a 780 basis point increase from the prior year period.

The gross margin in our backlog stood at 26.2% as of the end of the fourth quarter, reflecting both a mix shift and an approximately 1% increase in the use of incentives during the fourth quarter.

Net new orders were up 22% for the full year, leading to a 21% year-over-year increase in the number of homes in our backlog, and a 55% year-over-year increase in the dollar value of our backlog. And while net new orders were down 11% when comparing the fourth quarters of 2013 and 2012, the total dollar value of our 2013 fourth quarter orders was actually up 9% when compared to Q4 2012.

It is important to note that the 2012 fourth quarter was a tough comparison for us. Unusually strong, our 2012 fourth quarter absorption rate was up 3% quarter-over-quarter bucking typical seasonality, while our 2013 fourth quarter order absorption rate was slightly below what we expect from typical seasonality, and is reflective of the general slowdown the industry experienced during this period. Our absorption rate for the full year increased to 2.5 from 2.2 as compared to 2012 and decreased to 1.7 from 2.2 when comparing Q4 '13 to Q4 '12. This decrease in absorption rate for the quarter reflected the more tempered selling conditions we experienced during the quarter, as well as our continued emphasis on margin over sales pace.

As I indicated last quarter, reflecting our belief that land assets are too hard to replace and rather than using a margin-eroding incentives to capture home buyers in the short term. We instructed our operators to remain patient, incentivizing only enough to target a minimum sales rate at our slowest-selling communities, of approximately 1.5 homes per month for the quarter.

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