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Centex Corporation (CTX)

Q1 FY09 Earnings Call

July 30, 2008, 10:00 AM ET


Timothy Eller - Chairman and CEO

Cathy R. Smith - EVP and CFO

Matthew Moyer - VP of IR


Ivy Zelman - Zelman & Associates

David Goldberg - UBS Securities

Nishu Sood - Deutsche Bank

Megan McGrath - Lehman Brothers

Susan Berliner - JPMorgan

Michael Rehaut - JPMorgan

Kenneth Zener - Macquarie Research

Stephen East - Pali Research

Carl Reichardt - Wachovia Securities

Chris Hussey - Goldman Sachs & Co.

Gary Gordon - Portales Partners LLC



Good morning and welcome to the Centex Corporation Fiscal Year 2009 First 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 was filed last night with the SEC on Form 8-K. A link to that document is now available on that website.

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 Centex's forward-looking statement, please refer to the forward-looking statements disclosure 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 managements' remarks. [Operator Instructions]. In the interest of time, we will limit each question to one question and one follow-up question. If you have additional questions following today's call, please contact Matthew 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

Timothy Eller - Chairman and Chief Executive Officer

Thank you Celeste. Good morning, everyone. Thanks for joining us for our fiscal year 2009 first 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 the call today with some introductory comments on the quarter as well as a few thoughts about the months ahead. Next, Cathy will provide details about our financial performance. Then I'll offer some closing comments and we'll take your questions.

Turning to slide three, conditions in the housing market worsened in the quarter and we don't see any improvements in market conditions for remainder of this fiscal year. Foreclosures are arising dramatically in most markets, employment growth is slowing. Mortgage rates are on the rise and we're seeing stricter mortgage qualification requirements for home buyers. Energy costs have increased substantially for our subcontractors, suppliers and customers.

All of these factors are causing consumer confidence to erode further. This uncertainty with the consumers reflected directly in our diminished traffic and sales volumes, compared to last quarter and a year ago. Our sales teams did a great job selling 4,200 homes in the quarter. However, that was a decrease of 35% from the same quarter last year. Closings for the quarter also dropped about 35% to just over 3,900 homes.

Turning to slide four. Despite the economic headwinds, we built a strong cash position in the quarter and we expect to maintain that. We had $1.24 billion in cash on hand at June 30th. We expect positive operating cash flow from homebuilding operations for the full year and we're expecting to further improve our cash position at fiscal year end, are also reducing outstanding debt by another $250 million.

I'm comfortable that we have enough cash to manage our medium term debt maturities and pick advantage of opportunities. And these uncertain conditions, however, maintaining a strong cash position is critical. Accordingly, we are planning to conserve our cash resources for future flexibility. We are actively evaluating every internal opportunity to bolster our capital position in this difficult operating environment, including our dividend. So no decisions have been made at this time.

Turning to slide five. We remain focused on asset efficiency and achieving a more flexible land position. Both our historical and our recent experience shows that the build-to-order business model results in higher margins. We'll have to sacrifice some sales in the near term.

As we continue the transition to the build-to-order wider asset operating model. Unsold inventory declined again in the quarter, down 23% sequentially and down 72% over last year. We made considerable progress in improving core Centex business processes in purchasing and construction.

Despite rising commodity costs, we systematically achieved overall monthly savings in direct construction costs. Category by category, we're working closely with our trade partners and suppliers to capture savings. For instance, we reduced our overall costs in the Drywall category by more than 5%, despite two announced 10% material price increases the last six months.

Turing to slide six. We recently announced the Centex Energy Advantage. This is a great example for sustainable innovation that builds a better Centex. This suite of energy saving features will be standard in all new homes starting in January 2009. Affordability is an issue for home buyers today and energy costs directly impact affordability. Centex Energy Advantage takes direct aim in making home ownership more affordable.

Home buyers' budgets are impacted by the operating costs of a home. New homes equipped with Centex Energy Advantage features will be up to 22% more energy efficient than comparable new homes built to the current energy and crude [ph] requirements and up to 40% more efficient than a typical ten year old home.

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