Standard Pacific Corp. appears to be on much firmer financial ground than it’s been in some time, although company executives aren’t confident enough to say the industry as a whole has turned a corner.
The Irvine-based homebuilder’s most recent earnings report, announced late last month, was one of the best reports that anyone in the homebuilding industry’s seen in the past year.
Standard Pacific posted a loss of $23 million in the second quarter. That was its 11th straight quarter of losses, but well below the $249 million lost a year earlier.
If not for $21.3 million in impairment charges and additional restructuring charges, the company would have earned $2.2 million last quarter,a rarity for any homebuilder during the nearly three-year downturn for the industry.
Those are “impressive results considering what’s going on out there,” said analyst Ivy Zelman, of Beachwood, Ohio-based Zelman and Associates.
Officials said they’re pleased with the progress the company has made so far this year, but profitability is still the goal, regardless of market conditions.
“Break-even is not what we’re aiming for. (But) it beats losing $1.2 billion,” as the company did in all of 2008, Chief Executive Ken Campbell said.
Company officials are optimistic that there will be decent summer sales following a surprising spring uptick, although they won’t reach the levels seen during the market’s heyday.
“We weren’t sure we would have a spring selling season, and we did,” Campbell said.
It’s still likely two years or more before the market returns and new home prices begin to increase, company officials said.
The company builds in California, Florida, Arizona and Nevada. Sales in Arizona were surprisingly strong last quarter, the company reported.
Standard Pacific’s stock jumped nearly 20% on its July 22 earnings report. Shares for the builder also were given a boost last week after the Commerce Department reported sales of new homes in the U.S. rose 11% in June,the fastest increase seen in more than eight years.
Standard Pacific’s stock is now at its highest point since October. The company counts a recent market value of about $350 million.
The company’s second-quarter results aren’t too surprising to Campbell, a turnaround specialist who took over the reins of Standard Pacific last December.
“I think this quarter is confirmation that if we say we’re going to do something, we are going to do it,” Campbell said during his company’s quarterly call with analysts.
Since Campbell joined Standard Pacific from the company’s largest shareholder, New York-based hedge fund MatlinPatterson Global Advisers LLC, the company’s turned its attention to generating cash, reducing its debt load and slashing expenses.
Its Plan
Among other moves, it has mothballed about 30% of its building plans until the market recovers, and on average it has cut building expenses by some $40,000 per home, officials said.
Standard Pacific’s selling, general and administrative expenses now are 42% below what they were a year ago, which helped boost the company’s gross margin from continuing operations to 13.5% last quarter.
That’s up from a negative 18.5% gross margin a year ago and is among the highest in the homebuilding industry, Campbell said.
The stronger balance sheet should allow the company to “tread water” until the market recovers, Campbell said. It also will serve the company well as it looks to buy land at discounted prices, which is likely to happen next year, he said.
“We still believe in 2010 there are going to be some good opportunities to buy land,” Campbell said. “(Banks) can only hold their breath for so long.”
Standard Pacific would like to make land deals in the $10 million and larger range, Campbell said. The company would expect profits in the 20% range from those types of acquisitions, Campbell said.
Before then, the company plans to work on reducing its debt load by moving the due dates for about $150 million of notes it owns to 2013 or later, he said.
