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Deutsche Bank
Homebuilding Symposium
  September 22, 2008




              © 2008 Centex Corporation
Forward-looking Statements

Some of the statements in this presentation are “forward-looking statements” within the meanin...
Table of contents
 Current state of the industry

 Immediate actions and directions

 Building a better Centex




       ...
Signs of a typical housing market bottom
 Foreclosures rise

 Economy slows, recession is likely

 Housing starts fall pre...
Foreclosure Inventory
Percent of Mortgage Loans in Foreclosure, Seasonally Adjusted Annual Rate

2.6%
2.4%
2.2%
2.0%
1.8%
...
Consumer Confidence Index
                             Consumer Confidence                        Home Buyer Sentiment

16...
Housing Starts
Single-Family Housing Starts (Millions), Seasonally Adjusted Annual Rate

2.0

1.8

1.6

1.4

1.2

1.0

0.8...
New and Existing Home Inventories
Millions of Homes


                                             New Homes              ...
Immediate actions and
     directions




              © 2008 Centex Corporation
0
                     50
                          100
                                150
                              ...
Ju




               0K
                    2K
                         4K
                               6K
            ...
0
                      1,000
                              2,000
                                        3,000
          ...
Conserve and accumulate cash
 Cash balance of $1.24 billion at June 30
  • Expecting balance to be higher on 3/31/09
 Cont...
Focused on restoring profitability
 Observing higher margins on “to-be-built” homes
  • 410 bps sequential improvement in ...
Centex Energy Advantage program
 Standard for all new Centex homes starting January
 2009
 • Up to 22% more efficient than...
Building a better Centex




                © 2008 Centex Corporation
Centex Business Processes
 We are defining and standardizing all of our core business processes, and plan
 to complete thi...
Achieving Competitive Excellence

        Sell to backlog                         Build to cadence

Emphasizing lower cost...
Cadence model is advanced evenflow

                                                Centex ACE scheduling
              Pr...
Cadence model drives improved profitability
               Sell to a backlog                                    Build to a...
Capital allocation is key
 Concentrate investment in markets with greatest long-
 term profit potential that reward high r...
Rationale for strategic reinvestment
             Relationship between relative local market share
                and per...
Aggressively building a better Centex

 Focused on asset efficiency and a more flexible land
 position
 Improving core Cen...
Questions and Answers




             © 2008 Centex Corporation
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centex 09/22/08

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Transcript of "centex 09/22/08"

  1. 1. Deutsche Bank Homebuilding Symposium September 22, 2008 © 2008 Centex Corporation
  2. 2. Forward-looking Statements Some of the statements in this presentation are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by the fact that they relate only to anticipated or expected events, activities, trends or results, which are inherently subject to risks, uncertainties and other factors. Actual results and outcomes may differ materially from what is expressed or forecast in such statements. Important factors include, but are not limited to: (1) the effects of the current downturn in the homebuilding industry, including potential adverse market conditions that could result in additional inventory or other impairments; (2) changes in national or regional economic or business conditions, including employment levels and interest rates; (3) competition; (4) customer cancellations; (5) price changes in raw materials or other components of our houses; (6) the effects of disruptions in the mortgage financing industry, including the tightening of credit and reduction in liquidity; (7) the availability of adequate sources of financing; and (8) our ability to generate cash from sales of assets and other sources that supplement our existing capital resources. These risks and uncertainties are described in greater detail in our periodic and other reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2008 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. All forward-looking statements involving financial or operating projections or estimates contained herein were initially provided on July 30, 2008 and have not been updated for this presentation. The risk that actual results will differ materially from expectations expressed in this presentation will increase with the passage of time. We do not undertake any obligation to update or revise any forward-looking statement. 2
  3. 3. Table of contents Current state of the industry Immediate actions and directions Building a better Centex 3
  4. 4. Signs of a typical housing market bottom Foreclosures rise Economy slows, recession is likely Housing starts fall precipitously New home market corrects much faster than existing Land prices begin to soften more widely Homebuilders with liquidity begin to reinvest Source: Experience in previous cycles 4
  5. 5. Foreclosure Inventory Percent of Mortgage Loans in Foreclosure, Seasonally Adjusted Annual Rate 2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 1.4% 20-Year Average 1.2% 1.0% 0.8% 0.6% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Mortgage Bankers Association/Mortgage Delinquency Survey 5
  6. 6. Consumer Confidence Index Consumer Confidence Home Buyer Sentiment 160 93% (Left Axis) (Right Axis) 140 79% 120 100 66% 80 53% 60 40 40% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Conference Board, University of Michigan 6
  7. 7. Housing Starts Single-Family Housing Starts (Millions), Seasonally Adjusted Annual Rate 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Census Bureau 7
  8. 8. New and Existing Home Inventories Millions of Homes New Homes Existing Homes (Left Axis) (Right Axis) 0.7 4.5 4.0 0.6 3.5 0.5 3.0 0.4 2.5 2.0 0.3 1.5 0.2 1.0 0.1 0.5 0.0 0.0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Census Bureau; National Assocation of Realtors 8
  9. 9. Immediate actions and directions © 2008 Centex Corporation
  10. 10. 0 50 100 150 200 250 300 350 Ju n- Se 03 p- 0 D3 ec -0 M3 ar -0 Ju 4 n- Se 04 p- 0 D4 ec -0 M4 ar -0 Lots Owned Ju 5 n- S 05 ep -0 D5 ec Reducing land position -0 M5 ar -0 Ju 6 n- S 06 ep -0 D6 ec -0 M6 ar -0 Total Lots Owned and Controlled Ju 7 n- S 07 Lots Controlled ep -0 D7 ec -0 M7 ar -0 Ju 8 n- 08 10
  11. 11. Ju 0K 2K 4K 6K 8K 10K 12K 14K 16K n Se -03 p- D 03 ec - M 03 ar -0 Ju 4 n Se -04 p- D 04 ec -0 Selling homes M4 ar -0 Ju 5 Cancellation Ratio n Se -05 p- D 05 ec - M 05 ar -0 Ju 6 n Se -06 p- D 06 ec -0 M6 Gross Sales ar -0 Sales and Cancellation rates Ju 7 n Se -07 p- D 07 ec -0 M7 ar -0 Ju 8 n- 08 Net Sales 0% 10% 20% 30% 40% 11
  12. 12. 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Ju n -0 2,506 Se 3 p -0 3,206 De 3 c -0 4,170 Ma 3 r -0 2,862 Ju 4 n -0 2,907 Se 4 p -0 3,655 De 4 c -0 4,803 Ma 4 Started Not Sold Units r -0 3,376 Ju 5 n -0 3,062 Se 5 Minimizing inventory p -0 4,174 De 5 c -0 6,191 Ma 5 r -0 5,823 Ju 6 n -0 5,798 Se 6 p -0 Started Not Sold $ as % of Housing Inventory $ 6,575 De 6 c -0 6,386 Ma 6 r -0 4,909 Ju 7 n -0 4,815 Se 7 p -0 4,708 De 7 c -0 4,259 Ma 7 r -0 1,754 Ju 8 n -0 8 1,356 0% 5% 10% 15% 20% 25% 30% 12
  13. 13. Conserve and accumulate cash Cash balance of $1.24 billion at June 30 • Expecting balance to be higher on 3/31/09 Continue to proactively lower debt • Bought back $67 mil of senior notes in 1Q • Paid off $150 mil of senior notes in 2Q at maturity • Expect to reduce joint venture debt by approximately $70 mil in 2Q Significantly increased bank revolver availability Dramatically reducing land development budget • Land acquisition/development now expected to be less than $400 mil for remainder of this fiscal year Cash conservation and accumulation is a top company priority • Expect to remain capital self-sufficient 13
  14. 14. Focused on restoring profitability Observing higher margins on “to-be-built” homes • 410 bps sequential improvement in housing gross margin • Incentives and discounts should continue to diminish Seeing brick and mortar reductions despite higher commodity and energy costs Lowering interest expense Continuing to adjust overhead spending 14
  15. 15. Centex Energy Advantage program Standard for all new Centex homes starting January 2009 • Up to 22% more efficient than comparable new homes • Up to 40% more efficient than a typical 10-year old home Helps our homebuyers address affordability 17,800 fewer metric tons of carbon yielded annually for each 10,000 homes • Equivalent of the greenhouse gas emissions from 2,957 cars for 1 year A positive for customers, shareholders, employees and the environment 15
  16. 16. Building a better Centex © 2008 Centex Corporation
  17. 17. Centex Business Processes We are defining and standardizing all of our core business processes, and plan to complete this effort by the end of fiscal 2009. Enterprise Management Processes Strategic Directions Human Capital Allocation Strategic Plans Information Systems Development and Deployment Operating Plans Policies Capital Allocation Enterprise Risk Management Governance Process Improvement Core Business Processes Home and Strategic Land Community Procure Sell Build Marketing Management Design Support Processes and Services Human Capital Management Mortgage, Title and Insurance Accounting and Financial Services Facilities Management Information Systems Services Communications Legal Services Operational Marketing 17
  18. 18. Achieving Competitive Excellence Sell to backlog Build to cadence Emphasizing lower cost channels to Predictability/reliability of scheduling generate leads trade partners, tasks, etc. Maximizing the opportunity to convert Sequencing “homes to be built” in a every precious lead geographically optimal order Making good price/volume tradeoff Doing it right the first time decisions, in a dirt sales environment Achieving cost efficiency in distribution and installation Emphasis on maximizing profitability and ROA 18
  19. 19. Cadence model is advanced evenflow Centex ACE scheduling Previous scheduling Starts per day Starts per day 10 10 8 8 6 6 4 4 2 2 0 0 0 5 10 15 20 0 5 10 15 20 Day Day Unpredictable scheduling meant all ACE scheduling operates at a • • Trade Partners were staffed for the consistent cadence each day peaks Savings arise from: • - They had to be to handle the - Higher crew utilization increases in workload - Quality improvements from No Trade Partners could have 100% dedicated crews • crew utilization Requires: • - If they did, they wouldn’t be in - True Trade Partnerships business - Reliable scheduling - Quality up and down the supply chain 19
  20. 20. Cadence model drives improved profitability Sell to a backlog Build to a cadence B&M spend Gross margin 100% 100% XXX 15% 94% 14% 85% X% ~15% B&M 75 savings 10 9% 50 5 25 0 0 Red Yellow Green No Current Fully Pre sales Specs (pilot) (current (PHX pilot) Cadence Implemented projection) Cadence trumps volume for profitability (450 closings on cadence more profitable than 600 closings off cadence) Note: Gross margin data represents CTX average for April- May closings (CFA Actuals) 20
  21. 21. Capital allocation is key Concentrate investment in markets with greatest long- term profit potential that reward high relative market share Consolidate divisions where resources can be shared Exit those markets without strong long-term economic fundamentals or where scale is not meaningful The resulting re-investment strategy will produce improved margins and returns 21
  22. 22. Rationale for strategic reinvestment Relationship between relative local market share and performance among Centex divisions Operating Margin ROANA 20% 40% 30% 20% 10% 10% 0% 0% 0.4 0.6 0.8 1 1.2 0.4 0.6 0.8 1 1.2 Relative Local Market Share Relative Local Market Share Regression analysis based on CY02-04 Centex averages 22
  23. 23. Aggressively building a better Centex Focused on asset efficiency and a more flexible land position Improving core Centex business processes Increasing relative share strength in markets that will provide best returns Expect sustainable cost reductions and higher, more consistent future returns Continue to exceed customer expectations 23
  24. 24. Questions and Answers © 2008 Centex Corporation
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