普爾特房屋 (PHM) 2004 Q4 法說會逐字稿

Good morning ladies and gentlemen.

My name is Christie (ph) and I will be your conference facilitator.

At this time I would like to welcome everyone to the Pulte Holmes fourth quarter earnings conference call.

[Operator Instructions].

It is now my pleasure to turn the call over to your host, Mr. Jim Zeumer, Vice President of Investor and Corporate Communications.

Mr. Zeumer, you may begin.

Thank you Christi, and good morning to everyone joining on the call via the Internet to discuss Pulte Homes financial results for the fourth quarter and full year ended December 31, 2004. 2004 was another record year for Pulte with revenues of $11.7 billion and income from continuing operations increasing more than 60% over 2003. 2004 also marks Pulte's 54th year of operation and our 54th consecutive year of profitability.

This means that Pulte Holmes is now 55 years old, making the company yet another member in the rapidly growing active adult segment.

On the call to discuss Pulte's results Richard Dugas, President and Chief Executive Officer, Steve Petruska, Executive Vice President and Chief Operating Officer, Roger Cregg, Executive Vice President and Chief Financial Officer, Vincent Frees, Vice President and Controller.

For those of you who have accessed to the Internet, the slide presentation will accompany this discussion.

The presentation will be archived on the site for the next 30 days for those of you who want to review it later.

As with prior conference calls, I want to alert everyone listening on the call and via the internet that certain statements and comments made during the course of this call must be considered forward- looking as defined by the Securities Litigation Reform Act of 1995.

Pulte Homes believes that such statements are based on a reasonable assumptions but there are no assurances that actual outcomes will not be materially different from those discussed today.

All forward-looking statements are based on information available to the company on the date of this call and the company does not undertake any obligation to publicly update or revise any forward- looking statement as a result of new information in the future.

Participants in today's call should refer to Pulte's annual and quarterly report on form 10-K and 10-Q for detailed list of risk and uncertainties associated with the business.

With that said, let me turn the call over to Richard for few comments.

Richard?

Thank you Jim and good morning.

Three weeks from today, Pulte Holmes will host its annual investor conference in New York City.

Hopefully all of you will be able to attend.

For those of you who won't, I liked to let you in on a few of the things we will cover.

Obviously, we will talk about the record year that was 2004.

And that included such achievements as more than 38,000 homes delivered, consolidated revenues in excess of $11.7 billion, homebuilding pretax margins exceeding 14%, earnings per share of $7.67,an increase of 56%, and return on average equity of 25%.

We will also discuss Pulte's strong position entering 2005 with a record year-end backlog exceeding $5 billion and an unmatched land pipeline totaling 343,000 lots. 2004 was clearly a breakout year in terms of Pulte's operating and financial performance.

On the Las Vegas front, I will leave it to Steve to detail our specific results for the fourth quarter in a moment. (Inaudible) to say that we moved aggressively to address the situation in Las Vegas and we are very pleased with the progress we have made.

The 2004's record results are now in the rearview mirror and I know the focus to how we will continue to deliver improved operating and financial performance in the future.

For us the drivers remain the same.

Market-share expansion through segmentation.

Pulte's unique approach to customer segmentation and our strategy of serving all buyer segments is critical for achieving growth within our existing markets.

By expanding our business in markets where we already have operations today yet average only 5 to 6% market share; we have the best opportunity for driving increasingly profitable growth.

Why, we already know the market, we know the land sellers, we have established contract relationships, and we can leverage our existing overhead.

Given that we already have the broadest geographic footprint in the industry, expanding share in existing markets can drive the most profitable growth.

Beyond the topic of where and how we will grow?

Our initiative supporting how we can improve and drive more of every revenue dollar to the bottom line.

For us it's about operational excellence.

2004 gross margins from home settlements increased more than two full percentage points to 22.7%.

Our results certainly benefited from the strong pricing environment that exists in many of our markets.

We are also seeing an impact from our efforts to reduce our construction costs and gain greater operational efficiencies.

We continue to focus on activities to lower construction costs and improve our production capability through a developing strategy that we call business simplification.

You've heard some initial discussions around the integrated approach we're taking that touches everything from the number of floor plans we build and how they are designed to the sourcing and materials and how labor is managed.

The further we advance this program, the more opportunities we see to take hundreds and more likely thousands of dollars out of per house construction costs and just as critical to get our homes built and delivered on time as we continue to grow.

We will also spend a little time on our third area of focus namely people development.

In 2004, among Pulte's new hires were about 1200 graduates from the 120 different colleges and universities across the country with which we have built relationships.

Why is this important?

More and more attention is being focused on homebuilders having the required people resources within their companies and resident within their contractor base to continue growing their business.

It is a critical issue, which we have been working to stay in front of for a number of years.

And finally, we will discuss Pulte's commitment to financial discipline.

We ended 2004 with a (inaudible) total cap ratio below our target of 40% and on a net basis we ended the year at 36%.

We are seizing the available market opportunities to grow our business, but as always, as we always have and always will, we're doing so in a prudent fashion that doesn't stress our balance sheet and that provides a strong foundation and financial flexibility to respond to changing market conditions.

An area of discussion that I know will be of interest is land.

At the end of 2004, Pulte controlled 343 lots across the U.S.

Land is obviously the key to this business that we will spend a lot of time detailing Pulte's land strategy, our diversified land portfolio, and how we manage the process day-to-day from both the corporate and local market perspective.

We've assembled what we think will be a very interesting day in terms of understanding your business and more importantly understanding our opportunities for driving future performance.

Given the widespread expectation that the Fed will continue raise rates and that mortgage rates will eventually move higher as well, what does that mean for Pulte?

You've heard us say before that we think we are well positioned, particularly given our geographic and customer diversity, such that we can be successful in a higher rate environment.

Only time can prove this point for certain.

But in the interim we're not just sitting around hoping we are right.

We're taking steps that at best can accelerate our growth and provide incremental gains or at worst can help mute the financial impact should the industry face a significantly softer demand environment, which we do not anticipate but are prepared to handle.

As we say in the industry has never been stronger, but long-term success is about the company's specific strategies, competitive strengths, and management execution.

In this environment, we really like our hand.

Our 2004 results were record setting.

Hopefully this conference will get you comfortable that 2005 results and beyond will be even more impressive.

I hope we will see you there.

At this time let me turn the call over to Roger Cregg for a detailed analysis of our fourth quarter financial results.

Roger?

Thank you Richard and good morning.

I am pleased to report for Pulte Homes another outstanding fourth quarter and full year of operating and financial performance.

The quarter order rate posted approximately a 6% increase over the fourth quarter last year.

Adjusting for the Las Vegas market, the remainder of the business increased 17%.

For the quarter, revenues from home settlements for Pulte Homes domestic homebuilding operations increased about approximately 35% over the prior year quarter to approximately $3.9 billion.

Higher revenues for the period were driven by an increase in unit closings of approximately 20%.

The average sales price increased 13% versus the prior year quarter to an average of $294,000 and increased approximately 1% over the third quarter of 2004.

The increase versus the prior year results are primarily from increased product prices and an overall volume driven improvement in product mix and geographical market mix.

In the fourth quarter, land sales generated approximately $157 million in total revenues, which is an increase compared with the previous year's quarter of approximately $42 million.

Domestic homebuilding gross profits from home settlements including home building interest expense for the quarter increased approximately 47% to $895 million.

Fourth quarter domestic homebuilding margins from home settlements as a percentage of sales were 22.7% compared with 20.9% in the fourth quarter of 2003.

This increased margin conversion of approximately 180 basis points versus the prior year quarter is mainly attributed to product price increases and market and product mix shifts as well as our ongoing initiatives to improve operational efficiencies, also offset by material cost increases we experienced in 2004.

As anticipated, our lower margin conversion of 80 basis points versus the third quarter of 2004 or the 22.7% for the fourth quarter versus the 23.5% for the third quarter mainly resulted from the overall impact of the Las Vegas pricing actions we undertook during the fourth quarter.

Home building interest expense increased during the quarter to approximately $46 million versus approximately $28 million in the prior year as a result of the continued volume growth of the business.

The gross profit contribution from land sales was approximately $63 million for the fourth quarter versus approximately $41 million in the prior year.

Our various land sales transactions during the fourth quarter ranged anywhere from single custom lots, retail and commercial parcels, to large parcels associated with our purchase of larger land positions in select markets.

All in line with our local land acquisition strategies.

I mention this on every conference call that the profit on land sales may vary significantly from period to period based on the timing of land sales and that they are an important part of our land acquisition programs.

With that during the fourth quarter, we sold several parcels that contributed to the significant increase over our guidance for the quarter.

For example, one parcel was part of a larger project in zone for mid-rise product, which we strategically determined not to pursue.

The other land sale was a significant portion of our Del Webb Sun City, Texas community, which we have been marketing for some time.

As a matter of forecasting, we do not include land sales in our forecast unless we have a contract and confidence in our ability to close the transactions.

SG&A costs, as a percentage of home sales for the quarter was approximately 7.5%, improving approximately 110 basis points over the prior year quarter.

The convergent improvement versus the prior year quarter was a result of increased selling prices and better overhead leverage with the increased volume over the prior year period.

Domestic homebuilding pretax income for the quarter increased 66% to approximately $663 million with pretax margins at 16.2% on total domestic homebuilding revenues.

This represents an increase of approximately 300 basis points in conversion over the prior year quarter.

At the end of the fourth quarter, our domestic homebuilding operations had a backlog of 15,900 homes valued at approximately $5.2 billion compared to approximately 14,000 homes in the prior year quarter.

The fourth quarter pretax income for Pulte's financial services operations was approximately $18 million, relatively even with the prior year quarter.

Offsetting the increased origination unit and dollar volume gains for the quarter versus the same period last year was a shift in profit performance attributed to the continuing changes in the marketplace to sell loans versus the prior year.

As you will note the fourth quarter trend this year has been narrowing significantly versus last year.

This is the result of the market changes in the interest-rate environment and mainly consumer product mix preferences that occurred starting in the third quarter of 2003.

The shift in product mix towards the adjustable rate mortgage products during the fourth quarter of 2004 increased from approximately 31% of origination dollars funded from a warehouse line last year to 49% this quarter, which has led throughout 2004 to decreasing profitability per loan compared to the prior year quarters.

Pulte mortgages capture rate increased to approximately 89% from 83% in the same period last year.

Mortgage origination dollars increased in the quarter of approximately 764 million or 47% when compared to the same period last year.

The increase in origination's as a result of higher production volumes and the higher capture rate.

Mortgage refinancing represented less than 2% of the total unit origination's compared to about 3% for the same period last year.

International operations pretax income was approximately $7 million for the fourth quarter.

Increasing approximately $3 million compared to the prior year quarter.

Improved operating performance in Mexico and Puerto Rico contributed to the increase during the current quarter.

On January 7, 2004, we announced -- excuse me, January 7, 2005, we announced the sale of all of our Argentina homebuilding operations.

This disposition was in line with our previously announced efforts to evaluate longer-term strategic alternatives with regards to our international operations and toward improving shareholder value.

At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations in the consolidated financial statements.

In addition the company recognized an after- tax loss of approximately $21 million in discontinued operations on the write-down of the Argentina operations to the fair value less cost to sell.

The loss includes the accounting recognition of the economic losses related to the accumulated foreign currency translation adjustments, which have been previously reported in comprehensive income.

As I have noted in our prior calls and repeat here again.

We continue to explore and work through various longer-term strategic alternatives with regard to all of our international operations.

And at this time we have no further updates to provide to you on the remaining operations.

Total corporate expenses for the fourth quarter were approximately $22 million or an increase of approximately 2 million versus the prior year.

The increase is associated with increased compensation related expenses aligned with the growth of the business and higher net interest expenses in the current year quarter as a result of the increase in debt funding to support the growth of the business.

Income from continuing operations for the fourth quarter increased approximately 68% to approximately $418 million or $3.20 per diluted share as compared to approximately $249 million or $1.95 per diluted share for the same period last year.

Fully diluted shares were approximately 130.7 million for the quarter.

The lower income tax rate for the fourth quarter of 37.1% was a result of the favorable resolution of certain state income tax matters.

Net income for the quarter reflecting discontinued operations was approximately 397 million or $3.04 per diluted share versus approximately $248 million or $1.94 per diluted share in the previous year's quarter.

Moving over to the balance sheet, I want to mention the enhance presentation and breakout of several line items that were previously included in the other line item categories in previous quarters.

Reviewing the balance sheet for year-end, a review of the major changes versus the year-end of 2003 continued to be in support of the company's growth initiatives as planned for the year and going forward in 2005 and beyond.

We ended the fourth quarter with a cash balance of approximately $315 million.

Inventory increased to $7.4 billion or an increase from the beginning of the year of approximately 1.9 billion in support of the 2005 and beyond planned growth opportunities.

Of this $1.9 billion increase, 27% or approximately $500 million is related to home construction in process versus the prior year quarter to include house and land related to house.

The balance of the increase were approximately $1.4 billion is related to land under development and health for development.

The unsecured short-term borrowings at the end of the third quarter of 2004 of approximately $567 million was repaid during the fourth quarter and there was no outstanding balance at year-end as a result of the increased deliveries and cash generation during the period.

Land held for sale has been presented separately and was approximately $231 million as of year-end.

Investment in unconsolidated entities of approximately $259 million for the fourth quarter are mainly attributed to our investments and participation in various strategic joint ventures that purchase, develop and sell land and homes, supply and install building materials and components in certain markets in the United States, Mexico, and Puerto Rico.

Included in the other asset category of approximately $815 million for the fourth quarter are major items such as receivables, prepaid expenses and deposits, capitalized pre-acquisition costs and net fixed assets of approximately $594 million.

The category also includes all other miscellaneous assets for the remaining $221 million from the corporate home building international and financial services operations.

At the end of the fourth quarter, the company's debt to total capitalization ratio was approximately 38.8% and on a net basis 36%.

This was in line with our expectations for the fourth quarter as our inventories peaked with over 20,000 homes under construction at the end of the third quarter in preparation for the fourth quarter deliveries.

As I have stated before, we're committed to maintaining a disciplined, conservative and flexible balance sheet while investing for the future growth of the business and creating greater shareholder value.

Pulte Homes shareholder equity for the quarter increased to approximately $4.5 billion with a return on average shareholder equity for the latest 12 months of approximately 25.3%.

This is an improvement of approximately 470 basis points over the same period last year.

Pulte Homes return on invested capital for the latest 12 months increased to approximately 16.6%, an improvement of approximately 310 basis points over the same period last year.

In addition under the company's authorized 100 million share repurchase program, 266,000 shares were repurchased during the fourth quarter.

Under the authorization to date we have repurchased a total of approximately 1,256,000 shares for a total of approximately $37 million.

Now looking ahead as permissible under the SEC regulation FD guidelines we're providing the following guidance on our current expectations for the first quarter of 2005.

Unit settlements in the first quarter of 2005 are projected to increase approximately 15% to 16% over the same period last year driven primarily by growth of additional volume across most major markets.

Our average selling prices for closings in the first quarter are estimated to be approximately 4.5% to 5% above the fourth quarter of 2004.

This projection is primarily being driven by product and geographical mix for Homes anticipated to be delivered during the first quarter.

Gross margin performance from home settlements as a percent of sales for the first quarter is anticipated to be approximately 50 to 60 basis points above the fourth quarter of 2004.

This is dependent upon the product and geographical mix of the homes delivered.

We are projecting land sales gains in the first quarter to be approximately $1 million to $2 million.

As mentioned in the past, land gains may vary significantly from period to period based on the timing of land sales.

As a percentage of sales, SG&A is expected to increase over the first quarter of last year by approximately 70 to 80 basis points.

As a result of costs associated with the continued growth of the business into 2005 and mainly associated with startup costs related to the opening of new communities.

In the other income and expense category for the first quarter, we're projecting approximately a $3 million to $4 million income.

Given no material change from the current interest-rate environment or a significant shift in mortgage product preference, pretax income in our financial services operations is expected to be approximately 8% to 9% below the first quarter of 2004.

The income generated from higher volume is being offset by increased operating expenses anticipated with the volume growth in the coming quarters.

In the first quarter, international operations are anticipated to post a $1 million operating loss.

Total corporate expenses are projected to be $3 million to $4 million above the fourth quarter of 2004 expenses.

This increase is mainly attributed to higher interest expenses associated with higher debt levels in the quarter in support of greater unit volume growth and compensation related expenses.

We are projecting the effective income tax rate to remain at 38% for the first quarter of 2005.

First quarter earnings per share from continuing operations are estimated to be in the range of $1.35 to $1.45 per share.

This earnings per share number is calculated based on approximately 130.2 million fully diluted shares.

As we highlighted in our conference call last quarter and again today in our press release, we are maintaining our stated outlook for 2005.

Our earnings target for the full year of 2005 earnings per share from continuing operations are between $9 and $9.50 per share.

Estimates are based on 131.9 million fully diluted shares.

We're projecting that unit settlements for the full year of 2005 are likely to increase to approximately 46 to 49,000 units driven primarily by additional volume across most major markets as a result of our focus and strategy in serving all buyer segments within our existing markets.

Average selling prices for closings are projected to be above the average 2004 selling price in the range of approximately 1%.

This projection is primarily being driven by relatively flat product prices, product mix and geographical mix of homes delivered.

Gross margin performance from home settlements as a percent of sales for 2005 is anticipated to increase in the approximate range of 80 to 100 basis points over the actual performance of 2004.

The actual margin realized will be dependent upon product and geographical mix of final homes delivered.

We're projecting that gains from the sale of land for the year to be approximately $5 million to $8 million.

Land sales are an important component for a home building operation and its land acquisition strategies and market positioning.

The gain on land sales may vary significantly from period to period based on the timing of the land sales.

As a percentage of sales, SG&A is projected to be slightly above the 2004 actual conversion rate by 20 to 30 basis points mainly related to start up costs associated with new community openings in 2005.

In the home builder, other income and expense category for the year we project income in the range of $20 to $25 million.

Mainly related to the recognition of the company's pro rata share of the income from our ownership interest in joint ventures utilizing the equity method of accounting.

Offset by all other miscellaneous expenses.

Given no material change in our volatile swings in interest rate environment, pretax income from our financial services operation is expected to increase by approximately 5% to 6% over the full year of 2004 actual performance.

The increase is associated with increased volume in 2005 offset by incremental increases in staffing and operational costs that are volume driven.

International operations are anticipated to produce a pretax profit of approximately $5 to $7 million through the year.

In the corporate expense category, other corporate expenses are projected to increase by approximately 10 to 12% over the actual 2004 performance.

This increase is mainly the result of compensation related expenses.

Net corporate interest expense will increase approximately $10 to $11 million over 2004 associated with the anticipated increase in debt levels to support the growth in 2005 and beyond.

We're projecting the effective income tax rate to be approximately 38% for the full year of 2005.

Once again the full year of 2005 earnings per share from continuing operations is estimated to be in the range of $9 to $9.50 per share representing an increase of between 17 and 24% over the 2004 actual performance.

Once again the earnings per share number is calculated based on approximately 131.9 million fully diluted shares.

From the balance sheet prospective in 2005, we are anticipating increasing our invested capital in domestic homebuilding operations by approximately an additional $2 billion.

This incremental increase is reflective of our planning assumptions and with a cautious eye on the macro economic operating environment for 2005.

Pulte Home continues to be well positioned to capitalize on the consolidating homebuilding environment by gaining market share through our segmentation strategy and geographical diversity.

Our goal has been and continues to be reflective of maintaining our strong conservative balance sheet with a debt to total capitalization ratio at the 40% level and driving shareholder value by improving our returns on invested capital and shareholder equity.

In addition, we anticipate our earnings spread through the quarters of 2005 to be relatively comparable as a percentage of the total with that of the actual quarterly performance spread in 2004.

I will now turn the call over to Steve Petruska for more specific comments on the operations.

Thanks Roger and good morning to everyone.

Almost, 39,000 homes; sounds easy when you say it or model it in a spreadsheet, but I want to say that I am proud of what our people and trade partners accomplished in 2004.

Along with delivering an average of 106 homes everyday of the year, the team, continued to improve on our demonstrated commitment to quality and customer satisfaction.

I am extremely proud of what we accomplished.

Okay with that said, let me get started on some specific data.

For the fourth quarter we operated out of 626 communities, which is up from the 535 in the fourth quarter of last year and up slightly from 607 communities had been reported in the third quarter of 2004.

For the year, the community in count increased by approximately 17%, which was in our guidance range of 15 to 20% increases in selling efforts.

We ended the fourth quarter with a little over 5500 specs, which is 35% of the total homes under construction.

This is down from 36% in the fourth quarter of last year.

The year-over-year growth in absolute units is consistent with the growth in new communities.

I would highlight that finished specs of the end of the period, totaled just 750 homes, which is done 24% from last year and represents about 1.2 finished specs homes per community.

As a point of reference in 2000, we were carrying 1200 finished specs for about 3 per community.

Reported times for the quarter totaled 8940 homes, up 6% over last year.

As we said in the press release, exclude Las Vegas and the year-over-year increase jumps to 17% for the rest our operation.

As we have done in prior quarters, I will try to provide you some additional insights as to what is happening in our business.

For the quarter sign ups in the Northeast increased 13% over 2003.

Our Delaware Valley(ph) and New England operations both posted solid year-over-year increases, while our Northern Virginia market remained very strong.

The Northeast remains one of the strongest demand environments in the country, and when we can get new communities opened, as we did in Delaware Valley and New England we can sell a lot of homes with great margins.

The Southeast had a phenomenal quarter as year-over-year net new orders jumped 45%.

Georgia, the Carolinas, and Tennessee were all strong.

Only Raleigh reported lower signups, but that was more of an issue of having fewer communities opened during the quarter.

As good as demand is in these markets, Florida was even better.

Each of our Florida markets showed strong increases over the same quarter for the prior year with the end result being a 58% increase for the state.

We said on our earlier call that we think Florida is primed to be a great area for the next several years.

Our Florida team has done an outstanding job in putting land out in place for 2005 and beyond.

Our operation to the Midwest continues to do an excellent job in a very tough business environment.

Sales were up 6% for the quarter primarily on the shoulders of our Minnesota and Illinois operations.

The rest of the markets were able to hold their ground, which is an accomplishment given to the market conditions.

This is clearly one of the areas of the country where having a diversified operation is paying on.

We expected demand condition in 2005 would remain about where they have been for the past 12 to 24 months.

With any up tick in demand coming later in the year, with that said, we like our chances of capturing an additional market share and very possibly growing unit sales for 2005 possibly.

Our central markets reported another good quarter with new orders increasing 5% over last year.

Our Texas market shifted a little, as weaker sales in Dallas and Houston were offset by a big increase in San Antonio.

As we talked about it before, we're working to reposition our Texas business to slightly higher price points, which should allow for better margins.

I expect we will be working on this strategic shift through most of 2005.

Moving North the climate may be a colder, but the business is definitely warmer as we experienced strong signup paces in Colorado and New Mexico.

I would characterize these markets as solid with well-positioned communities being met with good demand.

And finally to the West, sales for the quarter showed a decrease of 18%.

No surprise, the big driver behind the decline was Las Vegas or more specifically the high cancellation rate that we experienced during the quarter as a result of the actions we took in the October.

The rate was not certainly unexpected and in fact it is kind of what we wanted to help ensure that we cleared out any remaining issues in the backlog.

Beyond the high cancellation rate, gross signups on new contracts written during the quarter were very respectable it is just over 900 new orders.

This was down about 22% from last year, but it is a fourfold increase over Q3, and to give you a little more Up-to-the-minute information on Vegas, in January we wrote over 275 new contracts and our cancellation rate was back down to 25%.

So clearly, we're back in the game, I will have to wait a couple more quarters to say that we are 100% passed are issues in Las Vegas, but we're certainly heading in the right direction and I strongly believe that we're well past the worst of it.

Beyond Nevada, our California operations were essentially unchanged for the quarter, as higher sales in Northern California offset weakness in Southern California following the frenzied sales rates from earlier in the year.

Southern California will be fine, but we clearly would not have the same opportunity for price appreciation in 2005 that we experienced in 2004.

That should come as no surprise.

In Arizona, demand remains strong throughout all areas of Phoenix and the Tucson markets.

Signups in the state were up about 14%, and I will say that we purposely controlled the sales pace, as well as the rate of price appreciation.

Companywide, our cancellation rate for the fourth quarter was 26% compared to 19% last year.

Once again, we exclude Las Vegas from that mix, the companywide rate drops to 22% vs. 20% in the fourth quarter of last year, which is more in line with historical rates.

As Richard and Roger both stated 2004 was an exceptional year for Pulte Homes.

On top of last year's record results, we're entering 2005 with great momentum given our 5+ billion backlog and robust pipeline of new traditional in active adult communities.

In our strong markets and even in our most challenging ones, I know that are field operators are confident and excited about the opportunities they see to grow the business and drive better operating performance.

Let me turn the call back over to Jim now.

Thank you Steve.

I want to thank everyone for your time this morning on this call.

Just as remainder for those of you are interested in attending Pulte's February 24 investor conference in New York City, you can register online at our website at Pulte.com.

As appropriate we're now prepared to answer your questions.

So, that everyone gets a chance, participants will be limited to one question and a follow-up after which you will have to get back in the queue.

At this time, we will open up the call to questions.

Christie, if you would explain how, we will get going.

Thank you.

[Operator Instructions].

Your first question comes from the line of Lorraine Maikis with Merrill Lynch.

Thank you, good morning.

Just wanted to talk about the Del Webb business a little bit.

Can you talk about how many open communities you had at year-end and where you expect this to trend in 2005 and 2006?

Hello Lorraine, this is Steve Petruska, I will take that question, as of the end of the year, we had 27 open branded Del Webb communities and we expect that number to increase significantly to approximately 40 by the end of 2005.

And of 2006?

End of 2006, we expect that the growth rate to continue.

I had not prepared that exact number, but I would expect that we continue to see more Del Webb communities coming out, I don't have the exact number for you.

Lorraine, we will track it down and get back to you.

Thanks, and then could you just talked a lot about your speculative home account in tally versus prior years.

Can you talk about the strategy behind building speculatively, and who you typically sell those homes to?

Yes, I can give you a little insight into that.

First of all, obviously all spec homes are created equal.

Certainly we do not mind having a few in production, it is the final spec inventory that bothers as more than anything else.

As I pointed out that number is down significantly, in fact I think it is added to or three year low for us.

Really our strategy is this the primary selling season for new-home buying is right now beginning really about Super Bowl time and really into the early parts of this summer, kind of coordinating with the school year.

A lot of our buyers and lot of our price points are buying homes for that need other than our active adults who are really trying to be in by the fall.

We like to have a few specks on hand in all our communities.

Also for that selling season, also our winter markets, we do put down basements so that we can continue on an even flow or more planned production method throughout the winter months.

So you will always see a bit of a ramp up in speculative inventory under construction at the end of the year in those more Northern markets.

Hopefully that answers your question.

Your next question comes from the line of Margaret Whelan with UBS.

Good morning everyone.

I just wanted to clarify one thing.

I think Richard said in his comments that you had 343,000 lots.

Is that right?

That's right Margaret.

What percent are owned versus optioned?

Maybe I can help you with that. 46% of the 343,000 lots that Richard referred to are owned.

Okay.

That means that you grew your own lots, I think by 55% year-over-year?

Is that right?

As you look to last year, the owned percentage was about 47%.

That has stayed inline proportionately.

But the number of lots that we owned last year was about 120,000 lots.

I am just trying to get a sense for your commitment to the business over the next couple of years.

Obviously you're owning, looks to me for my numbers, more land every quarter and a bigger position and I'm trying to get a perspective on that relative to the growth in your community count.

And then also relative - I wanted, Okay, can we talk about the community count first?

You said it was 17% average.

Do you have it for the year-end?

At the end of the year it was 626 communities.

Okay.

So what was the average then for the quarter?

That really reflects the number of communities that are aligned with the net new orders that we recognized during the quarter.

That is more your average as opposed to an end point.

Okay.

In terms of the Georgetown lots that you sold finally in Texas, and any loss was there, is this 343 a net number after the domestic care?

Yes, this is Roger.

Margaret.

We sold roughly about 2,300 acres there.

Okay.

About 4 or 5 lots per acre?

Yes.

There were some open spaces associated with that.

So I mean, I wasn't directly proportional.

Thanks.

I am just trying to get a sense-- you have done a really good job on your conversion ratio of your backlog and better than any of your competitors, and I'm trying to put perspective on that relative to the land.

They're owning now, it's seems like the community target and the unit target for the next couple of years is like a lot of to the land your controlling.

Otherwise you'll drag down your return on capital.

This is Roger.

It all depends on certainly the size.

You know all communities are at the size.

So again some are larger, some are smaller.

We are in the own range of about four years.

If you look at the unit's that we delivered this year, if you take the growth, we are probably at about 3 1/2 years.

We're up about half year more.

Depending on the size of the communities that where bringing on.

Some of them are larger, like in Northern California, Arizona, as well as Florida.

Can I ask the second question about the business simplification?

How much does that contribute to the margin expansion versus the geographic and product purchase?

Margaret, this is Richard.

It is very tough for us to pinpoint that.

At our investor conference in the city, we're going to do our best to give you as much detail as we can.

We do feel that we got the 50 basis points annually that we committed to from our overall efforts in this arena.

What I think you're hearing us say on the simplification it is we're taking it one step further on simplification efforts, even beyond what we would have thought about a year ago, when we hope to give you a lot of detail on that in the city in three weeks.

Okay.

I will wait for that.

Thank you.

The next question comes from Greg Gieber with AG Edwards.

Good morning gentlemen.

I was wondering on Vegas' if you could drill down a little bit more and tell us the actual number of sales in Las Vegas this quarter versus a year ago and also the number of closings in Las Vegas versus a year ago.

Greg I will take the first part of that while Roger looks up the closing number.

In the quarter we reported that we had 900 gross sales, which was down 22% from the quarter last year, which was fairly rapid growth quarter.

So that was the number and additionally we gave you a number of 275 sales even for the month of January, which is down again slightly from where we were the first quarter of last year.

What were your cancellations in Vegas during the quarter?

Do you have that number?

Yes, the cancellation during the quarter was just over 600 and as Steve had mentioned there was about a cancellation rate of over 60% during the quarter.

Okay.

Which Greg, this is Richard.

I want to point out a drop of 25% in January.

A lot of the high rate was driven by flushing of the backlog primarily in October as we came out with the new pricing.

Greg, this is Roger.

On the closings, last year in the fourth quarter of 2003, we closed approximately 980 homes in the bottom market and then about 960 homes in 2004 Q4.

Your next question comes from the line of Wayne Cooperman with Cobalt Capital.

Hi guys.

Quick question I was looking at some Mexican homebuilders and they all traded 13 or 14 times earnings.

Is your operation sufficiently sized or you could actually take it or work it in Mexico or maybe merge it with an existing public company?

That is a good question.

All those are possibilities.

One careful thing about Mexican operations is there on a percentage of completion accounting.

You have to go to the balance sheet as compared to the P&L.

We've recorded under U.S. GAAP.

And so things look a little different from the way they do in Mexico versus the US on the financial side.

But all those are possibilities.

But I mean is your side -- How big is your Mexican business?

Some of those public companies down there are 25 to 40,000 units and we're doing about 8000 units.

Most of the impediment internationally in Mexico is funding, getting the ability to fund mortgages.

If has been getting better.

There is only 375,000 mortgages provided down there annually from governmental agencies, so that limits the ability to build and deliver.

Your next question comes from the line of Dan Oppenheim from Banc of America Securities.

Thank you very much.

I wanted to hear your thoughts on further investments.

And you're talking about your leverage being slightly below where it could be and a lot of investment coming in 2005.

How do see the opportunities?

Do think you will continue to grow their purchases of land, or are you - do you see other opportunities in terms of acquisitions of smaller companies?

Dan, this is Richard.

We anticipate all this coming out of organic growth through acquisition and land strategically set up through our segmentation process.

A good bit of that is we have discussed will be the active adult communities through our Webb brand as well as other selected opportunities that we see.

If we see an asset purchase primarily in a strategic market where we could acquire 3 or 4,000 lots, that we might pursue that.

All the numbers you see are based on 100% organic growth.

Okay.

And then just a quick follow-up, just you talked about targeting a high price point in Texas.

Is that something that you would say applies to other markets around the country?

Are you seeing any real differences in demand by price point?

Dan, in answer to the first part of your question, in Texas we are looking for some higher price point business because we have traditionally been a very low end, more commodity type builder there.

Our Webb brand is going to bring us some higher price points.

On an overall basis, I would tell you that the business is being driven mostly by the opportunities that are being presented in those markets as a higher price point market, we think we have an opportunity.

We think our South East business is certainly pursuing that.

But that is not an across the board strategy.

The strategy is to identify the gaps between supply and demand across all consumer groups in those market and try to fill those gaps.

Your next question comes from the line of Steven(ph) Kim with Smith Barney.

Thanks very much.

I had a couple questions, one relates to land and the other one relates to what is going on in California.

Regarding the land numbers that you just give a little while ago, you indicated that basically 185,000 lots are what you have options and probably about 158,000 owned.

The option number looks like it has tripled almost from last year and up about 80% from where it was just last quarter.

Can you talk about what has-- were there couple of really big products there that you have optioned?

Steven maybe I can just make sure we have the right numbers.

You are correct in saying185,000 is what we have option at the end of the year.

When you compare that to where we were in the third quarter though, we were at 176,000.

Okay, I had 106.

At different conclusions, then.

Okay, got it.

How about a year ago?

In the year ago the company has grown dramatically.

A year ago we were at 136,000 lots.

Okay, got it.

All right.

That's fine.

Can you talk about where you are seeing your option direction going, Your land direction going with respect to the use of options?

I mean right now you're seeing about a 50/50mix between your owned and your options.

Would you expect that to continue with that rate or would you expect to be getting much more aggressive on the option side?

Steven, this is Roger.

As we look around the country and all the different markets, the option opportunity is different by seller.

We try to maximize our ability not to have the assets tied up with something that is long lived on an asset basis but it depends on the seller.

We've seen bigger tracks and opportunities in the West and down in the South and in the Florida markets, very few opportunities in the East and Midwest for that.

It is based on the seller.

We try to be specific.

We try to keep the less on the balance sheet and we are trying to maintain that 3 1/2 to 4 year level of owned assets on the balance sheet.

Steven, this is Richard.

Just one other comment, we are going to spend a good bit of time on how we manage land in our customer conference.

I think that will give you a lot better insight into the details.

Great.

My second question related to California, you gave some good color on Las Vegas.

You indicated, I think Steve, that you felt that California is going to be fine.

I don't disagree with you, but I would love to get more detail with respect to what you're seeing in Southern California specifically and why you feel confident to make that statement.

I will start off with Northern California, which is one of our most predictable businesses.

What is going on in the northern half of California has always been significantly different than what goes on in the southern half of California.

That business is strong, it is growing.

A month over month signed up looks pretty good.

When you get to the south, we have four operating divisions there.

Relative to a lot of other players in Southern California, we are not a big player.

Not yet anyway.

What we're seeing is our San Diego business is very healthy.

Our new North L.A., Ventura(ph) business is growing.

We have seen our first signups there and are excited.

Even in Orange County, we're holding our own.

In Orange County, we had great price appreciation over the last couple of years.

We see that slowing down and we're just going to hold our own in Orange County.

That leaves us with the business that encompasses San Bernardino and Riverside county.

That is where we're seeing the most opportunity from a standpoint of price pressure.

We're not lowering our prices at this point, as I have seen some pundits reporting.

We're doing it with incentives.

We are reacting to the marketplace there.

It is an entirely different situation from what we had going on in Las Vegas, and we will continue to do that.

We have good operators in those markets.

I am confident in their ability to hold their own.

We have made some nice land plays in our Southern California business.

It is going to be fine.

Your next question comes from the line of Carl Reichardt with Wachovia.

Hi, guys.

I have got question on gross margins and your guidance for next year, up 80 to 100 basis points.

I am looking at your ASP only up 1%.

Is your outlook for labor costs a material costs were sanguine maybe than some other builders have been saying?

Or are process improvements efficiencies really going to be the main driver of that gross margin increase?

This is Roger.

What we took a look at was no price appreciation going out for 2005.

I think if you take a look at where we have been in 2004 and the increases for 2004, I think you can easily get to 80 to 100 basis points.

The trend that has happened over 2004 into all of 2005.

There's a mix movement in there as well that we see with the growth of the business from the 38,000 to the 46 to 49,000units next year.

That is also providing some opportunity in various markets.

That is the generation of it.

Cost increases and that type of thing to where we are today has been built in.

Any additional material cost movements from 2005 have not been included, so we're not speculating the cost of what the price won't.

Our history over the 53 years has been we have been able to capture price over cost each year.

Those opportunities are going to be presented differently as we move into 2005 not necessarily local markets but world markets, like we saw in Japan and Southeast Asia, will create another dynamic force going forward here on the short term.

Okay, so the answer to the other side is that the broader efficiency improvements that your planning are still effectively to hit may be later in the company's life cycle as opposed to 2005.

It is still more a mix in current backlog issue.

That is right.

Okay, fine.

Then the second and the final, question is just on your attached/detached split, what is it now and what is your expectation over the next couple years?

Again this is in context of other builders expecting to move more mid-rise, more townhomes and more stack flat, just curious as to your philosophy there and expectations.

Carl, this Richard.

We do not have specific numbers on that.

We can try to get them for you.

Based on our TCG strategy or segmentation strategy, we will be doing some attached product I would tell you that the mid-rise and high rise businesses it is not likely to be a significant part of our business anytime soon.

We're still finding opportunities in a lot of our growth markets for detached products.

It is truly about what we can see in the market.

If we had to guess, I would say we're approximately 20% attached going forward.

Your next question comes from the line of Timothy(ph) Jones with Wasserman & Associates.

The 46 to 49,000 your domestic shipments for next year, correct?

Yes.

That is correct.

And can you tell from your acquisitions, what do they contribute to orders in the last year and deliveries, and what do you look for in deliveries next year?

Well, we really haven't had any acquisitions through 2004.

Okay.

When was the last acquisition?

Could you - I know it was in 2003; you had a 1050 or so backlogged.

Yes, Tim we had about -- in mid year, July timeframe, August timeframe, 2003, we had some in Mexico but give us an operation in Phoenix and also in Albuquerque.

At that time we had half of the year almost in 2003.

Maybe 800 units to 1000 units for 2004.

That was different from 2003, roughly.

And lastly, why do have such a strong backlog in the South East?

Are you trying to slow it down?

Because it is remarkably above the rest of the company.

Yes.

A little bit of South East is Florida, where we have had very strong sales efforts of sales results, as I pointed out, 58% growth and certainly in Atlanta.

Additional to that is, we did get hit with four hurricanes, which slowed down some of our production pace.

We're getting caught back up and fighting for resources down there.

That is driving some of the larger backlog there as well.

Your next question comes from the line of Steve Fockens with Lehman Brothers.

Hi, good morning guys.

Few questions.

I apologize; this might be something you will address at the analyst or investor meeting.

At what point or maybe more importantly under what circumstances would you see your lot count sustainably start to flatten a bit or perhaps grow more slowly than closings?

Steve, this is Richard.

I think order rates would be one indicator where we would pay attention to reducing our land position from what it is.

But right as we mentioned, we see terrific opportunities there.

We're going to spend a lot of time at the conference on the whole land strategy side and how we manage land, I think you will probably get a more complete answer there.

But as a general rule of thumb, we know what our available uses of capital are and where we wan use them and right now we continue to believe that the best thing organically is the way to go.

Okay, thanks.

And then secondly, Steve, I think you said that Arizona orders were up 14% or 15% but that was slower than you could have done.

What specific actions did you take to slow the growth and make sure the pricing did not get out of hand?

A couple of things.

After what we saw that happen with investors in Las Vegas, which was really the primary driver of a lot of that cancellation, we clamped down hard even though the rest of the market didn't.

We clamp down hard on our operation.

That was number one.

Number two, as we just look at our total scope of production capability in Phoenix, Arizona today, we don't want to get a backlog out there that is so large that we expose ourselves to undue risk.

We asked our operators to manage their unit volume growth to match it with what they saw as their production capability coming up in the next six to nine months.

And those are the two things that really drove back.

And Steve the way they typically do that is we will only release a certain number of lots at a given time.

Your next question is a follow-up question from the line of Greg Gieber with AG Edwards.

I had a couple questions about your community accounts.

You talked about 17% community growth count during the year.

Will that be evenly spread throughout the year, or will you try to get more openings for the spring selling season.

Greg, this is Steve Petruska.

I will take that.

Operationally we're trying to get them open as soon as we can for the spring selling season.

Those guys have great visibility in the field as well.

But for the most part, we do see it spread across.

We do get winter conditions.

We have certain requirements that have paving down for fire and safety.

If it is too cold to pave, we cannot pave and we can't get communities open.

The reality is that it ends up being spread a little bit more equally than I would like to see.

Okay.

Now you own four years worth of land, which is higher by most builders' standards.

How much of that is influenced by the Del Webb communities, which tend to be relatively large in size and you tend to buy all land initially?

Another way of putting it, when you open new communities, a number of lots per new community now larger than it has been in the past.

Hi, Greg.

This is Roger.

The Del Webb influence is becoming less and less as our business has grown since the acquisition.

Those large communities were not opening as many as Del Webb had at that time.

It was about 12 communities.

We have burned through a lot of those.

We're focused on not opening them everywhere, just for instance the Texas sale of half of that community.

Certainly we're looking in the West.

They have been well-focused, extremely good returns from a business standpoint, a good sales pace.

Those will tend to be larger there.

Throughout the country, as we proliferate the Del Webb brand, we are opening smaller communities. 800 to 1000 lots versus the 10,000 lot type communities you would see in the west.

The influence is becoming less.

You're seeing larger ones in the West and some down in the Florida markets, but that is about all the larger communities that will be putting on.

Your next question is from line of Rick Murray with Raymond James.

Good morning guys.

One thing I wanted to clarify; then I have a question.

Steve did I hear you correctly with the 922 order number for Las Vegas, did I hear you right that you said that was a gross order until we should net out the 600 cancellations.

Right, it was 900 gross, which was 22% less than the fourth quarter of 2003.

And what was the net number?

Vinnie?

I am just not turning to that fast enough here.

295.

Thank you.

My question is perhaps for Richard.

I am trying to understand what you see and what you're looking at when you contemplate a rising interest-rate environment.

In the past, you have made comments that you're comfortable with at least a couple hundred basis points move in the 30-year fixed-rate.

And I guess looking at where affordability is today and kind of looking at it being at the same level when we had 8.5% in three quarters percent mortgage rates; how you get comfortable with rates rising going forward given where affordability stands today.

Rick, a couple of things.

First of all, we're very happy with our Del Webb position.

We have made no secret of the fact that we think it is a strategic advantage for our company (inaudible) interest rate sensitive and it continues to represent approximately a third of our business.

And we think that is a good hedge against any rate change environment that we see.

Secondly I would tell you that we're watching where we invest very strategically.

We have said that Arizona, Florida are going to be large positions for us where affordability is not as big a factor as it might be in some of the other markets.

I think when you look at a balanced investment strategy for us that we believe it is a prudent investment strategy around the country combined with roughly one-third of our business that is largely hedged against rates, we feel pretty good.

Each of our land transactions individually has a very scrutinized asset management review that includes a big competitive review.

We do not want to invest where we think there's an excess competition.

That is part of the criteria that we look out when we approve deals.

Going forward we feel comfortable.

Your next question is a follow up question from the line of Margaret Whelan with UBS.

Well, actually a follow up to Craig's question.

But in terms of the investments that you were making in Florida, we have really good meetings with Jim(ph) a couple of weeks ago and he said you're operating in 10 of the 20 (inaudible) there and then with 7 of our 11 TCG's.

Well, can you just talk about you know in over the next couple of years how many (inaudible)you may be in?

Excuse me and how many of the TCG's you'll be offering and then what percent of sales in Florida might be for that now versus couple of years up?

Well, Margaret this is Richard.

I will give you the first part and maybe Steve can provide some color.

We have you know only one large Del Webb community right now in Florida.

But our plans for the next several years are to have at least four or five additional ones that I can think of, off the top of my head.

We have got a couple in Jacksonville coming.

We have one in Orlando coming.

We have one in the Fort Myers, Naples area coming that will be very significant and another larger one just North of Tampa.

So, from a web prospective we feel that we haven't yet really tapped into the opportunities in Florida beyond the one project we have in Okala(ph), which is in Spruce(ph) Creek.

Well, what size is that in terms of a number of lots there?

Spruce Creek is approximately 3200 community.

That we only have 5 or 600 units left.

And then the other five you listed they will be a bit smaller?

Well, it's a mixed bag.

The one we have North of Tampa is a very large community approximately 8000 to 9000 lots in total.

Not all of that will be Del Webb.

We are going to split it among our Del Webb, DiVosta and Pulte brands.

Okay.

We have a couple in Jacksonville.

Steve do you have got any color on the size of those.

Yes, Jacksonville Sweetwater community is about a 1000 units and (indiscernible) about 2100.

So, more toward the size of what we're trying to manage.

Margaret, one another comment there.

We're going to detail out Florida as an example of our TCG distribution and land strategy with a little more detail in New York in February.

Okay.

Super.

Your next question is a follow-up question from the line of Timothy Jones with Wasserman & Associates.

I was intrigued about your comments about Arizona.

Several of your competitors have shown 55% sales gains there.

How much of your backlog is up in Arizona?

And had you seen -- are you doing things to curb the speculation there?

Because it does smell like a little bit like the Las Vegas market.

And what have prices got done there in the last year?

Timothy you have got a bunch of questions there.

Number one of a billion and Roger are looking up the percentage of units and backlog.

We may have to get back to you on that.

Okay thank you.

But I think what have we done -- as I mentioned before, what we have really done is crackdown on the number of investors that we see and we control that across the city.

You know Phoenix, were the largest builders there with about 5800 closings last year.

We controlled that with our database across the city where we match names.

So, we have really taken that out of the equation as far as I'm concerned.

It still continues to be a pretty strong second home market.

We do take that into consideration.

But we are not selling you know multiple homes to the same buyer.

And I think that's the biggest change that we are doing reasonably as our competitors.

Are you -- you are not taking the fact that two of you can buyback the homes if it's sold within a year or any of that?

I know the Rylan (ph) is going to start a couple of cases against speculators in Northern California to see if that holds.

Tim, this is Richard.

We have been doing that in Arizona for several months now.

Yes, we are doing that and also point out Steve Petruska said in his in his scripted comments we said we purposely-controlled sales pace as well as the rate of price appreciation.

This is nothing like Las Vegas where our prices were out of line with the market.

We are right where we need to be.

And gentlemen your final question comes from the line of Carl Reichardt with Wachovia.

Hey, guys just a one quick follow up.

This is kind of a question on the 2002.

But now that you have gotten -- you have sold a reasonable portion of the Texas Del Webb land Georgetown the legacy stuff.

Do you have additional lots or parcels from the original Del Webb acquisition '01 that are still on the market?

Do you think you're close to selling those are you pretty much finished with that repositioning now?

When you say still on the market, are you referring to in Texas?

No I am also think about Hilton Head if I have called correctly that was another market where you looking too.

Actually Hilton Head has been an excellent performer since we reposition the product line there.

And is a matter of fact the additional land that was part of that acquisition is under development and we look for sign up growth out of Hilton Head this year.

Okay, okay.

So, the answer is you are done?

We are, we are done.

Okay thanks Steve.

And at this time there are no further questions.

Gentlemen are their any closing remarks?

Thanks everyone.

We want to thank everyone for their time today.

We are all available if you have any follow up questions over the remainder of the day.

Thanks and we look forward to seeing you on the 24.

Thank you for participating in the Pulte Homes fourth quarter earnings conference call.

You may all now disconnect.