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Standard Pacific Corporation (SPF)

Q3 2012 Earnings Call

October 26, 2012, 12:00 pm ET


Scott Stowell - CEO & President

Jeff McCall - EVP & CFO


Ivy Zelman - Zelman & Associates

David Goldberg - UBS

Adam Rudiger - Wells Fargo Securities

Mike Rehaut - JPMorgan

Joel Locker - FBN Securities

Alex Barron - Housing Research Center



Good morning, and welcome to the Standard Pacific Homes 2012 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, CEO and President. Please go ahead.

Scott Stowell

Thank you, Tim and good morning everybody. With me this morning are Jeff McCall, our Chief Financial Officer and Mr. John Babel, our General Counsel. I would like to thank all of you for taking the time to join us today for the Standard Pacific Homes third quarter update.

To begin, I would like to provide you with a few brief comments about the housing market and our overall quarterly results before turning it over to Jeff who will provide additional detail about our financial performance.

The positive momentum we experienced during the first half of 2012 has continued. Our solid third quarter results reflect the execution of our strategy and the continued gradual improvement of the housing market. Throughout the year, home sales and prices have trended up steadily in most of our markets and this positive activity coupled with recent reports of falling unemployment, historically low interest rates and high affordability, have all helped to bolster confidence in potential home shoppers that the worst is behind us and it’s a good time to buy a home.

We believe that as the housing market and the economy in general continue to recover, there will likely be a further acceleration in the pace of home buying led by the move-up home buyer who has the advantage of being more financially secure, possess a stronger credit and aspires to own an upscale home in an amenity rich community.

While we are seeing many positive macroeconomic signs and significant year-over-year improvement in our own performance, we have always maintained that the housing recovery would likely be an uneven one. On the positive side, in addition to extraordinarily low mortgage rates, strengthening housing demand and rising prices, the number of homes listed for sale in the US has fallen by more than 40% from the peak in 2007 and nearly 20% in the past year alone.

Homes also remain extremely affordable with home prices 30% below their July 2006 peak. In addition, resale homes are selling more quickly reflecting the increasing demand we have been seeing across the country, including from buyers who are now three years or more removed from a short seller foreclosure who have chosen to reenter the market.

On the negative side, although the mortgage rates remain at all time historical lows, mortgage underwriting criteria remains stringent and regulatory headwinds continue to preclude any meaningful relaxation of these standards. In our view, the availability of mortgage credit will be one of the key factors that dictates the ultimate scope and pace of the housing market recovery.

Against this backdrop, we are working diligently to proactively improve our business with the goal of outpacing the recovery no matter how slow or unsteady. We remain committed to our growth strategy and are focused on identifying and acquiring land in A locations and providing industry leading architecture, construction quality and a premium customer experience to serve our move-up home buyers. We remain confident in our belief that this strategy has us well positioned for the months and years ahead.

Our positive third quarter results demonstrate the progress we're making against our strategy. We earned $21.7 million or $0.05 per share during the quarter, with new orders, deliveries and revenues up a healthy 29%, 24% and 32% respectively over the prior year period. And as we look forward, I am pleased by the 64% year-over-year increase in the dollar value and number of homes in our backlog to approximately $500 million or 1,400 homes. This backlog strength bodes well for the fourth quarter and leaves us well positioned as we enter into 2013.

Our average sales price rose to $369,000 during the quarter, an increase of 7% compared to the third quarter of last year and 9% over the 2012 second quarter. What is most notable about this increase is that it’s been driven almost entirely by the execution of our move-up strategy outside of California.

Comparing the three months ended September 30, 2012 to the prior year period, the average sales price of our delivered homes was up to 2% in California, but 5% in Arizona, 7% in the Carolinas, 17% in Texas, 27% in Florida and 30% in Colorado. We also achieved a 140 basis point improvement in our normalized gross margin from home sales during the quarter, achieving 20.2% in 2012 compared to 18.8% in the year earlier period. The gross margin of homes and backlog was up an additional 70 basis points to 20.9% as of the end of the third quarter.

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