Pulte Homes Q3 Loss Widens On Charges - Update

(RTTNews) - Home builder Pulte Homes (PHM | Quote | Chart | News | PowerRating) Wednesday posted a wider loss for the third quarter, reflecting merger and debt retirement costs as well as inventory impairment charges, and raised its merger synergy and savings target.

Q3 Results

The Bloomfield Hills, Michigan-based company's third-quarter net loss was $361.4 million or $1.15 per share, compared to a net loss of $280.4 million or $1.11 per share in the prior-year quarter.

On average, 12 analysts polled by Thomson Reuters expected the company to post a loss of $0.64 per share. Analysts' estimates typically exclude special items.

The latest quarter results included about $86.7 million of charges and transaction costs associated with its merger with Centex Corp. and $163.8 million in inventory impairments and other land-related charges. The company also recorded a $47.4 million loss related to the debt retired in the quarter. The year-ago quarter results reflect impairments and land-related charges of $266.6 million.

Quarterly revenues declined to $1.09 billion from the previous year's revenue of $1.56 billion, and fell shy of the $1.17 billion revenue consensus estimate of nine analysts polled by Thomson Reuters.

Richard Dugas, Chairman, President and CEO of Pulte Homes, said, "We are continuing to make progress in the performance of our business as Pulte's third-quarter gross margin before interest, merger costs, impairments and land-related charges expanded to 13.1%, an increase of 370 basis points from the second quarter 2009."

Beyond the impact of the merger, the company's third-quarter results reflect a homebuilding industry that continues its transition toward more stable market conditions as lower prices and historically low mortgage rates are helping to support homebuyer demand.

Dugas added, "Challenges remain, however, as economic weakness, foreclosures, rising unemployment and recent uncertainty over the expiration of the federal tax credit continue to influence buyer behavior."

Third-quarter homebuilding revenues fell to $1.06 billion from $1.52 billion reported a year earlier, reflecting a 23% downturn in closings to 4,166 homes, combined with a 10% drop in average selling price to $253 thousand. Revenue and closings for the period benefited from the inclusion of Centex's operations for the final six weeks of the quarter.

The company's reported quarterly homebuilding pre-tax loss was $291.6 million, including all merger costs and impairment and land-related charges of $240.5 million, compared to a pre-tax loss of $302.0 million, including $266.6 million of impairments and land-related charges incurred in the same quarter of last year.

Financial services revenue decreased to $34.3 million for the most recent quarter, from $36.4 million posted in the same quarter of last year. The financial services operations reported a pre-tax loss of $8.6 million, compared to pre-tax income of $10.1 million for the prior year, hurt by a 24% decline in mortgage loans originated during the quarter versus last year, increased loan-loss reserves and merger-related costs.

Year-To-Date Synopsis

For the nine-month period, the company reported a net loss of $1.07 billion or $3.88 per share, compared to a loss of $1.13 billion or $4.48 per share in the year-ago period.

Total revenues for the nine months ended September 30, 2009 were $2.35 billion, a decline from the $4.62 billion revenues reported in the comparable period of the previous year.

Credit Facility & Merger Update

Pulte Homes noted that as of September 30, 2009 it was not in compliance with the tangible net worth covenant under its credit facility. The company has subsequently requested and received a limited waiver from its banks until December 15, 2009, permitting it to issue letters of credit under the credit facility during the term of the waiver. Further, the company expects to negotiate a permanent amendment by December 15, 2009.

The company estimates the synergies realized through the fourth quarter 2009 to generate annualized cost savings of $260 million. Further, it expects to reach its initial synergy target of $350 million annually, early in 2010, and reach $440 million of savings on an annualized basis by year end 2010. Incremental to these savings, Pulte Homes' post-merger analysis indicates the potential to realize purchasing synergies on the combined business in the range of $150 million - $200 million.

Roger Cregg, Executive Vice President and Chief Financial Officer, said, "In addition to improving our net-debt-to-total-capital ratio to 45%, Pulte's $1.9 billion in debt repayments will reduce the Company's annual interest payments by approximately $130 million, which is $30 million more than estimated when we announced the Centex merger."

Future In Focus

Looking forward, the company raised its merger synergy and savings target by 25% to $440 million, as its merger with Centex offered powerful near-term opportunities. In addition, Pulte Homes said its post-merger analysis indicate the potential to realize annualized purchasing synergies on the combined business in the range of $150 million - $200 million.

Stock Performance

Pulte Homes shares, which have been trading between $6.49 and $13.59 in the past 52 weeks, closed Tuesday's trading session at $9.23.

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