The public home builders' filings with the federal Securities and Exchange Commission show these companies made their best margins ever in 2005, even though they don't separate land profits from those made by building and selling houses. It will be a tough act to follow this year.
"The publics are secretive about costs," says management consultant and PB columnist Chuck Shinn. "They don't break out land costs or the contribution land appreciation makes to profits. They don't want investors to think about it, but land appreciation is a big part of what they make from selling a home."
The survey questionnaire upon which PB's Annual Report of Housing's Giants is based includes a section on how costs and profit break down for the average house the builder sells. Most private builders fill it out completely. Unfortunately, we can't present that data for the Supernovas, since only two of the five — Centex and D.R. Horton — complete that section each year. The others refuse, and that makes an already small sample unusable, since we promise to protect the secrecy of every individual response and use our survey results only in aggregate.
But the public Supernovas' Earnings Before Interest and Taxes (EBIT) margins are in the public realm, so at least we can report their overall profitability. The five juggernauts in the Supernova category averaged EBIT margins of 15.58 percent in 2005, up from 12.76 percent a year ago. The leader among the Supernovas is Lennar with an EBIT margin of 17.1 percent, as reported by Wall Street stock analyst Margaret Whelan of UBS Investment Bank. But the real EBIT margin benchmarks among the public builders are in the Masters of the Universe category: No.8 NVR at 21.0 percent and, best of all, No.6 Toll Brothers at 24.8 percent.
|Residential Building Acitvity||Supernova Giants 2005 activity as % of Total Giant 400 bldg. activity||Supernova Giants 2000 activity as % of Total Giant 400 bldg. activity|
|Single Family Detached Revenues||33.3%||25.8%|
|Single Family Detached Closings||34.9%||28.5%|
|High-rise Sale Revs.||0.0%||0.0%|
|High-rise Sale Closings*||7.1%||0.0%|
|Low-rise Rental Revs.||0.0%||0.0%|
|Low-rise Rental Closings||0.0%||0.0%|
|High-rise Rental Revs.||0.0%||0.0%|
|High-rise Rental Closings||0.0%||0.0%|
|Total Housing Revenues||31.3%||23.2%|
|Total Gross Revenues||30.5%||23.5%|
|Supernovas' Avg. Gross Profit Margin||26.6%||-|
|395 Giants (#6–400) Avg. Gross Profit Margin||24.4%||-|
|Supernovas' Avg. Price per Closing (all units)||$286,837||$180,703|
|395 Giants (#6–400) Avg. Price per Closing (all units)||$280,403||$178,708|
|*2005 data includes units related to unconsolidated joint ventures whose revenues are not included in totals
Source: Professional Builder, 2006
SUPERNOVA MARKET SHARE, as a percent of total Giant 400 production, is rising in virtually every product category where the firms are active. Shown here are the percentages for 2005, compared with those for the first year of this decade, 2000.