"..Having completed 100 land deals over the past 12 months, these transactions have provided an opportunistic transition strategy, but they are small and are growing increasingly scarce in the market and when they are gone, they are gone. With a large supply of finished as well as entitled lots, we clearly will be advantaged later in the housing cycle, given our access to a large supply of lots with lower embedded costs.
"..Beyond long-term land opportunities, we have more immediate initiatives in process to enhance margins in 2011 and beyond.
"..Pulte mortgage's capture rate for the quarter current quarter was approximately 81% and the average FICO score for the quarter was 754 (!).
"..On the balance sheet for the quarter, we ended with a cash balance of approximately $1.5 billion, a decrease of approximately $1.2 billion from the third quarter 2010. The use of cash in the fourth quarter was mainly attributed to the retirement of $898 million of senior notes.
"..House and land inventory ended the quarter at approximately $4.8 billion.
"..Our expectation for gross margins from what we know today, exclusive of any impact from capitalized interest amortized or merger-related working process amortization, are to improve year-over-year and increase sequentially throughout the year as a result of our initiatives to reduce house costs and the addition of new communities coming online with higher-than-average gross margins. We expect the first quarter to start-off slightly below the fourth quarter of 2010 conversion as a result of the mix of closings in the first quarter and then MOVE HIGHER throughout the remaining quarters in 2011.
"..As for Homebuilding and Other Non-operating SG&A, we anticipate the reduction of approximately $100 million we have highlighted and expect the run rate to be on average approximately $125 million per quarter, starting the first quarter slightly higher and working down as we move into the year.
"..We ended the year with 147,000 lots on our control, of which, roughly 31% are developed. Included in this position are 1,300 lots we recently acquired just outside of Dallas as well as 850 lots we acquired late in 2010 in Seattle, Washington. Seattle is one of the more land-constrained cities in the nation, so these new communities provide a great advantage in the local market.
"..We continue to look at new land deals, but at least for now, the distressed deals in better locations have gotten picked over...Given the strength of our land pipeline, we can be more patient with our investments and not chase deals that have higher prices or outlying markets.
"..January was a good month for us. We're very pleased with the trends we saw. We built sequentially every single week, as you might expect. We did do better than our own internal plans for January in terms of overall sign ups. And we're particularly encouraged by the strength of our Del Webb communities. As mentioned, we had the one opening, which far exceeded normal expectations. And frankly, we're seeing some strength in some of the other destination locations as it appears, Snowbirds, if you will, are starting to show up again in Arizona, Florida, places like that. So we did say that one month does not make a quarter, and we don't know what the rest of the quarter will bring, but we like what we see so far.
"..Sign-ups: "we're actually holding them off from a sign up or counting them as an order at a point until we clear them through our mortgage process."
"..On localizing decision-making regarding designs and construction: "one of the things we've learned is that scale is quite local in this business...we made a fairly significant shift in philosophy to empower the field more. I have four area Presidents, directly reporting to me that are now part of the senior management team.
"..Distressed Land opportunities as a short-term plus, a long-term non-entity: "I think other builders probably got into the distressed land business a little bit before we did and given the big base of land we had saw a bigger percentage of their closings coming from the distressed deals in 2010. As an example in 2010, the closings from distressed deals that flowed through our P&L were negligible, whereas we said this year, they could be approximately 15% or more in 2011. As we get into 2012, I think you'll still see some of that flowing through because the communities may have a couple of years' life. But beyond that, clearly, our strategies from margin improvements are very, very focused on the house cost and design components, which when David asked this question, those are the things that I'm finding being very close to the operations now that I see a lot of upside for us and ability to drive.
"..Obviously we'll have to see what the market does, but it won't be as much about distressed land in the out years because frankly, we think the easy pickings are gone. It doesn't mean we won't see benefits in '11 and '12, we will as we indicated, but as you get into longer time frames, it's going to be more about your core operational prowess, if you will, as opposed to inexpensive land.
"..As you look at the Del Webb business particularly, we are seeing strength there. We're excited about that since it's roughly 1/3 of our overall business and we have significant assets there. But those communities are all open. Save the one in Houston where we're putting a lot of new infrastructure dollars in, for the most part our Del Webb's are fully functioning and we've got years and years of runway in front of us there.
"..And it's going to clearly take a combination of rising fundamentals to build or underwrite deals. We are frankly, not too worried about that given our very long land supply and our desire to drive better turns with the existing land we have. And we've been singing this tune for two or three years that in the early parts of the downturn, or the early parts of recovery, we're going to look disadvantaged because we are not picking up as much of the distressed assets as others. Later in the cycle, we're going to be advantaged. I don't know if we're at that turning point here, but I frankly like our land portfolio and what I see, going forward, because we're not feeling very desperate, if you will, to make deals pencil.
So there was a lot of blah blah in this call, and I will try to express it in layman's language.
They own a lot of land, and right now that's an albatross around their neck because they are having to write down the valuations. Their competitors dumped their losers sooner than Pulte and made up for it by buying distressed land and quickly building homes on that land for sale. Thus they have higher margins than Pulte.
Think of Pulte as a huge battleship. It moves slowly. They didn't move quick enough - in the rear view mirror - and now they are where they are.
But going forward, the CEO thinks that all of that land is going to do very very well for them - and for a long long time too. So Pulte will probably be the last builder in line to rise from its ashes, but when it does, because of its sheer size, it will be a play on the entire recovery.
As far as buying distressed land now? The CEO thinks most of the best deals have been picked over already. That being said, they bought a $1BL in land in 2010 and will probably buy another $1Bl going forward.
Their margins are 600% below where they should be. The CEO thinks the only way they are going to get those up is by building the right kind of mix of home for customers, making a larger percentage of the sale consist of base price + customer additions, and don't give anything away. The 300 bps in margin that competitors have gotten from distressed land is going to go away in the long run.
The CEO sounds like a one-man show. He fielded practically all the calls. Sounds like this company is too centralized for its own good. He's taking steps to decentralize, but those 4 presidents have better become more than rubber stamps. He misses stuff, and the analysts know it. Part of the under-valuation of Pulte is Richard Dugas. He's awfully young (age 43) to be such a one-man show. Too Top Down in management style. This company is clearly behind its competitors because their CEO - aka god - wasn't quick enough on his feet when he should have been. Be nice if he lets the troops on the ground have more authority.
These guys are NOT broke. They have $4.8BL in home inventory and land, and $1.5 BL in cash. That works out to $15/share. So all this stuff about them being a BK candidate or violating their covenants is BS. BTW...I wrote to the company about that, and you'll notice that they specifically addressed it in the call.
Their Dell Webb communities are a cash cow. 50% of the sales are in cash. The communities are dense - composed of retiring baby boomers - and there is a lot of run rate to build new homes in existing communities. This 30% chunk of Pulte's earnings is almost entirely dependent on the stock market, because retirees buy a Dell Webb home out of their assets, not out of an ongoing salary. Bull market means the Dell Webb section is going to do great.