Standard Pacific Corp. (NYSE:SPF), a home-building company that some analysts have suggested may be heading toward bankruptcy, on Thursday reported a net loss of $119.7 million in the third quarter, or $1.85 per share.
The company’s debt load, coupled with the troubled housing market has worried some analysts, and the company’s quarterly earnings did not meet Wall Street expectations — some analysts were expecting the company to post a loss of about $1.54 per share for the quarter, according to an average of analyst expectations gathered by Thomson Financial Network.
Several other public builders also reported major quarterly losses this week.
CreditSights analysts Frank Lee and Sarah Rowin have speculated that Standard Pacific could be first among the large public builders to file for Chapter 11 bankruptcy protection, TheStreet.com reported this week.
Mike Shedlock, a registered investment advisor for SitkaPacific Capital Management, suggested in a September article at the SeekingAlpha.com site that a move to eliminate its dividend to pay down debt by $10 million while also announcing a new $100 million debt offering appears to be “about as desperate as one gets … a publicly traded home builder is down to having to pull its skimpy dividend to make ends meet.”
Fil Zucchi, a manager for Zebra Investment Advisors LLC, writing at the Miyanville.com site, also called attention to problems at Standard Pacific and stated, “A bankruptcy filing by a major home builder … could be devastating in terms of psychology.” He also suggested that improvements in the credit markets since August may be “purely driven by psychology” — a belief that actions by the Fed and others “will make it all better.”
Earlier this month, Mark A. Morgan, an analyst with Rochdale Securities LLC, stated in a Sept. 27 note to clients that the market conditions could crush several major builders. “We would not be surprised to see one or more of the large home builders become insolvent if current pricing trends persist into 2008.”
And Bloomberg reported in July that bonds issued by U.S. home builders had become among “the riskiest investments in the corporate debt market,” with multiple builders receiving junk ratings or very low investment ratings.
Stephen J. Scarborough, Standard Pacific chairman, CEO and president said in an earnings announcement that housing-market conditions continued to weaken in the third quarter.
“High levels of unsold new and existing homes, decreasing home prices, tenuous home buyer confidence and further erosion of mortgage credit liquidity during the quarter combined to undermine any stability within the markets. These forces continued to weigh heavily on the minds of our prospective home buyers during the third quarter, putting added pressure on home prices, which resulted in soft sales absorption rates, higher levels of buyer cancellations and additional inventory impairment charges for the company,” he stated.
In addition to the release of its earnings report, the company also announced a special meeting of stockholders on Dec. 11 to consider whether to increase the total number of shares of stock that the company is authorized to issue from 100 million shares of common stock to 200 million.
“Our board believes that the number of shares of Standard Pacific common stock presently available for future issuance under our certificate is insufficient to provide the board with flexibility in issuing shares for general corporate purposes and has therefore proposed to increase the number of authorized shares to ensure that we have such flexibility,” the company stated in a U.S. Securities and Exchange Commission filing.
Also, the company stated that “an increase in the number of authorized shares of our common stock could be used to make it more difficult to, or discourage an attempt to, obtain control of the company by means of a takeover bid that our board determines is not in the best interests of us and our stockholders,” adding that the proposal is not intended “as an anti-takeover measure” and is not in response to “any attempt or plan to obtain control of the company.”
The company’s stock price was $5.25 per share at the close of the market on Thursday. The price had hit a low of $3.96 on Oct. 17 — the last time the stock had closed at that price was in January 1994.
Standard Pacific’s $119.7 million net loss for the third quarter compares with net income of $30.8 million for the same quarter last year. The company had home-building revenues of $675.5 million for the quarter compared with $834.1 million in third-quarter 2006.
New-home deliveries were down 25 percent year-over-year in the third quarter, while net new home orders rose 23 percent as the company’s cancellation rate fell from 50 percent in third-quarter 2006 to 34 percent in third-quarter 2007.
Scarborough said in the earnings announcement that the company continues “to be focused on reducing our level of consolidated inventories, generating cash flow and paying down debt. Over the last 12 months, we have reduced our level of consolidated unsecured home-building debt by over $265 million and expect to continue to be cash flow positive as we look to the balance of this year and for calendar 2008 taken as a whole.
“It is our goal to pay off a substantial portion of our revolving credit facility and reduce our absolute home-building debt levels by the end of 2007. In addition, we expect to generate net cash next year even after retiring our $150 million of senior notes maturing in October 2008.”
The company reported that it unwound two joint ventures in California during the quarter “by acquiring the interests of our partners and paying off the related joint venture debt and we will likely unwind an additional California venture in the fourth quarter of this year by assuming the interest of our partner and retiring $60 million of related debt. While over the course of this downturn we may find it necessary to unwind additional joint ventures, we are not currently in discussions with any of our other venture partners to acquire or assume their venture interests.”
The company reported that the average sales price of its homes declined 1 percent to $364,000 in the quarter compared to that quarter last year.
The average home price declined 15 percent in California; new-home deliveries declined 26 percent in Southern California, “reflecting the slowdown in order activity experienced throughout the latter half of 2006 and into 2007”; and deliveries in Northern California increased 58 percent.
Standard Pacific has operations in California, Florida, Arizona, the Carolinas, Texas, Colorado, Nevada and Illinois. The company also provides mortgage financing and title services to its home buyers through subsidiaries and joint ventures, including Standard Pacific Mortgage Inc., Home First Funding, SPH Home Mortgage, Universal Land Title of South Florida and SPH Title.
The company will archive its third-quarter earnings conference call online at http://www.standardpacifichomes.com/ir, and the call can also be accessed by calling (888) 203-1112 and entering the following code: 1498773.
