Pulte Homes Inc. (PHM, Financial) filed Quarterly Report for the period ended 2010-09-30.
Pulte Homes Inc. has a market cap of $3.01 billion; its shares were traded at around $7.75 with and P/S ratio of 0.7. PHM is in the portfolios of Chris Shumway of Shumway Capital Partners LLC, John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC, Charles Brandes of Brandes Investment, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
We continue to evaluate our existing land positions to ensure the most effective use of capital. Land sale revenues and their related gains or losses may vary significantly between periods, depending on the timing of land sales. Land sales had positive margin contributions of $1.1 million and $9.2 million during the three and nine months ended September 30, 2010, respectively, compared with negative margin contributions of $9.5 million and $17.0 million during the three and nine months ended September 30, 2009, respectively. These margin contributions included net realizable value adjustments related to land held for sale totaling $0.6 million and $1.0 million for the three and nine months ended September 30, 2010, respectively, compared with $8.3 million and $16.2 million in the respective prior year periods.
Selling, general, and administrative expense as a percentage of home sale revenues was 40.7% for the three months ended September 30, 2010 compared with 19.8% for the same period in the prior year. For the nine months ended September 30, 2010, selling general and administrative expenses as a percentage of home sale revenues was 21.9% compared with 19.5% in the prior year period. Results for the three and nine months ended September 30, 2010 include the adverse impact of certain insurance claims totaling $272.2 million and $291.8 million, respectively. Excluding such charges, our selling, general, and administrative expense as a percentage of home sale revenues decreased significantly from the prior year periods. While the gross dollar amount of our overall selling, general and administrative costs increased as a result of the Centex merger and our higher volumes, our internal initiatives focused on controlling costs and matching our overall cost structure with the current business environment have resulted in significant improvements in our overhead leverage. Selling, general, and administrative costs also included severance costs of $7.1 million and $11.1 million for the three and nine months ended September 30, 2010. The three and nine months ended September 30, 2009 included transaction and integration costs related to the Centex merger, including severance, totaling $50.9 million and $56.6 million. The three months ended September 30, 2009 also included certain duplicative corporate and divisional overhead costs during the transition period following the Centex merger. Overall, we have achieved significant reductions in overhead costs since the Centex merger. However, our overhead leverage remains high relative to our sales volumes, so achieving a more efficient overhead structure remains an area of focus, including additional consolidation and streamlining of certain of our field teams and corporate functions in the fourth quarter of 2010.
Equity in earnings (loss) of unconsolidated entities was $(3.6) million and $1.8 million for the three and nine months ended September 30, 2010, respectively, compared with $(4.2) million) and $(57.2) million for the three and nine months ended September 30, 2009, respectively. The primary cause for this change in results is the lower levels of impairments related to these entities. The majority of our unconsolidated entities represent land development joint ventures, so the timing of income and losses can vary significantly between periods depending on the timing of transactions and circumstances specific to each entity.
Other income (expense), net includes the write-off (recovery) of deposits and pre-acquisition costs resulting from decisions not to pursue certain land acquisitions. These write-offs vary in amount from period to period as we continue to evaluate potential land acquisitions for the most effective use of capital. Other income (expense), net also includes goodwill impairments totaling $654.9 million and $656.3 million for the three and nine months ended September 30, 2010, respectively. Additionally, other income (expense), net includes certain lease exit costs and asset impairments related to overhead reduction efforts. Other income (expense), net for the nine months ended September 30, 2010 and 2009 also includes $10.2 million and $8.9 million, respectively, related to the net favorable resolution of certain contingencies. The impact of such items for the three months ended September 30, 2010 and 2009 was not significant.
The total purchase price related to approved land under option for use by our Homebuilding operations at future dates totaled $739.2 million at September 30, 2010. These land option agreements, which may be cancelled at our discretion and may extend over several years, are secured by deposits and pre-acquisition costs totaling $97.7 million at September 30, 2010, of which $4.1 million is refundable. This balance excludes contingent payment obligations which may or may not become actual obligations to us.
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Pulte Homes Inc. has a market cap of $3.01 billion; its shares were traded at around $7.75 with and P/S ratio of 0.7. PHM is in the portfolios of Chris Shumway of Shumway Capital Partners LLC, John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC, Charles Brandes of Brandes Investment, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:
Homebuilding gross profit margins from home sales improved to 7.0% for the three months ended September 30, 2010 compared with negative 2.5% for the same period in the prior year. For the nine months ended September 30, 2010, Homebuilding gross profit margins were 10.9% compared with negative 19.0% for the same period in 2009. During the three and nine months ended September 30, 2010, we recorded land and community valuation adjustments of $57.5 million and $87.5 million, respectively, compared with $132.6 million and $600.4 million during the respective prior year periods. Excluding these land and community valuation adjustments and amortization of capitalized interest, gross profit margins were significantly higher during the three and nine months ended September 30, 2010 compared with the prior year periods, though down slightly from the second quarter of 2010 due to lower sales volumes. This improvement continues the margin expansion we have seen in recent quarters and reflects a combination of factors, including shifts in the product and geographic mix of homes closed during the quarter, better alignment of our product offering with current market conditions, and our various initiatives to reduce the construction cost of our homes.We continue to evaluate our existing land positions to ensure the most effective use of capital. Land sale revenues and their related gains or losses may vary significantly between periods, depending on the timing of land sales. Land sales had positive margin contributions of $1.1 million and $9.2 million during the three and nine months ended September 30, 2010, respectively, compared with negative margin contributions of $9.5 million and $17.0 million during the three and nine months ended September 30, 2009, respectively. These margin contributions included net realizable value adjustments related to land held for sale totaling $0.6 million and $1.0 million for the three and nine months ended September 30, 2010, respectively, compared with $8.3 million and $16.2 million in the respective prior year periods.
Selling, general, and administrative expense as a percentage of home sale revenues was 40.7% for the three months ended September 30, 2010 compared with 19.8% for the same period in the prior year. For the nine months ended September 30, 2010, selling general and administrative expenses as a percentage of home sale revenues was 21.9% compared with 19.5% in the prior year period. Results for the three and nine months ended September 30, 2010 include the adverse impact of certain insurance claims totaling $272.2 million and $291.8 million, respectively. Excluding such charges, our selling, general, and administrative expense as a percentage of home sale revenues decreased significantly from the prior year periods. While the gross dollar amount of our overall selling, general and administrative costs increased as a result of the Centex merger and our higher volumes, our internal initiatives focused on controlling costs and matching our overall cost structure with the current business environment have resulted in significant improvements in our overhead leverage. Selling, general, and administrative costs also included severance costs of $7.1 million and $11.1 million for the three and nine months ended September 30, 2010. The three and nine months ended September 30, 2009 included transaction and integration costs related to the Centex merger, including severance, totaling $50.9 million and $56.6 million. The three months ended September 30, 2009 also included certain duplicative corporate and divisional overhead costs during the transition period following the Centex merger. Overall, we have achieved significant reductions in overhead costs since the Centex merger. However, our overhead leverage remains high relative to our sales volumes, so achieving a more efficient overhead structure remains an area of focus, including additional consolidation and streamlining of certain of our field teams and corporate functions in the fourth quarter of 2010.
Equity in earnings (loss) of unconsolidated entities was $(3.6) million and $1.8 million for the three and nine months ended September 30, 2010, respectively, compared with $(4.2) million) and $(57.2) million for the three and nine months ended September 30, 2009, respectively. The primary cause for this change in results is the lower levels of impairments related to these entities. The majority of our unconsolidated entities represent land development joint ventures, so the timing of income and losses can vary significantly between periods depending on the timing of transactions and circumstances specific to each entity.
Other income (expense), net includes the write-off (recovery) of deposits and pre-acquisition costs resulting from decisions not to pursue certain land acquisitions. These write-offs vary in amount from period to period as we continue to evaluate potential land acquisitions for the most effective use of capital. Other income (expense), net also includes goodwill impairments totaling $654.9 million and $656.3 million for the three and nine months ended September 30, 2010, respectively. Additionally, other income (expense), net includes certain lease exit costs and asset impairments related to overhead reduction efforts. Other income (expense), net for the nine months ended September 30, 2010 and 2009 also includes $10.2 million and $8.9 million, respectively, related to the net favorable resolution of certain contingencies. The impact of such items for the three months ended September 30, 2010 and 2009 was not significant.
The total purchase price related to approved land under option for use by our Homebuilding operations at future dates totaled $739.2 million at September 30, 2010. These land option agreements, which may be cancelled at our discretion and may extend over several years, are secured by deposits and pre-acquisition costs totaling $97.7 million at September 30, 2010, of which $4.1 million is refundable. This balance excludes contingent payment obligations which may or may not become actual obligations to us.
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