Pulte Homes (PHM) reported a net loss of $361.4 million or $1.15 per share, inclusive of approximately $86.7 million of charges and transaction costs associated with its merger with Centex Corporation and $163.8 million in inventory impairments and other land-related charges. This compares to a net loss of $280.4 million, or $1.11 per share, including impairments and land-related charges of $266.6 million in the third quarter of 2008.

The company continues to suffer from economic weakness, foreclosures, rising unemployment and recent uncertainty over the expiration of the federal tax credit — all of which negatively impact buyer behavior.

Segment Performance

Revenue from Homebuilding settlements shrank 27% to $1.1 billion. The decline in revenue reflected a 23% decrease in closings to 4,166 homes, coupled with a 10% decrease in average selling price to $253,000. However, revenue and closings for the period benefited from the inclusion of Centex’s operations in the final six weeks of the quarter.

Pulte’s quarter-end backlog was 8,383 homes, valued at $2.2 billion, compared to 5,885 homes, valued at $1.7 billion, in the prior-year quarter. The backlog reflects the inclusion of 4,585 homes that were in Centex’s backlog at merger close and that were recorded directly to Pulte’s backlog without impacting sign-ups for the period.

Pulte’s Financial Services operations depicted a pre-tax loss of $8.6 million compared to a pre-tax income of $10.1 million in the prior-year quarter. The results included Centex’s mortgage and title operations for the period from Aug. 19, 2009 through Sept. 30, 2009. The change in pre-tax income was attributed to a 24% decline in mortgage loans originated during the quarter compared with the prior year, besides increased loan-loss reserves and merger-related costs. The mortgage capture rate for the quarter stood at 86%, down from 93% in the same period last year.

Merger with Centex

On Aug. 18, 2009, Pulte completed its previously announced merger with Centex Corporation. Synergies from the merger are expected to generate annualized cost savings of $260 million, realized through the fourth quarter of 2009. Through the merger, the company expects to reach its initial synergy target of $350 million annually early in 2010, and $440 million of savings on an annualized basis by the end of 2010. The company has also estimated the potential to realize purchasing synergies on the combined business in the range of $150 million to $200 million.

Financial Position

Pulte had cash and cash equivalents of $1.52 billion as on Sept. 30, 2009. The company retired $1.7 billion of outstanding debt during the quarter and $1.9 billion of debt in the first nine months of the year. This has improved its net-debt-to-total-capital ratio to 45%.

The Bloomfield Hills, MI-based Pulte Homes, through its subsidiaries, engages in the Homebuilding and Financial Services businesses primarily in the U.S. The company’s homebuilding operations offer homes for sale in 459 communities. We recommend the shares of the company as Neutral.
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