Pulte Trend, Envy of All Builders... Cutting the Fat (PHM, GS, KBH, LEN, TOL, HOV, DRI, XHB)

Homebuilder PulteGroup Inc. (NYSE: PHM) employed more than 13,000 people at the end of 2005. The company now employs less than 4,800, and that number is set to fall again, but as many as 10. That’s not many, but it’s the “who” that is different — Pulte is considering shedding that many executives at the level of divisional president or higher. It’s about time.

In late March, Goldman Sachs Group Inc. (NYSE: GS) added Pulte to its “Conviction Buy” list for reasons known only to the Goldman nabobs.  Since then the company’s stock has fallen from about $13/share to about $7.60/share.

Goldman’s boost didn’t help the other homebuilders much either. KB Home (NYSE: KBH), Lennar Corp. (NYSE: LEN), Toll Brothers Inc. (NYSE: TOL), Hovnanian Enterprises, Inc. (NYSE: HOV), and D.R. Horton, Inc. (NYSE: DRI) stocks have done no better than stay flat. The SPDR S&P Homebuilders ETF (NYSE: XHB) has been the best performing equity, and it’s up by only about 3%.

Builders have taken impairments on land, fired workers, booked tax benefits, and generally done everything they can to staunch the bleeding from the moribund US market for new homes. Pulte at least deserves some credit for innovative thinking. Firing a few top executives is not something we see every day.

The company’s six regional operations will be consolidated into four, but Pulte said that it did not expect to close any of its local offices. In its first quarter earnings report, the company said it expected to achieve profitability in the second half of 2011, but than in the meantime it would implement actions to “drive further margin expansion and sustained overhead leverage.” Does that mean anything to anyone except Goldman Sachs?

Hovnanian has performed even more poorly than Pulte over the last 12 months. Its share price is down about twice as much as Pulte’s. Only D.R. Horton has posted a 12-month share price gain, and the company recently said that it sees homebuilders struggling in 2012 as well as this year.

If sales are tanking and homebuilders have fired all the hired help it can, then streamlining the company’s org chart is really all that’s left. Pulte may have broken new ground here, but now that it’s been done, other builders could follow.  There has at least been one business model change as others have gone into refurbishing homes and trading distressed mortgages.

Pulte shares are trading down less than -0.5% this morning, at $7.63, within a 52-week range of $6.13-$12.13.

Paul Ausick