Standard Pacific Posts Lower Sales, Profits

Home builder Standard Pacific Corp. said Wednesday that its profits dropped slightly during the first quarter to $1.7 million, equal to 6 cents per share, from last year’s $1.8 million, or 7 cents per share.

Sales fell too, from $71.3 million to $62.6 million.

Last year’s first quarter was unusually strong, which is why this year’s first-quarter results may seem unimpressive by comparison, according to the company.

When consumers realized that the Gulf War would be short and victorious early last year, they came back into the housing market for a while, shaking it briefly out of the doldrums caused by the recession.

The rest of 1991, on the other hand, was generally weak for Standard Pacific and the rest of the home-building industry.

The company earned $11 million last year on $299 million in sales, compared to profits of $48.4 million on sales of $383 million the year before.

But if 1992 turns out to be a better year for the industry--as many experts expect--then big, publicly held home builders such as Standard Pacific are expected to benefit the most.

Why? Because smaller, private builders have been decimated by the recession and by their inability to borrow money from banks and savings and loans to buy land or build new homes.

“A lot of the small builders are gone now,” said James F. Wilson, a stock analyst at Montgomery Securities, a San Francisco brokerage. “And most of them won’t be back.”

A public company, on the other hand, has more alternatives than using its own cash or borrowing money. It can sell stock to investors to raise cash or it can borrow money by issuing bonds.

So confident is Standard Pacific that the market is on an upswing that it spent the quarter replenishing its depleted inventory; 645 homes were under construction during the first three months of this year. That was way up from the 281 houses being built during the first quarter of 1991. The company said it did not need to build as many houses then because its inventory was far larger.

While 1992 is projected to be a better year for the housing market than 1991, stock analyst Wilson is lowering his estimate of how much Standard Pacific will earn this year.

The reason is simple, he said: Medium-priced homes--the company’s specialty--have been hardest hit by the slump. That means the builders in this market have had to hold prices down in order to sell, and that hurts profit margins.

The houses Standard Pacific builds in 40 California projects sell for $200,000 to $400,000, which in California’s expensive housing market constitutes a middle range. The middle-class buyers for such homes, however, have been staying put during this downturn.

Standard Pacific Corp.

Weak demand for housing meant both first-quarter sales and earnings dropped for the Costa Mesa home builder compared to a year ago, when relief over the short duration of the Gulf War brought a flood of home buyers scurrying briefly into the market.

(Dollars in thousands, except per-share data)

Percent 1992 1991 Change Total revenue $62,654 $71,251 -12.1 Net earnings $1,699 $1,833 -7.3 Earnings per share 0.06 0.07 -14.3

Source: Standard Pacific Corp.