Standard Pacific Corp. hung a big Southern California marketing and sales effort in September on the phrase “Mission Possible” and pulled off 227 home sales during the incentive-laden campaign’s two-week period.
It was a bright spot in an otherwise gloomy third quarter for the Irvine-based homebuilder, the country’s 11th largest homebuilder by sales.
The two-week sale was responsible for nearly 15% of the entire company’s third-quarter new home orders,a contract to buy a Standard Pacific home under construction.
Standard Pacific still is building in cooling housing markets such as Arizona, Nevada, Texas and the Carolinas.
For many on Wall Street, the really hard mission is just beginning.
In late October, Standard Pacific posted a worse-than-expected loss of $119.7 million for the third quarter. Analysts were expecting a loss closer to $100 million.
The company reported revenue of $675 million, down 19% from a year earlier. The figure includes $57 million in land sales. The third-quarter results also included $223.5 million of charges, including write-offs to account for diminishing land values.
The company’s stock took a minimal hit on the news,a rarity for Standard Pacific as of late. But its stock already had lost 80% of its value for the year by October.
The company has the worst-performing stock of the 15 largest publicly traded homebuilders this year, according to a Standard & Poor’s industry index.
After breaking into the Fortune 500 list of biggest American companies in 2006, the company now sports a more modest market value of about $360 million.
Declining market values are the least of Standard Pacific’s problems right now. Analysts are questioning how successfully the company can operate with a heavy debt load that totals close to $2 billion.
The company has spent $124 million so far this year, paying off debt and calls for repayment by creditors for the ventures it has with other developers, according to analysts. Another $60 million in joint venture debt is expected to be retired by the end of this year, while another $80 million in margin calls could be coming too.
“We don’t see how (Standard Pacific) can afford to continue to leak cash or to absorb JV debt,” said Vicki Bryan, analyst for New York-based GimmeCredit, in a research report last week.
Taking a more pessimistic tone, New York-based CreditSights analysts Frank Lee and Sarah Rowin predicted last month that Standard Pacific could be forced to file for Chapter 11 bankruptcy protection, due to slow sales and the company’s high debt.
“There has been a lot of speculation that the group of banks on (the company’s) working capital line are not being supportive, and may not be amenable and be patient going forward,” said analyst Ivy Zelman of Beachwood, Ohio-based Zelman and Associates.
Andrew Parnes, chief financial officer for Standard Pacific, says the company has twice this year gone back to its bank group to renegotiate terms of its loans. So far, “the group has been very supportive of our efforts,” he said during the company’s quarterly call with analysts.
Chief Executive Stephen Scarborough said Standard Pacific was continuing to take steps to reduce debt and expenses and plans to generate cash next year.
The company has reduced its employee count from 2,850 at the market’s peak to about 2,000 now. Re-bidding deals with Standard Pacific’s contractors has added about $5,000 worth of savings to every home it builds this year. And another $10,000 in per-home cost savings, or about $4 per square foot, have been identified and are being worked on, he said.
Companywide, Standard Pacific has slashed prices for homes it is selling from 20% to 25% to generate sales. For the most part, that level of price decrease is not being seen in its backyard of Southern California.
“We’ve been operating in the California markets for 40 years, and so our brand is very well established and I believe that it’s a very significant competitive advantage that we have,” Scarborough said. “So we very strongly believe that we do not solely need to compete on price.”
If increased pressure arises from banks to pay down more debt, the company says it won’t resort to an out-and-out fire sale or distressed sale to raise cash, Parnes said.
That said, September’s “Mission Possible” was a big seller in California, in part due to sizable price cuts and other incentives. So far, those local sales have stuck. The cancellation rates for the Mission Possible sales are running about 10%, well below its third-quarter average cancellation rate of 34%.
California orders were also responsible for one of the best items reported last quarter for the company. Standard Pacific said new home orders were up 23% from last year, due to an increase in California orders.
Home deliveries in California were responsible for 28% of the company’s total last quarter, and were behind 45% of its homebuilding revenues.
