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Standard Pacific is growing its top line through price increases

Brent Nyitray, CFA, MBA

A growing top line: Standard Pacific Homes' 2Q14 earnings (Part 2 of 5)

(Continued from Part 1)

Second quarter revenues come in well in excess of expectations

Standard Pacific (SPF) reported second quarter revenues of $598.6 million. This was a 36% increase year-over-year and a sequential increase of about 29%. Revenues handily beat Wall Street expectations of $562.5 million.

Net sales orders for the second quarter were flat on a unit basis at 1,524 homes and 10% in dollar terms at $713 million. The cancellation rate was 14%. Lennar (LEN) also reported increases in orders along with increases in prices. PulteGroup (PHM) reported a decrease in orders on a unit basis.

Backlog increased as well

Backlog increased 1% in unit terms, from 2,272 to 2,304, and 20% in dollar terms, from $947.6 million to $1.1 billion. Backlog is an indicator of future revenues, which are an important statistic that you should track.

Outlook for the near future

Scott Sowell, president and CEO, had this to say about the quarter: “Our 2014 second quarter performance reflects the strength of our positioning and the continued execution of our strategy. Our early efforts to build a strong land position and to create an innovative product portfolio for the move-up homebuyer, combined with the unwavering focus of our team on constructing well built homes and providing an exceptional customer experience, have all contributed to our 80% increase in pretax profit and our solid operating margin, which was 15.2% for the 2014 second quarter.”

Despite the revenue and the earnings beat, the stock didn’t move much. Builders have generally posted decent earnings. But they haven’t seen much upside action. Stocks that missed—like D.R. Horton—were punished. Stocks like Standard Pacific were unchanged.

Many on Wall Street had hoped to see bigger unit growth. But it looks like the same old pattern of flat unit growth and double-digit increases in average selling prices seems to maintain its hold.

Investors who want to invest in the homebuilding sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB).

Continue to Part 3

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