KB Home (KBH) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to KB Homes' first quarter earnings conference call. As a reminder, today's call is being recorded. KB Homes' discussion today will include certain projections and forward-looking statements in order to help investors better understand KB Homes' business prospect. These are based on their assessment of current business and operating conditions. Please be aware that actual results may differ from those that may be expressed or implied by the projections and forward-looking statements, and the differences may be material.

These discussions and the Company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC identify various factors that could cause actual results to differ from those that KB Home will be projecting in the forward-looking statements that will be made today. We urge you to read those. I would like to remind everyone the conference call will be---is being webcast on KB Homes' website at kbhome.com.

And now for opening remarks and introductions I would like to turn the call over to KB Homes' Chairman and Chief Executive Officer, Mr. Bruce Karatz. Please go ahead, sir.

Thank you and good morning, everyone. Thanks for joining us today to discuss the results of our Q1 results. I'd also like to thank our friends in Miami and Stuart for allowing us to start on time this morning. I'd also like to thank our friends in Miami and Stuart for allowing us to start on time this morning. We're backed up, one against the other.

With me this morning are Jeff Mezger our EVP and Chief Operating Officer, Dom Cecere, our Senior Vice President and CFO, Bill Hollinger, our Senior Vice President and Controller, and Kelly Masuda, our Senior Vice President of Investor Relations and Treasurer.

We're pleased to report strong first quarter results that kick off another excellent year for our shareholders. Our financial performance this quarter reflects our expanded geographic footprint and continued focus on superior customer service and refinement of our KB Next operating model to improve all aspects of our business. This marks 39 consecutive quarters of delivering on our promises and reflects on all of the employees of KB Home who continue to embrace our KB Next principles. Let me share with you some of the first quarter highlights.

Company-wide net orders of 9,901 new homes for the first quarter increased by 23 percent when compared to first quarter of last year. Order growth was up in all regions and continues to track our investments in inventory and overall growth in community count. We concluded the first quarter with a solid order backlog of 23,334 homes sold with a revenue value of approximately $5.8 billion. Our backlog value entering the second quarter is up over 2.1 billion, or 58 percent, compared to a year ago.

We posted solid top-line revenue growth in Q1 with company-wide unit deliveries up 11 percent on year-over-year basis and revenues up 21 percent to 1.6 billion. Total company pretax for the quarter was 186 million, up 68 percent from 111 million a year ago. The 21 percent growth in top-line revenues combined with a 3.2 percentage point improvement in our housing gross margin drove our pretax margin up to 11.4 percent this quarter compared to 8.2 percent in the first quarter of last year. Diluted EPS for the quarter was $2.82, up 61 percent, from $1.75 in Q1 '04, with 43.5 million diluted average shares outstanding in this quarter compared to 42.4 million a year ago.

It was a terrific quarter in every aspect setting the stage for continued solid results going forward. Let's now take a brief look at the market outlook for KB Home in each of our geographic regions.

In our west coast region net orders for new KB homes were up 13 percent in the first quarter, following 30 percent order growth in the fourth quarter of last year. Our dollar backlog of sold homes in California now stands at 4,229 units with a revenue value of nearly 1.9 billion, up 52 percent over the backlog at February 29, '04. Net orders in the quarter were up 6 percent in our southwest region. We enter the second quarter with approximately $1.2 billion of new homes sold and in backlog, up 45 percent over the dollar backlog a year ago. Net order growth in the west coast was tempered by the severe weather conditions experienced during the quarter.

In our central region net orders for new homes were up 16 percent for the quarter in very competitive and price sensitive markets. We enter the second quarter with approximately 4,726 sold homes in backlog valued at slightly more than 700 million, up 15 percent from this time last year.

In the southeast, net orders for new homes were up 47 percent for the quarter, continuing to outpace overall market demand, reflecting the strong organic growth we're achieving in these markets. The southeast is now on par with our other regions with 4,807 sold homes in backlog. The southeast dollar backlog at quarter end was up 131 percent to just under a billion dollars with improving margins.

And in France we had 1,522 net orders for new homes in the quarter, up 61 percent from the previous year. There were 4,452 sold homes in backlog in France at the end of the quarter valued at approximately $1 billion, up 82 percent from the 600 million last year. We are well positioned for the year with orders for new homes up 23 percent in the quarter, $5.8 billion of sold homes in backlog and first quarter pretax income up 68 percent driven by top-line revenue growth and improving housing gross margins. I'll now ask Dom to take you through the financial highlights.

Thank you, Bruce. We began the quarter with 20,280 homes in backlog and converted 6,847 homes or 30 percent of unit backlog to revenues in the quarter. Deliveries in the first quarter were impacted by heavy rainfall in the west delaying home deliveries and expected cash proceeds into the latter part of the year. The average sales price of homes delivered in the first quarter increased 10 percent to 236,300 from $215,000 in the first quarter of 2004. The average sales price of our home benefit from both price improvement and the continued diversification of our product mix into more move-up buyers. For the quarter the housing gross margin was 25.5 percent, up 3.2 percentage points over the 2004 housing margin of 22.3 percent.

Solid gross margins from our core housing business drove our pretax income as the percentage of total revenues up to 11.4 percent for the first quarter from 8.2 percent a year earlier. Construction pretax income of 185 million improved by 71 percent year-over-year with a construction pretax income ratio improving by 3.3 percentage points. Our mortgage banking operations delivered .6 million in pretax income for the quarter compared to 2.0 million in first quarter of 2004.

Our first quarter mortgage retention rate was 49 percent, and the average loan-to-value ratio remain unchanged versus the prior year at approximately 86 percent. Average FICO scores for fixed rate loans were 682 and for ARMs: 709. Of the loans processed in the quarter 65 percent were fixed rate loans, and 35 percent ARMs consisting of primarily hybrid mortgages where rate of fix for 3, 5, or 7 years.

The Company closed the quarter with approximately 113 million in cash related to construction operations. Our net debt to total capital, taking cash into consideration, was 51 percent. The lower conversion of backlog to revenue impacted our cash flow and level of outstanding debt at the end of the quarter. We fully expect this to improve as deliveries pick up in the following three-quarters and are targeting 47 percent or below in debt to total capital by year end. We continue to be committed to an investment grade balance sheet and expect to conclude the year with debt to total capital, interest coverage, and our debt to EBITDA ratios continuing to be at investment grade levels.

Inventories at February 28, 2005, totaled 4.7 billion including both land and homes under construction, up 1.5 billion from February 29th, 2004. This additional investment in land drove strong community count growth in our served markets that resulted in unit net orders increasing 26 percent in 2004 and 23 percent in the first quarter of 2005 and our quarter end backlog of approximately 5.8 billion increasing by 58 percent.

Our inventory of land and homes under construction remains very liquid, with 75 percent of our dollar inventory flowing through earnings over the next six quarters. Company wide we had approximately 166,000 lots owned and controlled at February 28th, 2005, compared to approximately 143,000 lots at this time last year. Our land position have become more geographically diversed as we expanded our business. Approximately 49 percent of these lots are under option contract. Included in inventory are unsold homes and homes under construction with our continued focus on build-to-order we had approximately 500 completed unsold homes in inventory at quarter end which approximated one unsold home per active selling community or 3 percent of the total units under construction.

Our investment in inventory continues to be guided by our detailed analysis of each submarket where we sell homes and our overall focus on after tax returns on invested capital in which 2004 was a solid 16.5 percent. Our returns on investments in new communities continue to be well above our overall cost of capital, delivering real economic value to our shareholders. We have a very geographically balanced business today with 4,229 homes sold and in backlog in our west coast region; 5,120 in the southwest; 4,726 in the central region; 4,807 in the southeast; and 4,452 in France.

Our first quarter financial performance was truly excellent, setting the stage for another great year. Now I will turn it back to Bruce for the wrap-up of our first quarter conference call.

Thanks, Dom. KBH is currently operated in 36 of the fastest growing major U.S. markets and in France. Our overall market share is around 5 percent of our served markets, and therefore we believe there's ample opportunity to further penetrate these markets by expanding our price points and broadening our product offerings. We also plan to enter select markets adjacent to our served markets to expand our footprint with minimal impact on margins and overhead.

We continue to be excited about the strong foundation for profitable growth at KB Home. We've become more diverse, both geographically and in terms of our product than ever before, and it bears repeating that the Company is well positioned to continue delivering excellent results.

In our west coast markets demand remains strong with new community openings being well received by California homebuyers as note by our strong order growth over the past two quarters. Our quarter end backlog value of sold homes in California is up 52 percent over Q1 a year ago with solid housing gross margins above the total company average.

In the southwest, demand for homes in Las Vegas and Arizona is robust. Our quarter end backlog of sold homes in the southwest is up 45 percent over Q1 '04 with solid housing gross margins, also above the total company average.

In the southeast, we now have 4,807 homes sold and in backlog with revenue value of approximately a billion dollars, up 131 percent year-over-year with improving margins and improving SG&A ratios.

And in France our order backlog of sold homes is up 82 percent with housing gross margins slightly above the average for our U.S. businesses. We have developed a broader array of attached products that addresses rising land costs and infill opportunities where there's a shortage of housing supply, and we're expanding our product breadth and price points to better reach first time and second time move-up buyers and active adult homebuyers.

Considering the quality of our first quarter earnings, with EPS up 61 percent, our robust backlog at quarter end up 58 percent, and growth in community count for the year estimated to be up 19 percent, we are raising our guidance for '05. Revenues in '05 are now expected to reach approximately 9.2 billion, up 30 percent over last year on approximately 38,000 deliveries. Housing gross margins are expected to remain at a solid 25.5 percent for the year, and our SG&A ratio as a percentage of revenues is expected to improve as the year progresses and deliveries increase. We're raising our earnings per share guidance for '05 to $15.75 per diluted share, up 38 percent from the $11.40 delivered last year. This is $1.16, or 8 percent, higher than the current consensus estimates for '05 which were $14.59. And $1.00----and $0.25 higher than the '05 guidance we had previously issued of $14.50. Again, it's a terrific start to a new year, and we will be happy to open up the lines to your questions.

Thank you, sir. [Operator Instructions] We'll first hear from Margaret Whelan of UBS.

Good morning, everyone.

Hi, Margaret.

Well done. Tough quarter, Bruce, and great results. Wonder if you would talk a little bit about the individual markets. You didn't give us much detail on that. And then, secondly, in some of the contiguous markets you're going to enter into, what they are, what you're looking at?

Well, I don't want to repeat everything that I said about the markets. I mean, our comp orders were up everywhere.

Okay.

By region. In terms of specific markets, things remain very good in all of the western markets, southwest, and certainly in the southeast, and if you were to look for softness, you know, I would echo what you hear from a lot of other of our competitors, you know, Texas, although it's a mixed bag, still remains very competitive. A lot of pricing pressures. And Colorado is, you know, seeing a little light at the end of the tunnel but it hasn't quite shined sunshine yet.

And, in terms of the contiguous markets you're looking at entering?

Margaret this is Jeff. Our strategy right now is to expand into some of what we would call the secondary market that are contiguous to where we have businesses today, and in '05 we're going to be entering a full business in Palm Springs in the [inaudible] valley. We're going back into Reno, we're expanding to Fresno; we're expanding back into Bakersfield and also opening a business in Daytona Beach.

In every case this is a satellite operation where we can lever the overhead we have in place in divisions that are in that region, and all in, those markets offer about 28,000 permits a year. So it's a good opportunity for increased activity without having to make major G&A and dollar investments.

How long does it take you to get up and running in those markets with the satellite franchise?

We'll be open in all those in 2005.

And, the ast question I had for Bruce is in terms of your '05 guidance relative to our numbers still seems light, and then you had that earnings of 20 bucks. Seems like you could do it in '06. Are you going to talk about the long term on Thursday at your investor day?

Well, I can't unveil everything that we're going to talk about at investor day, because then no one will come, but we'll talk about it. I think what's, you know, fair to say is that when you look at backlog, you look at Q1 earnings, you know, you could easily reach the conclusion that even the new guidance might be a little light.

However, we should not forget that this quarter that we're in now, the second quarter, is very, very important for to us complete the year. We're just starting it, and I think it's prudent while we don't see any clouds on the horizon, one never knows. So we feel comfortable with the guidance we've given, and when we announce Q2, we're going to -- we'll update everybody based on what happens in the quarter.

Margaret this is Dom. I would also comment that, you know, our guidance is up 38 percent for the year, and the median for the home building sector is 23 percent. So we have one of the most robust outlooks in the sector.

Dom, one last question for you. SG&A I know is your focus for fiscal '05. Didn't improve as much as it might have this quarter. Is that just because you missed some deliveries?

Yes, if you look at the first quarter the deliveries on SG&A probably, in fact, impacted us about 50 basis points, but you'll see the improvement in SG&A start in the second half of '05 and really extend into 2006 where we'll get the full benefit.

Super. Okay. Thanks very much. We'll see you Thursday.

Look forward to seeing you.

And, moving on we'll next hear from Carl Reichardt of Wachovia Securities.

Morning guys. How are you? I'm curious about labor costs, Bruce and or Jeff. Given the fact that a lot of builders have got backlog and conversions have slowed, generally speaking, is there----are you noticing like you did in '99 a shortage of trade labor, increased costs for framers or painters or any area where you---and how do you expect to offset that if that occurs in the near term?

Carl this is Jeff. We do have some markets very active right now where there's a shortage of such--- it's really one of the benefits of our business model. We have these large businesses. We're able to attract and retain a quality sub base. That being said, we are seeing some pressure on cost but not significant. If I were to quantify it for the year it would be 1 percent maybe of building costs. Right now we're not seeing a huge run-up in costs. We protect our backlog with our contracts, and if we were to incur any increases, it would be on go forward sales where we would adjust the---adjust the prices accordingly.

Sure. And your sense would be the trades would be much more willing to try to work with you than the smaller builders; it's going to hurt them more, I take it.

Yes.

What trades and what markets? Was there anything---is the---what's the most egregious one you're seeing in terms of what market, then what particular trade?

Pretty much on a national basis, plumbers are tight, concrete companies are tight, and framing contractors are tight. So it's the up-front construction side of the cycle, but there's no single market that comes to mind right now where it's a huge issue for us.

Okay. Great. Thanks very much, guys.

Thanks, Carl.

And our next question will come from Craig Kucera of Friedman, Billings, Ramsey.

Hi. Thank you. I have missed this, but what was your community count at quarter end? Was that around the 500 kind of range?

No, because when you start the year, you close out of a lot of communities at the end of '04, and then you start up opening new communities at the beginning of the year, but in the U.S. we had 373 active communities, up 12 percent from 334 a year ago, and that compared favorably with U.S. orders in the Q1 which were up 18 percent, but for the two-year 2005, because that's the way you have to look at it, we still expect to average 575 communities, which would be up 19 percent from 483 in 2004, and in the U.S. we will average 473 communities in 2005, up 23 percent from 386 in 2004. So you'll see the ramp-up in community count which happens---is very seasonal with us, start up in the second quarter and extend through the year, just like it did last year.

Okay. Okay, great. And can you comment a little bit on some of the slide in your capture rate on the mortgage banking side? I know it used to be not too long ago you guys were doing maybe 80 percent, plus or minus, and kind of what you're seeing there; is it people want different products than you guys are underwriting, or what are your thoughts?

Craig, there's a few things that impact mortgage retention. Certainly, it's more competitive out with the reply market having dried up and there's new products being introduced every other week by some lender out there, so you have to stay pretty nimble in offering additional product.

But another big factor that we're working through right now is with the geographic expansion that we've gone through. We have a lot of newer divisions or through some of the acquisitions that we made in '02, where we're just now starting to see the retention get some traction and increase. So our retention rates are very low in a lot of our newer businesses and we're working to get those up over the rest of '05.

Okay, great. And I've got just one more question. In your guidance what kind of share count does that assume, say on average for the year?

Around 44 million.

Okay. Great. Thanks a lot, guys.

And our next question will come from Ivy Zelman with Credit Suisse First Boston.

Hi, guys. Actually Dennis Segale (ph) on for Ivy. Quick question on margins. I would have though with having to delay some of the California deliveries that margins would have been hindered because of, but it seems they were especially strong, and I'm wondering with those now pushed out toward the end of the year, if we shouldn't expect more of an acceleration in margin than typical? How should we think about the way those are falling out? Versus----

Yes, Dennis, in our guidance we're showing margins at around 25.5 percent for the year throughout the year.

And that's just conservatism realizing what you've pushed out is probably higher than corporate margin?

There might be some mild conservatism in there, but what you're seeing is a very high gross margin level at this point which is where we said would start to drive 12 percent pretax profits going forward, especially when we see the improvement in SG&A, so we're just very comfortable where we are now in our margins.

Well, what drove the margin surprise in the first quarter that isn't expected to continue, then?

It's not that it's not expected to continue. It's that when you start to see in the latter part of the year, you know, you start to replace the land that was under market with land that's now at a little bit higher price, you see the margins come back to more normal levels, but at levels that are significantly where we want them to be, 45.5 percent (caller talking over speaker).

Okay, that's fair enough. Can you remind me what you guys have done in France recently with acquisitions? I think some of that 60 percent growth in orders, I would guess, is from acquisitions?

It is. Yes, we have purchased several regional builders and the growth is driven primarily from those businesses which we're able to buy very attractively, and we're still looking for more. I mean, we now have expanded to most geographic areas in France, and it's working very well.

The ones that you bought within the last year, how many more quarters will you have that benefit before they anniversary?

Bill, what do you think?

One quarter. It anniversaries at the end of second quarter.

Then the underlying growth in the first quarter ex acquisition?

For France?

Yes. On an orders basis.

I'll have to look that up and let you know.

Okay. Lastly, just on the way you guys have talked about some of the feeder markets, maybe this is just my interpretation but it seems like more recently you had talked about entering into newer markets like you had in Indianapolis and Atlanta, markets that you saw as attractive that you weren't even in the area of. Is this a little bit of a shift in strategy, or is it that the opportunity within the markets you're currently operating in are just more attractive than going in green field somewhere or buying a builder in an area you're not familiar with at all?

Your later comment is the relevant one. It's not that there aren't other opportunities, but there is a limitation, we believe, on how many new operations you can get up and going in any one year, and we just think this is lower hanging fruit.

Okay.

Dennis, it's Bill again. We did 61 percent in order growth in France for the first quarter, and ex the acquisitions it was just over 50.

5-0?

Uh-huh.

Great. Thanks, guys.

And our next question will come from Alex Barron of JMP Securities.

Yes. Thank you. Great job. Wanted to see if we could focus a little bit on the southeast region. I know your orders are up there strongly partly because you've made a number of acquisitions, and you're growing that area pretty rapidly, but I was also hoping you could elaborate on --.

Alex, can I just interrupt you for one second? One is, the growth was not driven by acquisition. Everything is anniversaried. So it's not acquisitions.

Okay. Well, even better. Can you give us an idea of what you're doing there to be able to grow at a much faster pace than your peers, and also your average sales price in that region is quite a bit higher than what you had in the last couple of quarters. I'm wondering if that's sustainable.

Well, first, let me take a crack at it, and Jeff can elaborate if he wants. One, while I think we've done a great job, I wouldn't be so quick to say that we've -- that it's better than all of our peers, okay. We're starting from a lower point than many of our peers, so obviously the growth is easier to get. You know, it's still competitive market. There's no lack of builders, so----but we're doing a good job, and there's lots of opportunities, and I would anticipate to see the growth continue at a very robust level for a number of years to come.

By "robust," you mean north of 20 percent, say?

I don't think that would be unreasonable.

Okay. And how about the pricing and the orders?

Alex, in Florida in particular, the market are very good for us, and if could I add on to Bruce's comments, anytime we enter markets like we did in the southeast in '01, '02, and early '03, it's the classic curve for us where it takes about 18 months for our business model to get fully integrated and get some traction. You're just seeing the natural evolution of our business model taking hold, opening new communities, opening our studios, and you're seeing the momentum built. So I agree with Bruce's comments. We expect to grow the southeast at least 20 percent, if not more, over the next few years.

So those 18 months you've already passed that point, or you're almost there?

We are passed it now. We're up running full speed ahead.

Alright, great. Great job.

Thanks.

And our next question will come from Dan Oppenheim with Banc of America.

Great. Thanks very much. Was wondering if you can talk about the, sort of the impact of the wet weather in the west region during this past quarters and what deliveries would have been in the quarter with more normal weather.

We said that it was around 500 unit deliveries were slipped out of the first quarter.

Thanks. Then also in terms of broadening the price point in different markets, as we look forward in terms of growth how much do you think we'll be taking further market share in existing markets at the same price point versus sort of broadening and how high up on the spectrum will you seek to go?

Dan, it depends on the marketplace. California in particular in the coastal regions, we actually have communities opening this year that will be in excess of a million dollar product, but relative to those sub markets, it will still be on the affordable side, say in Orange County or up in the Bay area, so even at that price point we have a competitive advantage over the market for that size in that neighborhood. I don't know that we have the exact quantity sitting here today of how much is our market share in those price ranges, but -- and I don't want to speak for Bruce, but my thoughts would be in the long run I don't see this part of the market being more than 10 or 15 percent.

Sure.

In the large, more expensive land constraint market places.

Remember, there's 630,000 permits in our serve market and with the adjacent market maybe going to 650,000, so we still have only 5 percent of the market so there's tons of potential to grow in our core business.

Great. Thanks very much.

Our next question will come from Mike Rehaut of JP Morgan.

This is Jennifer Kasoley (ph) for Mike Rehaut. I know---similar to the question that was asked regarding the southeast and Florida, I was wondering if you could provide some color as to how the different regions within California are doing and where you expect them to go, and then also the pricing and order trends in Las Vegas.

Well, there's no discernible difference among regions in California. I mean, there are communities that have greater demand than others, but generally speaking the market has stayed in a state of undersupply, and that is still pushing prices, so it's, you know, it's a good time to be a homebuilder in California. With respect to Las Vegas, the mix of product is changing, but overall the market is remaining very healthy, and we continue to do a very good job of executing in that market------in that large marketplace.

If I make a comment on California, remember we've had relatively flat community counts in California for the last several years. '05 is the first year where we've got community count growth. You've seen that with our orders in the last two quarters. That's why our backlog is up 52 percent. You'll see that turn in the deliveries in second quarter, third quarter, and fourth quarters. So this year, for us in California, it's the expansion of community counts which is really beginning to drive some real value for us.

Okay. Thank you very much.

As a reminder it is star 1 to be placed in the queue for a question. We'll next go to Timothy Jones of Wasserman and Associates.

Good morning, Bruce.

Tim.

How are you?

I'm terrific.

You said something that really caught my attention.

Uh-oh.

No, actually, it's a positive. (laughter) You said that you intended to -- I mean, I put a big star beside this, 75 percent ---- you expected to go through 75 percent of your inventory in the next six quarters. Are you talking about housing inventory or total dollar value of inventory?

It's always been this way. It's total dollar value inventory, not units, but dollar value.

Including the land.

Including land and housing under construction. Primarily land.

Right.

And when you look at the way our inventory flows we turn our inventory 1.6, 1.7 times, so if you look at inventory dollars about 75 percent of it flows through the earnings in six quarters, and it's a very liquid balance sheet.

I would suggest that's quite a bit better than some of your competitors.

We have one of the best inventory turns in the industry.

The---I mean---NBC pointed out three markets that really have been hurt by weather, and I've talked to Horton and everybody else, especially Nevada and Arizona has been extremely bad, and obviously southern California. Are you going to get some of these delays hitting you in the second quarter? You started talking about it going to the second half. I would expect that would be the case.

You know, I don't know that we're going to be affected any less than others, and where the delays come, of course, is opening new communities, getting new starts going, so forth. But having said all that, of course, it's raining here today, but, you know, we think we'll still be able to roll out, you know, Q2, 3, and 4, you know, pretty much as planned, and there will be undoubtedly some delays.

Okay.

There's a real mix issue, if I may comment on it, that people should understand when they look at overall backlog and run conversion ratios. Our backlog is up 52 percent in California which has six, seven-month build times and 80 percent in France which has high density condos, which is even longer, so---much less in central, which can be 60, 70-day build times. What you're really seeing in our backlog is the mix of product where we have our growth in the more attractive regions showing up in the conversion ratios.

So that will affect the conversion ratio short term but certainly obviously enhance your margins.

It's very favorable long term.

Lastly, speaking of mix, product mix, you -- first of all, you alluded changing the mix in Las Vegas but didn't say what are you doing to change the mix.

Well, we're going both ways. We're going higher density in order to amortize higher land costs to offer attractive more affordable product, and then on the other end, we're going bigger, more luxurious, higher price to sap up a little of that luxury market there. We decided, you know, why leave it to other people to take all of those market segments? We ought to be able to participate in each of them ourselves.

Is that what you're doing with the Company to a lesser degree as a whole?

Well, we're not doing it in every single market because we don't think it's appropriate, but in the----- what I would say the higher demand markets we are looking at doing that in all of those higher demand markets.

Be Florida for sure.

Yes.

Anything further, Mr. Jones?

No, thank you very much.

Moving on we'll next hear from William Knobler of Atlanta Hassoff (ph) .

Hi. Congratulations on a very good first quarter. Your lot count was only up 16 percent if my notes are right. Isn't that insufficient to fuel the kind of growth you're looking for, both for the rest of the year and the years to come?

Well, you know, one could argue, you know, how many years supply do you need and obviously at the present level it's four years. At a higher level, it's less. You know, we don't -- we think it adequate but certainly the pressure is not off our entire land acquisition team around the country. You know, what we want is we want the right lots, you know, we can tie up all the lots we want in a number of markets that we don't want them. So it's a tight land market out there, Bill.

Okay. And also, I want to good over that community count. I think you said that you expect to have a 19 percent increase for the year, 575? Is that correct?

That's right, on average, versus 43 in 2004.

Right. And the U.S., did you say up 26 percent?

23 percent.

23.

473 from 386.

And how about France?

Hang on.

If you got it.

Up about 15 percent. 112 versus 97.

112 versus 97. And while I'm on France, did you get that, I don't know, 70, 80, 100 million that you were expecting to get? Did that come in?

We got three-quarters of it in the first quarter and we'll get the remainder at the end of the year.

And I just want you to know I'll be there Thursday regardless of how much information you give today.

Okay. Thanks, Bill.

Moving on we'll next hear from Fred Taylor of Lord Abbott.

Yes, could you just comment -- you gave great guidance, appreciate that--for '05. The desire to make acquisitions that are a little bit bigger than a small local type of player in '05 ?

I wouldn't say the desire is high. Obviously we're opportunistic, and we believe we've got a great platform ourselves, and if an opportunity were to present itself that we thought would add and create something even better we would be interested, but realistically we've got a nice community count planned to drive our growth. We think, impressively, for the next several years and so frankly, we, after thinking through it, believe there are less risky ways of adding to that growth than trying to do a significant transaction.

Right. And the part of the guidance the year end debt to cap number of 47 percent, how strongly do you feel about that, and certainly being under 50?

Well, we feel strongly about maintaining an investment-grade balance sheet. And while agencies are not fixated on a specific percentage, we know that they like to see it under 50, and we want to be there and we expect to be there.

Thank you.

Now we'll take a follow-up from Alex Barron of JMP Securities.

Yes, thank you. I was hoping we could talk about your joint venture activity. Seems like the orders came down quite a bit there this quarter, and I'm wondering what's happening and what should we expect going forward?

You're talking consolidated JVs, and, yes, we expect the orders to remain at a lower level as we've delivered out many of the JVs where we are doing housing type JVs. However, we are in -- we are currently running JVs where we are developing land. So we still have a lot of joint venture activity, it just may be in the form of development of land instead of development and delivery of homes.

Okay. So in the home area that's just -- we should expect a slightly lower level, then, going forward?

Correct.

Okay. Thanks.

We'll go next to Timothy Jones of Wasserman Associates.

Quick follow up. You implied that the south -- the southeast operations margins were slightly below the Company average, since mentioned all other ones being slightly above. Obviously part of this is still the acquisitions. Did you have any acquisition costs in the quarter, and what I really want to ask is, Lenar implied that Florida was one of the three, four highest margined market this quarter. Does that imply that you could probably raise operating margins 100 to 200 basis points, at least to 100 basis points, in that market?

Tim, I think you're right on.

Thank you.

That's all the time we have today for questions. Gentlemen, I'll turn it back over to you for any closing, or additional, comments.

Thank you. Just to close I want to reiterate the solid-state of our current business conditions, the optimism we have for 2005 and beyond, and I want to remind all of those interested that our 2005 annual investor day begins with dinner tomorrow night here in Los Angeles and meetings and site visit continuing through the 24th for any who have not contacted us and would be interested in coming, we still have a few spots. So please call our Investor Relations department at 310-893-7446. Look forward to seeing those who come tomorrow night. Bye. Thank you.

And that concludes today's conference. We thank everyone for your participation. You may disconnect at this time.