普爾特房屋 (PHM) 2005 Q1 法說會逐字稿

Good morning.

My name is Kimberly and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Pulte Homes First Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press "star" then the number "one" on your telephone keypad.

If you would like to withdraw your question, press "star" then the number "two" on the telephone keypad.

Thank you.

I would now like to turn the conference over Jim Zeumer, Vice President of Investor and Corporate Communications.

Sir, you may proceed.

Thank you, Kimberly.

Good morning, everyone.

Thank you for joining us on today's call to discuss Pulte Homes financial results for its first quarter ended March 31, 2005.

Pulte Homes has gotten off to an exceptional start posting record first quarter results with earnings per share up more than 60% and our backlog now just shy of 20,000 homes.

On the call to discuss Pulte Homes' results are 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; and Vinny Frees, Vice President and Controller.

Those of you, who have access to the Internet, a slide presentation will accompany this discussion.

The presentation will be archived on the site for the next 30 days if you want to review it at a later time.

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

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

With all that said, let me turn it over to Richard Dugas for few opening comments.

Richard?

Good morning, and thank you, Jim.

At the end of February, we hosted an Investor Conference in New York, where we detailed some of the key strategies and tactics that we believe differentiate Pulte Homes and provide a competitive advantage in the marketplace.

I'll like to pickup on a couple of the themes discussed during that meeting.

Given our customer segmentation approach, built on 11 different targeted consumer groups and our position in 47 different MSAs across the country, Pulte has one of, if not the most diversified homebuilding operations in the country.

As we have discussed in the past, our diversification provides offensive and defensive benefits, both of which were very evident during the quarter.

At our Investor Conference, we shared many details about how diverse and widespread our land holdings are and how these holdings are spread among multiple buyer groups.

Not having all our eggs in one or two significant geographic or segment baskets allows us to operate a stable, consistent business in all types of economies.

Unit signups for the quarter were up 12%, and benefited from having great positions in such areas as Florida, Arizona, California, and throughout the northeast, where demand remained very strong.

I'm sure it will come as no surprise, when I say, that demand in some regions of the country is not as robust, as some local economies are struggling to rebound.

Even within more competitive regions, however, our diversified position pays dividends.

For example, in the Midwest, where the local economies are not all booming, we are still able to ride strong order growth in Chicago and Indianapolis to post an overall increase in signups for the quarter.

Pulte's first quarter signup pace also benefited from our ability to serve multiple customer segments within any given market.

This is particularly important as it relates to capturing the incremental demand among active adult homebuyers.

You can't underestimate the value of our Del Webb brand in terms of expanding our share of the largest and fastest growing segment of homebuyers, namely active adults.

New communities such as Sweetwater by Del Webb in Jacksonville, and BellaTrae at Champions Gate in the Orlando area, and Anthem Colorado, located less than 20 miles outside of Denver, can and are, driving near-term year-over-year expansion in our active adult business.

At the same time, our interested buyer list are indicating huge future demand when Bridgewater and Grand Reserve in Michigan, Sun City Carolina Lakes in Charlotte and Pioneer Ridge in Ohio come online later this year.

We are particularly encouraged by the response to the Del Webb brand here in Michigan, where economic conditions are among the toughest in the country.

While most builders are pulling in their horns and riding out the tough sailing in economies like Michigan, Pulte is able to expand its business, thanks to our unmatched position with the active adult buyer through Del Webb.

Why is the Del Webb business so strong across this country?

It's simple economics, namely, the imbalance between supply and demand.

You may have noted the front page USA Today article one week ago today that showed the aging of America and of predictions for this to be a long-term trend.

Pulte is in the driver's seat with the incredible power of Del Webb to capitalize on this opportunity and we are really beginning to differentiate ourselves as Del Webb ramps up more and more for us across America.

Those of you who have been following Pulte for a while are used to hearing me say that not all land investments are created equal.

Even in highly competitive markets, if you can identify an underserved customer segment and develop a community properly designed to meet that buyer's needs, you can have a very successful community.

Of course, when you implement the same smart business practices in a strong market, you can flat-out hit a home run.

You also saw the benefit of having a diversified operation in terms of Pulte's 14% increase in unit closings.

Once again, it should come as no surprise that when you construct your product outside, things like hurricanes, unprecedented rainfall and serious snowstorms can and do impact land development and subsequent home construction.

You can adjust the best you can to weather and related production delays but a homebuilder's best defense is being diversified enough to a point where the impacts are muted.

We think that diversity is one reason and an important one that Pulte's results can be more consistent.

As I mentioned earlier during the February conference, we presented a series of slides showing our land investment throughout the country, both in terms of lots and dollars.

What these slides indicate is that we continue to be disciplined in terms of our land investment practices.

We're not trying to chase today's hot market and plow all our investments into just a couple of cities.

Rather, we try to be consistent and invest for the long-term.

We rely on our operating teams and our segmentation strategy to identify the underserved buyers that can exist in every region and then we acquire the land and develop the communities to meet the needs of these buyers.

We are confident that our diversification strategy and supporting investment discipline have and will continue to serve us well.

Frankly, the results are beginning to speak for themselves.

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

Roger?

Thank you, Richard, and good morning, everyone.

I'm pleased to report for Pulte that we're off to a great start for the year with an outstanding first quarter performance.

The first quarter order rate posted approximately a 12% increase over the first quarter last year.

Revenues from home settlements for Phulte's homes domestic homebuilding operation increased approximately 27% over the prior year quarter to approximately $2.5 billion.

Higher revenues for the period were driven by an increase in unit closings of approximately 14%.

The average sales price increased approximately 11% versus the prior year quarter to an average of $307,000.

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

In the first quarter, land sales generated approximately $24 million in total revenues, which is an increase compared with the previous year's quarter of approximately $1 million.

Domestic homebuilding gross profits from home settlements, including home building interest expense for the quarter increased approximately 42% to $606 million.

First quarter domestic homebuilding margins from home settlements as a percentage of sales were 24.6% compared with 21.9% in the first quarter of 2004.

This increase margin diversion of approximately 270 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 offset by material cost increases experienced in 2004, carrying over into early 2005.

Homebuilding interest expense increased during the quarter to approximately $31 million versus approximately $22 million in the prior year.

This increase is a result of the continued additional funding requirements associated with the volume growth of the business.

The gross profit contribution from land sales was approximately $3 million for the first quarter, versus approximately the same amount in the prior year quarter.

Our various land sales transactions during the first quarter ranged anywhere from single custom lots to several larger land parcels associated with asset repositioning in select markets.

All in line with our local land acquisition and operating strategies.

The profit on land sales may vary significantly from period to period based on the timing of land sales and they are and continue to be an important part of our overall land acquisition programs.

SG&A costs as a percentage of home sales for the quarter was approximately 10.3%, improving approximately 30 basis points over the prior year quarter.

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

In the other income and expense category for the quarter, the income of approximately $5 million is primarily the net result of joint venture income generated during the quarter of approximately $12 million, offset by expenses that include the amortization of intangible assets, insurance expense, and all other miscellaneous expenses from the domestic homebuilding operations.

Domestic homebuilding pre-tax income for the quarter increased 62% to approximately $360 million, with pre-tax margins at 14.5% on total domestic homebuilding revenues.

This represents an increase of approximately $320 basis points in conversion over the prior year quarter.

At the end of the first quarter, our domestic homebuilding operations had a backlog of just under 20,000 homes valued at approximately $6.5 billion, compared to approximately 17,700 homes valued at $5.4 billion in the prior year quarter.

The first quarter pre-tax income from Pulte's financial services operations was approximately $10 million or even to the prior year quarter, offsetting the increased origination unit in dollar volume gains for the quarter versus the same period last year were increased operating expenses associated with the support of the future growth of the business projected to the balance of 2005 and beyond.

Expenses included were mainly in the area of staffing, training, and facility costs as we hire and train ahead of the current business requirements.

Also during the first quarter, we completed the sale of 25% of the company's investment in a mortgage banking company in Mexico for a gain of approximately $700,000.

The shipment product mix towards the adjustable rate mortgage products during the first quarter of 2005 increased from approximately 31% of origination dollars funded from our warehouse lines last year to 53% this quarter.

Pulte mortgages capture rate increased to approximately 89% from 86% in the same period last year.

Mortgage origination dollars increased in the quarter approximately $337 million or 29% when compared to the same period last year.

The increase in originations is a result of higher production volumes and the higher capture rate.

Mortgage refinancings represented approximately 2% of total unit originations compared to about 4% of the same period last year.

International operations pre-tax income was approximately 1.3 million for the first quarter, increasing approximately $500,000 compared to the prior year quarter.

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

As I've noted in our prior calls and repeat here again today, we continue to explore and work through various longer-term strategic alternatives with regard to all of our international operations.

And at this time have no further update to provide to you.

Total corporate expenses for the first quarter were approximately $23 million or an increase of approximately $3 million versus the prior year.

The increase is associated with higher net interest expenses in the current quarter as a result of the increase in debt funding in support of the growth of the business in 2005.

Income from continuing operations for the first quarter increased approximately 65% to approximately $218 million or $1.66 per fully diluted share as compared to approximately $132 million or $1.02 per fully diluted share for the same period last year.

Fully diluted shares were approximately 131.4 million for the quarter.

The lower income tax rate for the first quarter of approximately 37.3% was due primarily to the new manufacturing deduction established by the American Jobs Creation Act of 2004 and certain tax planning strategies.

Moving to the balance sheet, a review of the major changes versus year-end of 2004, is in support and preparation for the company's growth initiatives as planned, going forward into 2005 and beyond.

We ended the first quarter with a cash balance of approximately $351 million, mainly attributable to the issuance in the first quarter of $350 million of 5.2% 10-year unsecured senior notes and $300 million of 6% 30-year unsecured senior notes.

The proceeds were used to repay the indebtedness on the revolving credit facility and for the continued investment in the growth of the business.

Inventory increased to $8.1 billion or an increase of approximately $700 million in support of the 2005 and beyond plan growth opportunities.

Of this $700 million increase, approximately 43% or $300 million is related to home construction in progress versus the prior year quarter to include house and land related to house.

The balance of the increase of approximately $400 million is related to land acquired, underdevelopment and held for development.

Land held for sale was approximately $226 million as of the end of the first quarter, a reduction from year-end of approximately 5 million.

Investment in unconsolidated entities of approximately $309 million for the first quarter are mainly attributed to our investments and participations in various strategic joint ventures that purchase, develop or 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 $867 million for the first quarter are major items such as receivables, prepaid expenses and deposits, capitalized pre-acquisition costs and net fixed assets of approximately 647 million.

The category also includes all other miscellaneous assets for the remaining $220 million from the corporate home building international and financial services operations.

At the end of the first quarter, the company's debt to total capitalization ratio was approximately 42.4% and on a net basis was 39.8%.

This was inline with our expectations for the first quarter as our debt issuance in the quarter was anticipation of the investment opportunities and funding requirements through the balance of 2005.

We continue to maintain our goal of managing a disciplined, conservative and flexible balance sheet, while investing for the future growth of the business and the goal of creating greater shareholder value.

Pulte Homes' shareholder equity for the quarter increased to approximately $4.8 billion with a return on average shareholders equity for the latest 12 months of approximately 26%, an improvement of approximately 500 basis points versus the same period last year.

Pulte Homes return on invested capital for the latest 12 months increased to approximately 17%, an improvement of approximately 300 basis points over the same period last year.

In addition, under the Company's authorized $100 million share repurchase program, 170,000 shares were repurchased during the first quarter.

Under the authorization to date, we have repurchased a total of approximately 1.4 million shares for a total of approximately $49 million.

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

Unit settlements in the second quarter are projected to increase approximately 19 to 20% over the same period last year, driven primarily by the growth of additional volume across most major markets.

Average selling prices for closings in the second quarter are estimated to be approximately 7 to 8% above the second quarter of 2004.

This projection is primarily being driven by product in geographical mix for homes anticipated to be delivered during the second quarter.

Gross margin performance from home settlements as a percent of sales for the second quarter is anticipated to be approximately 120 to 130 points above the second quarter of 2004.

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

We are projecting land sale gains in the second quarter to be approximately 3 to $4 million.

As mentioned in the past, land sale 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 second quarter of last year by approximately 30 to 40 basis points, as a result of costs associated with the continued growth of the business in 2005, namely associated with the startup costs related to the opening of new communities.

In the other income and expense category, for the first quarter -- excuse me, for the second quarter, we are projecting approximately 6 to $7 million in income, attributable to joint venture income offset by other net operating income and expenses.

Given no material change, from the current and short-term projected interest rate environment or a significant shift in consumer mortgage product preference, pretax income in our financial services operations is expected to be approximately even to the second quarter of 2004.

We are projecting the income generated from higher volume is being offset by increased operating expenses anticipated with the second half of the year volume growth in the upcoming quarters.

In the second quarter, international operations are anticipated to be a breakeven for the quarter.

Total corporate expenses are projected to be 6 to $7 million above the second quarter of 2004 expenses.

This increase is mainly attributed to higher interest expenses associated with the 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 be approximately 37.3% for the second quarter of 2005.

Second quarter earnings per share from continuing operations are estimated to be in the range of $1.95 to $2.05 per share; this earnings per share number is calculated based on approximately 131.5 million fully diluted shares.

As we highlighted today in our press release, we are raising our outlook for 2005.

Our earnings target for the full year of 2005 earnings per share from continuing operations, are now anticipated to be between $9.35 to $9.85 per share.

This now projects our growth rate over the full year of 2004 to be in the range of 22 to 28%.

Estimates are based on 131.9 million fully diluted shares.

Our increasing guidance for the year reflects our increased performance in the first quarter and the impact from lowering our effective tax rate for the year.

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

Steve?

Thanks, Roger and good morning, everyone.

Our domestic homebuilding operations had a very strong quarter, as closings were up 14%, unit signups increased 12% and homes in backlog were just shy of 20,000.

For the first quarter, we operated out of 640 communities, up from 541 last year and up about 2% from 626 communities we reported for the fourth quarter of 2004.

We report net new signups for the quarter valued at just over $3.8 billion, which is up 22% over last year's first quarter.

On a unit basis, our orders were up 12%.

Given that we realized a 31% increase in last year's first quarter unit signups.

Posting another double-digit increase this year speaks to the strength of demand we are seeing across most of our markets.

Let's get to the detail that I know you find interesting.

First quarter signups in the northeast were up a very strong 44% over the same period last year.

Every market we operate in, from northern Virginia through the Mid-Atlantic States and up into New England posted higher signups for the quarter.

Our only operations -- only our operations in Fredericksburg, Virginia show the decline and that's because our Del Webb community in that market has sold out as we prepare to bring on its replacement community later this year.

We've been saying for quite some time that this is one of the strongest regions in the country, but the difficulty in getting land was constraining our sales growth.

Our investment strategy is beginning to pay dividends as we operate in a net 15 additional communities in 2005.

I would highlight Delaware Valley, metro New York and New Jersey, Maryland and northern Virginia as markets that delivered strong signups for the period.

The southeast continues to show strong results, posting a year-over-year increase of 34%.

Georgia and the Carolinas remained very healthy.

I'd like to point out that our Sun City Hilton Head recorded just over 250 signups for the period, which represents a record quarter in a far cry from the 65 homes we sold in the first quarter just three years ago.

Our team down there has really done an outstanding job, and the repositioning efforts we undertook there after the Del Webb acquisition have clearly paid off big.

Our business in Florida remains extremely strong, as our operations posted a 38% increase in first quarter signups.

Tampa, Jacksonville, Ocala and our DiVosta operations, all posted exceptionally strong results.

We continue to view Florida as a great market for the next several years given the strength of the state's economy and our growing market presence where we control a valuable 70,000 plus lots.

In light of some top market conditions, I have to say that I'm very pleased with the 2% increase in signups at our Midwest operations delivered in the quarter.

Year-over-year performance was pretty comparable for the respective markets, with our Illinois operations showing a nice increase built around our active adult position.

I think we can continue to capture share in all respective markets, especially given new Del Webb communities opening later this year.

As Richard mentioned earlier, we have two new Del Webb openings coming in Detroit, one in Cleveland, plus two additional communities scheduled to open in metro Chicago.

The interest lists for these communities are at several thousand names each and growing daily.

Again, this is where being geographically diverse and having a strong active adult brand continues to give us a competitive advantage.

Assuming we can make small strides during this tough period, we'll be in an excellent position when these economies rebound.

Our central markets reported another solid quarter with new orders increasing 3% over last year.

Our San Antonio operations continue to show strong order rates, as they benefit from new communities that have been well received in the market.

As I have stated previously, 2005 will be a transition year for Texas and Colorado, as we gradually reposition towards some stronger land positions in these markets.

For example, we're opening our first Anthem multigenerational community, which is located just 20 miles outside of Denver.

Along with serving multiple traditional buyer segments, the project will also have a large Del Webb presence.

And finally to the West where signups were essentially flat for the quarter.

In a nutshell gains in Phoenix and Tuscan offset lower signups from Las Vegas.

California was essentially flat for the period.

In terms of a little extra color on Las Vegas, overall market conditions remained strong and Pulte's local operations showed continued improvement throughout the quarter.

Net signups for the first quarter totaled a very strong 835 homes sold, a huge improvement from the fourth quarter of 2004.

Overall, demand in Las Vegas is excellent and we are currently backed to selling homes in this important and growing market.

To give you an idea of how far we've come since last fall, net signups for the month of March were within 8% of what we sold in March of 2004.

While cancellation rates for the quarter dropped to 20%, a dramatic improvement from last year's fourth quarter.

These results demonstrate that not only is Las Vegas a healthy and vibrant housing market, but also a market that we are extremely well positioned in.

We continue to monitor the market carefully, but at this point I am confident that the events of last fall are behind us.

As such, this will be the last quarter that I'll break out such detailed information on our Las Vegas operations.

Companywide, our cancellation rate for the first quarter was 16%, compared with 13% last year, and 26% in the fourth quarter.

So, as you can see, overall performance measures are back in line.

We ended the first quarter with 4,600 specs in production, which is 27% of the total homes under construction.

As a percentage of houses under construction, this is about equal to the first quarter of last year, while the growth and absolute units is consistent with year-over-year increases in new communities.

Of the spec houses in production, only 700 homes are at the finish stage, which is down 24% from the same period last year, and represents less than 1.1 finished spec homes per community, a very healthy level.

With a backlog of 20,000 homes and some solid order momentum heading into the prime selling season, our operations are in an excellent position to deliver record results in 2005.

Let me turn the call back to Jim.

Thank you, Steve.

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

And 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 they'll have to get back into the queue.

At this time, we'll open the call to questions.

So, Kimberly, if you would give everybody direction, we'll get started.

At this time, I would like to remind everyone, if you would like to ask a question, press "star" then the number "one" on your telephone keypad.

Your first question comes from Dan Oppenheim with Banc of America Securities.

Thanks.

I was just wondering if you can talk about what you're doing with subcontractors besides from diversification in terms of just keeping your backlog conversion rate sort of flat year-over-year, are there special things you're doing to work with subcontractors to have them grow with the company?

Hi, Dan.

This is Steve Petruska, and thanks for asking that question.

Yes, there are a lot of things in line with our simplification efforts.

This is all built around the partnership with our subcontractor base, and certainly, the learning that we are getting via the Pratte joint venture has driven a lot of the programs that we've put into place with our contractor base.

Simply put, as we pointed out in our conference in New York in February, we are trying to demand a bigger market share as we go forward with what we believe is a shrinking trade base.

And in addition to changing our own business processes, we have to understand the struggles that they're going through to deliver on the closing projections that we have coming up in the next few years, so we've got lots of programs going on with our subcontractor base.

Great.

And then, just wondering in terms of the order trends, how much more growth should we expect to see in the Northeast?

Should we see the same percentage growth continue in the next couple of quarters?

Do you have any goals in terms of diversification by region?

Certainly, Dan.

We don't comment on future order growth, so I'll kind of leave that one alone, but, as I said in my comments, the Northeast has been a place where we have been investing to get new communities online.

It's an extremely strong market because of the supply-demand equation when it comes to lots, and the 15 net new communities that we opened in the first quarter were what was driving that positive order growth.

And, like I said, our investment has been strong in that part of the country, and we expect to see some continued new community openings.

Your next question is from Michael Rehaut with JP Morgan.

Hi.

Good morning.

Good morning.

Just a question, you had mentioned in your earlier remarks about Del Webb, and in your Analyst Day talked that's around 33% of closings.

As you drive that brand over the next couple of years, do you expect it to, kind of, get into the mid 30s or high 30s, and how should we think about that in terms of operating margins?

And then I have a follow-up?

Mike, this is Richard.

I think you can expect the number to be fairly consistent with where it is.

It wouldn't surprise us if it goes up slightly overtime, but not dramatically.

The big piece there is we continue to open up smaller communities around the country, particularly where we can't find 5,000 and 6,000 lots, while we're at the same time bleeding off a lot of the initial large communities that were part of the acquisition.

So, as a percentage of total business, it will stay in the relatively consistent range, possibly trending up a bit.

In terms of margins, as we've talked about in the past, the margins do tend to be very strong for the Del Webb operations.

So, we look for continued good performance out of those going forward.

Okay.

And so, is it fair to say that they operate -- the margins relative to the rest of the business are corporate, average, a little bit above, what would you say about that?

Roger Cregg Yes.

Mike, this is Roger.

We've got probably 70% of our businesses slightly above the average and then 30% -- 35% is slightly above the average.

So, it's a blend on each quarter that the mix comes in, and again, your regional not only between a Del Webb brand and the traditional side, but you've got regional differences such as Northern California, Arizona, Vegas, the Northeast, Florida that impact that movement.

Our next question comes from Margaret Whelan with UBS.

Good morning, everyone.

Good morning, Margaret.

Well-done, very nice quarter.

Do you think we can talk about -- back a little bit in terms of when exactly you're quantifying, is that when you say you've got 700 and 1.1 per community?

And in particular, I know Phoenix is your biggest market and it's not the concern, rumors that they're spec building there; can you speak to that as well?

Yes.

I mean, Margaret, trying to understand your question, number one, what we call a spec or a completed spec home is one that for all intents and purposes is a house that we could deliver within the next 30 days.

So, it may have landscaping that hasn't gone down because of seasonal conditions.

Okay.

Margaret, are you still there?

Yes.

I heard that.

But in terms of that, will you talk about Phoenix in particular?

Yes.

You know, Vinny has...

Yes.

Margaret, as we dive down a little deep into our area, spec finals in the Arizona area while really in the mid teens; 15 to be exact.

Where does that number come from?

Well, maybe we're misunderstanding your question, Margaret.

We're just giving you our finished spec count on the ground in Phoenix as of the end of the first quarter.

That was 15%?

You were speaking more to what's on the general market?

The general market, yes.

Well, you know what, Margaret, my feeling is, and this is talking to our operators out there, is that there's very little speculative inventory from the builders that our out there.

It is -- Pulte is in a strong position and we continue to drive for that, but it's pretty much the same across the board in Phoenix, Arizona.

Margaret, let me help to add color there.

It's not 15%.

It's 15 of finished units.

It's an extremely low spec market driven by the real strong demand we're seeing in that market.

Okay.

Thanks.

Can I just get your lots count?

Well, I didn't catch that.

Sure, Margaret.

This is Vinny.

I would be happy to give you that.

The total numbers of lots controlled as of 3/31/05 were 362,200 of which 45.4% are owned.

Our next question from Greg Gieber with AG Edwards.

You talked a lot, Richard, about diversity of your product in your introduction.

I was wondering if you could give us some breakdown to your results in terms of either sales or closing between the Del Webb operations and your more traditional housing operations, was the growth rate about the same or is one uniquely higher?

Greg, this is Roger.

First, we don't really break down our operations in closings based on Del Webb or active adult.

It's really across the country by market.

But again, roughly about a third of our business is the Del Webb or active adult, if you will.

So I would think that would be a pretty good indicator of what we're seeing on a quarterly basis as well.

And there's some movement in there as you get into the seasonality of it, but, roughly, we're still about a third of the business, if you will, active adult and the rest of it more traditional.

Okay.

You gave -- you said you had 640 communities open now.

Can you give us your target for the year-end, and are those communities getting physically larger or smaller in terms of their lot count?

Greg, this is Steve Petruska.

I'll take that one.

Right now we're targeting 10 to 15% community growth for 2005.

The size of the communities is, quite frankly, all over the board.

I mean, we have some communities, as Richard pointed out, our Sun Lakes community in Charlotte, which is our first Sun City community brand in that geographic area since we acquired Del Webb, is going to be a large one, with several 1000 lots, over several 1000 acres.

But, you have -- we're not afraid to open the 55 lot community either in the Northeast or someplace like that where we can get a great deal on a great piece of land in a submarket targeted to consumers that we want.

So, that's why there's always a little danger in you guys looking at pure community count because, obviously, not all communities are created equal.

Your next question is coming from Joe Ilako (ph) with Carlin Financial.

Hi guys.

Great quarter.

I just wanted to ask you about gross margins going forward.

I heard you say that you had a 120 basis point estimated increase in the second quarter, which would be about 23.3% versus 24.6% this quarter, and I was wondering what the reason was that it might head back a little lower?

Yes, Joe, this is Roger.

Taking a look at the first quarter, really, there was a pretty significant market, product mix shift in the quarter.

And again, coming off the last year, if you looked at it during our fourth quarter, the growth was pretty significant in the margins.

And a lot of that today is being driven by certain areas of the country, so when you've got geographical mixes that are delivered, it created a 24.6% margin in the first quarter.

As we put on more volume certainly, and you're looking at different areas of the country that delivered different percentages of gross margins, it starts to dilute it.

So, there's no decrease actually in the margins overall; it's really the mix driving it more than anything else.

Right, I got you.

And what about the SG&A expense, why do you expect that to increase 30 basis points versus the second quarter, if you keep the revenues?

Right.

The increase is from actually last year's second quarter.

It's actually down from the first quarter of this year.

And really, what -- we're taking a look at, and if you come back to the first quarter again, we had better overhead controls; we're putting some internal emphasis on that today.

A part of it was coming from startup expenses, advertising expenses that didn't materialize in the first quarter, so looking out in our plans for going for the balance of this year, you know, I'm not anticipating that we're seeing significant changes like that again.

So, again, we've got internal programs going on in that, but, right now, we saw a little bit better expected in the first quarter.

Your next question from Ivy Zelman with CSFB.

Good morning.

Actually John (ph) speaking for Ivy.

Good morning.

Hi Don.

Touching on the first question just on the margins there, maybe the answer is mixed but if you look at where you're expecting first quarter margins come in and where they did, can you just give a little bit of color on that.

Yes, this is Roger again, and if we looked around, a little bit light on the units that I gave guidance for and so, that created a little bit of a shift in that as well.

And again, we delivered some more in some other areas with higher margins and typically again, some of the high margin areas are you know the east coast and the northeast markets, Florida markets above average, our northern California area, Las Vegas and the Arizona market.

So we had a better mix of product actually coming out of those markets that drove that up, by a 100 plus basis points above what, we were forecasting at the quarter.

All right.

My second question has to do with, I think you mentioned that 53% of your originations that review -- that Pulte has done were arms and we've seen that number coming down nationally on the new homes sales side, I'm just wondering if there's anything mix wise there that you may want to talk about to me about the dramatic increase there.

This is Roger again.

I'll just say that, in the overall mortgage, we've tried to add more products on for what the customers were actually requesting.

Some of our business was actually, going outside, so we're trying to increase our capture rate.

So I would say nothing systemic from, I would say national averages, although we're a small piece of the overall national average, but, I would say nothing systemic going on in there.

Our next question comes from Lorraine Maikis with Merrill Lynch.

Hi.

This is Judy Shaw for Lorraine Maikis.

I had a quick question about orders there were a little light in the west.

How much of that is due to Vegas and how much of that is actually whether in California?

Well, on an overall basis, we reported that California was basically flat.

So weather was a -- across the state was tough but I wouldn't say that any of it was due to weather, it's just that we had a great first quarter last year in an extremely hot market in southern California.

Southern California has had a little bit of order growth.

Vegas was down slightly, but, I would tell you that that was more of community account issue and some things vis-à-vis just bad weather, anything in Las Vegas, and in Phoenix, we continue to be very, very conservative in how we Dole out the sales so that we can match our production there.

With the vertical integration of the joint venture with Pratt, we're getting very good insight into what our production capability is in those markets, and it's senseless to oversell our production capability.

Can you give us a little detail about community openings in the region?

On an overall basis in that region it was about equivalent to where we are across the company.

It was a slight increase from the fourth quarter, about 2% to 3%.

Your next question comes from Stephen Kim with Smith Barney.

Hi.

Congratulations on a great quarter.

Thank you.

Thank you, Stephen.

I guess my first question relates to your diversification strategy, I suppose.

Can you comment on what the role of urban infill or vertical integration, vertical construction maybe on your operations going forward?

Yes, Steve, this is Richard.

We actually have a seven-story building going up right now in Jersey City near the Statue Of Liberty.

We have got a couple of other, I would say mid-rise projects going up in the 8 to 12-story range, primarily in the northeast.

Our view on that is that in the northeast, which I would characterize as DC, northward to Boston and northern California are the two markets today that we feel we need to be investing some expertise and some dollars into those projects.

It's all driven by the land constraint situation there, and we are, I would say, putting our toe in the water and beginning to get into that business, but we don't anticipate a giant shift in that direction anytime soon.

Okay.

Great.

And my second question is more of a theoretical one, but a lot of great things -- I guess the - its always have improved their operations in a number of ways over the last 10 years.

I was wondering whether or not you feel that with all the improvements you made at your company, that you have a greater ability today to be able to predict the shape of the housing cycle over the next few years.

Is there anything that you feel that you have done that enables you to sort of predict demand a little bit better than anybody you could have 10 years ago on a going forward basis of let's say two years?

Steve, my view is that the best predictor for the future is really what's happened secularly in the business, which is the supply-demand imbalance.

Frankly, in more and more of our markets, we're seeing more demand than supply, which gives us more of an ability to control our lot releases, as Steve is pointing out in Phoenix, which allows us, I think, a little better visibility into our business.

But I think it would be unfair to say it's totally driven by Pulte.

It's a market condition that's truly occurring and I think the big builders are in a position to truly take advantage of that because of the way we manage the business.

We're a lot less prone to building a lot of spec inventory.

If you've noticed our spec counts, particularly finished spectra coming down, and frankly we would like to see them come down further.

We want to be a builder that's driving a very predictable business result.

That's why we're investing so much in business simplification, et cetera, but the big change the last seven, eight years in my view is the supply-demand imbalance allowing us to drive our business that way.

Our next question comes from Joye Torben (ph) with Litchfield Capital (ph).

Very nice quarter.

Thank you.

In regards to the Del Webb, the deposits cancellation rates in LTVs (ph) how do those compare versus a single family that you're putting up?

On an overall basis, and this is speaking generally, drew, generally deposits are higher, anywhere from 5% to 10% higher than our traditional business.

Cancellation rates are lower, and certainly loan to value, as we've said all along, these people are really not inclined to put mortgage on their second home, half of our buyers don't even use them and the half that does, the LTV's are typically less than, 50%, right around that number.

Okay.

And then going forward, the guidance that you gave at your investor conference for '06 and '07, how would the increase guidance for '05 affect that?

This is Roger Cregg.

At this point we're not looking out to 06 and 07, really staying with '05 at this point.

Next question comes from Steve Fockens with Lehman Brothers.

Hi.

Good morning, guys.

Just two quick questions.

On the arms, what is the average duration or type of those products, do they tend to be three, five, seven years, just any kind of color there?

Yes, Steve, this is Roger.

Typically I would say the majority of ours are in the five-year range, so, we see more five-year than any other product.

And then of the -- are you seeing an increased percentage of interest only on those products as well?

Yes, we are.

Any percentages?

I don't have a breakout with me, but I can't tell you that here.

We'll see if we can track it down for you, though, Steven.

Your next question comes from Jim Wilson with JMP Securities.

Okay.

Thanks.

I was wondering on the Del Webb product, is the sales pace that you've seen in with the new product, given the demand characteristics, is the sales pitch to me, would you color, maybe, Steve is any different than your conventional community selling typically better, worse, or does it vary by region?

Jim, it is typically, no matter, which area that we're in, vis-à-vis they're traditional communities, the sales pace is a typically higher than traditional on a per community basis.

Okay.

So you might even color, which I think you're saying, is that with your branding and everything your relative competitive advantage in that product and hence shared unit, et cetera, is better than even anywhere in your conventional business?

Certainly.

Yes.

Jim, this is Richard.

With just a little color on that, look at Detroit, as we highlighted in some of our comments, I think it would be unfair to say that you could open up a traditional community in this economy, right now, and have several thousand people interested in a community.

And, you know, that's what we're seeing with the Del Webb piece.

That's the big supply-demand imbalance.

So it is strong.

Our next question comes from Carl Reichardt with Wachovia Securities.

Good morning, guys.

Good morning, Carl.

Just your attached-detached mix as a, of deliveries this quarter, if you have that.

I'm curious.

Carl, I don't have the detail for the quarter but what I don't suspect it's anything different than what we experienced in 2004.

Which was single family detached was about 80% of our volume

Okay.

And then -- and just on the lot count, I mean, at current absorption rates, you've got a significant supply from -- in terms of under control.

Are you thinking at least for this year that you might slow your reinvestment in lots relative to sales or slow it relative to the pace you've seen over the last couple of years or can we continue to expect that to increase at a roughly comparable rate to what we've seen?

Yes.

Carl, this is Roger.

I think, you know, we continue to look out, see what the opportunities are.

You know going forward, certainly watching all the macroeconomic factors out there.

Today we anticipate, you know, investing in this business this year, incrementally roughly to another $2.5 billion.

That was pretty consistent with our growth rate from last year.

So, we would see somewhat similar to last year's growth pattern for this year as well.

Your next question comes from Rick Murray with Raymond James.

Good morning, guys.

Great quarter.

Thanks, Rick.

Just a couple of quick questions.

I hope they'll be quick.

One, can you maybe try and help me understand, we've seen from several of your competitors in Florida, they've talked a lot about really slowing down the pace of unit orders and pushing price a lot, because they have the ability to do so, and I guess I'm just curious as to, obviously, you guys showed a big gain in Florida orders this quarter and just maybe you can help me understand the -- any potential difference in strategy , et cetera.

Rick, this is Richard.

I'm not sure there's a huge difference in strategy.

What I'll tell you is that our business in Florida is gigantic.

We increase the investment in Florida, dramatically over the last couple of years as we've highlighted on the land detail we've provided at the investor day in New York.

That's what's driving our performance.

But just like the other areas of the country, we're monitoring our sales pace to allow production to keep up but I don't know that many of our other investors have invested as aggressively in Florida as we have.

Okay.

Thanks.

And my next question was, with regard to the Midwest, you know, we've seen, certainly, the public builders and the new home market has been relatively soft in the upper Midwest in particular, however, the resell market in many of those markets continues to show relative strength.

And I'm curious as to any theories or ideas that you may have with regard to that phenomenon.

Rick, this is Richard.

I couldn't speculate on that, to be honest with you.

We were very pleased with the positions we controlled in the Midwest.

You know, we're certainly, doing well, we're holding our own, business is just not as euphoric as it is in lots of areas of the country.

Rick, I would add that when you loose your job, you're probably much more motivated, dollar, unfortunately.

Your next question comes from Michael Rehaut with JP Morgan.

Just a technical question and then a follow-up on the Webb question from before.

Technically, just with the tax rate, you expect it to be around 37.3 for the year, is that something that we can model out for '06 as well?

Yes, I would say, again, you know, the way that ends up working, it could end up, you know, going down as well, but we don't know yet, there's a lot of , you know, discussion going on with the treasury department on how that's viewed with the home building industry, but you can model out 37.3% for 2005.

And then just getting back to the Webb question from before, you said 70% may slightly below, 30% to 35% slightly above, am I right in thinking that you have the 30% to 35% portion is perhaps, a little bit more related to the smaller, faster turning communities aside from geography and that as that mix shift towards the smaller communities increases that, you know, the margins overall for the business as a whole should improve?

That's certainly a mouthful.

I think when you take a look at it, Mike, again, it's geographical, it's also, you know, specifically product based as well, so I would say not necessarily.

Again, it's the mix that moves in each quarter that gives it.

I would tell you again, it's regional, may not necessarily always product based but certainly the Del Webb product does have greater margins, and so sometimes when you start up a project, again, you start out with a little bit lower margins as you work your way into the maturity of a project.

But as you look at the split across the country on that, you know, 70% to 30%, 35% as I was talking about, you know, I would tell you more of that's probably geographical driven, when you look at the northeast and the west coast to be able to generate those type of margins above our average, if you will.

So, that's really what drives the average as well.

But again, I think -- I think that's probably more of it than, you know, specifically expansion and margin.

Your next question comes from Greg Gieber with AG Edwards.

Yes.

I just had a follow-up question.

Looking -- you're doing tremendously well in the southeast.

I assume that's more than just Florida taking in the Carolinas and Georgia are also strong from your remarks but looking at your backlog, 34% of your backlog is in the southeast now, compared with 27% a year ago.

Does that have any implications for your average selling price and gross margins, generally houses in the southeast are a little bit lower than other parts of the country?

Yes.

This is Roger again, Greg.

Yes, definitely, in -- the Florida market, again some of that is slightly above average and sometimes that does equate to the margin overall, and again, that'll play into the mix, you're absolutely correct with that.

So it's a downward, could be above to the buffer on your increase in ASP.

Could you tell me just how many communities you've had, preferably for Florida, during the quarter versus a year ago?

Yes, Greg just one more thing on the average selling price, again, the average selling price winds up to be a mix as well.

So I don't want to leave you with the impression that if you end up with that mix that, you know, average selling prices do move because of the averages, not necessarily because there's a price reduction there.

So again, that doesn't always equate one-for-one for margin.

In terms of the Florida question, we don't have that detail, Greg, on the community count on Florida.

Our next question comes from Ivy Zelman with CSFB.

Hi guys.

Just two quick follow-ups from earlier.

Did I hear you right in that Las Vegas, even with the pull back its still about corporate average on the margin front?

Yes, yes it is.

This is Roger again.

Yes it is above the average.

Okay.

And then it sounded like from your earlier answer that the shift -- you were saying you need to offer more product to get your capture rate back up and that I would assume is under the (inaudible) type product

Yes, it is that's what we did this year as well to put those products on as we're seeing more of that go off, and again, our ability to manage our backlog is what's important with the mortgage company.

Our next question comes from Margaret Whelan with UBS.

I have a follow-up about your gross margin.

Roger, do you have a sense for what percent of the expansion is coming from profits on land?

Yes, Margaret.

No, we really don't -- we don't look at that.

Again, I know some people talk that, that you can transfer costs over or, you know, keep adjusting them to market to know where you get your profitability, but, you know, we don't track it like that.

We'll do an average lot cost on a community and so, you know, certainly you put a house on it and we're selling the house with the land, so, you know, we look at it as a total package, so to speak.

And you tell us what percent of your cost was the land itself maybe?

Yes, I think we can do that on the lot cost.

Extension (ph) for as -- Margaret, just bear with me for a second.

Okay.

Beyond a percentage basis, it's roughly 24% of our sales price was related to our lot cost and that does not include interest expense.

Our final question comes from Rick Murray with Raymond James.

Yes guys, I just wanted to see if -- Steve, did I miss that, did you give the year ago order number from Las Vegas?

No, I did not.

I said that we did -- I gave this quarter, which was 835 net sales, and I did give some information that said we were within 8% in March, but instead of beating around the bush, we did about 1150 sales net in the first quarter last year in Nevada or in Las Vegas.

Okay.

Thanks and with regard to Margaret's last question, that 24% this quarter, how does that compare to a year ago?

Okay.

Let me flip back to that.

Bear with us a second, Rick, while we get to it.

Sure.

That's one is easier to find in first time.

Here we go.

Spoke too soon.

Okay.

On lot cost as a ratio to sales in the first quarter of last year was really right about the same number, in that 24, 25% of sales, and again, that's excluding interest.

Thank you.

You're welcome.

Thanks Rick.

I want to thank everybody for their time this morning.

We're available throughout the day if you have any additional questions and we'll look forward to speaking with you later on.

Bye-bye.

Ladies and gentlemen, that concludes today's conference.

You may now disconnect.