Professional Builder Giant 400: Publics' Profits at Peak

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.

Supernovas Expanding