Centex Corporation

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Centex Corporation

3333 Lee Parkway
P.O. Box 19000
Dallas, Texas 75219
U.S.A.
(214) 559-6500

Public Company
Incorporated: 1950 as Centex Construction Company
Employees: 5,500
Sales: $2.16 billion
Stock Exchanges: New York London
SICs: 1521 General Contractors—Single-Family Houses; 1522 General Contractors—Residential Buildings, Other Than Single-Family; 1531 Operative Builders; 1541 General Contractors—Industrial Buildings and Warehouses; 1542 General Contractors—Nonresidential Buildings, Other Than Industrial Buildings and Warehouses; 3241 Cement, Hydraulic

Throughout the decades, housing starts have been one of America’s leading “economic indicators”—the number of new units reflects consumer confidence and buying power. One company that has made the most of housing starts is Centex, one of America’s most successful diversified building companies—in fact, in 1992 Centex Real Estate Corporation (aka Centex Homes) ranked number one among single-family home builders in the United States.

This is no small achievement considering that the home construction business overall “is the most fragmented in the country,” according to Richard D. Hylton in a New York Times article. “By some analysts’ estimates, at any one time about 60,000 builders are operating nationwide. Most build fewer than 25 homes a year; only a few are big enough to raise money in the public markets.” Centex has proved itself one of the big players, with a history that mirrors America’s residential habits and growth since World War II.

The company got its start just after the war, a time characterized by a new affluence and interest in expansion. In 1945 Texas native Tom Lively “scraped together $500 and drew up his 5 feet 6 inches to talk business with Ira Rupley, a successful Dallas land developer,” as a 1956 Newsweek article related. A young entrepreneur, Lively had “left his home town of Whitewrite, Texas, in 1937, [and] for years had scraped along selling clothing and hardware and ‘a little of this and that’ before settling on real estate.”

Rupley, who had made his name in home construction, entered into partnership with Lively on a still-unnamed building company. They began “modestly enough with a scattering of single and double houses around Dallas,” notes Newsweek. “Not until 1949 did they undertake their first big subdivision, a project of 300 houses selling for $6,500 each.” The success of the subdivision led to the 1950 formation of the Centex Construction Company.

For its first few years, the company concentrated its building efforts exclusively in Texas; but by the mid-1950s Centex was ready to expand. One of its early projects was also an historic one. It was Centex that built Elk Grove Village near Chicago, America’s first master-planned community. It was the forerunner of modern master-planned areas, and to this day boasts some 7,000 homes, all built by Centex.

By 1960 Centex Construction Company had produced some 25,000 residences in several states. The company began expanding its operations to include the production of housing materials. Centex opened a cement manufacturing business with facilities in Texas and Nevada, then bought out a Dallas contractor, J. W. Bateson, which had specialized in commercial buildings. Reflecting its new diversification, the company changed its name during the 1960s to Centex Corporation.

In 1969 Centex went public, selling 500,000 shares of common stock. By this time the builder’s net worth stood at about $10 million, with gross revenues of almost $100 million. Today company stock is traded both nationally and internationally.

As Centex moved into the 1970s, it increased its scope of operations. The company acquired two leading builders, one in Chicago, the other Dallas-based Fox & Jacobs, then the largest builder of single-family homes in the Southwest. Of that company, a Fortune article noted in 1976 that Fox & Jacobs’ strategy for producing affordable housing seemed to be working. The article noted that the Centex subsidiary was able to “turn over its $1 million inventory of building materials fifteen times a year. The extraordinarily fast turnover is the key to the company’s ability to hold down prices and still keep profit margins healthy on houses in a wide variety of sizes.” Expansion continued when Centex bought Frank J. Rooney, Inc., Florida’s largest general contractor.

The 1970s became a peak time for building—and as need dictated, Centex expanded its cement business in Texas and became a partner in another cement plant in Illinois. Centex also opened an oil-and-gas plant that would come to be named Cenergy. But for all its diversification efforts, Centex was still primarily associated with one region of the United States. Explains William Barrett in a 1990 Forbes article, “In fiscal 1979, 72% of the company’s … homes were built in Texas, a dangerously high concentration. Centex executives started cutting back there and expanding elsewhere before the economic bust set in, but not nearly fast enough.” As Barrett continues, per-share profits fell 59%, “from $3.44 in the year ending March 1981 to $1.41 for the following period.” A rebound of sorts began in the 1980s, with Centex’s homes numbering more than 100,000. That decade saw the company increase its market from eight cities to 35 (by 1992 the number would rise to 39) through a combination of new business launches and acquisitions. One particularly key acquisition was that of the John Crosland Company, a major name in the Carolinas.

At the same time, Centex was also trimming and consolidating its forces to build a stronger organization. The oil-and-gas business Cenergy, for example, was sold as a separate company in 1984; this divestment more firmly planted Centex in the construction business.

Today, Centex operates several subsidiaries, all aimed at supporting the building business. For instance, one offshoot is Centex Mortgage Banking, which by 1985 had changed its name to CTX Mortgage Company and had expanded into all of the builder’s major markets. Its purpose was to establish home prices and facilitate mortgages for Centex customers. According to company history, CTX initiated title and insurance operations, thus clearing the way to develop real estate as well as build on it. That development subsidiary made its debut in 1987 as Centex Development Company. By fiscal 1992, CTX Mortgage Co. had cleared $2.5 billion in home loans.

Centex banking interests don’t end there, however. The corporation runs its own savings and loan institution, Texas Trust Savings Bank, FSB. The smaller interest provided just one percent of Centex’s total 1992 revenues, with the bulk of incoming money (53 percent) coming from the building and mortgage banking subsidiaries. Contracting and construction services are also a big part of Centex’s subsidiary interests. With Centex Cement Enterprises, another subsidiary, the company has the ability to produce and deliver not only cement, but also ready-mix concrete and gypsum boarding.

But it is the homes themselves that bring Centex into the public eye. A typical Centex home is far from “typical”; a staff of three in-house architects trek to different building sites around the United States to determine just the kind of residence that will fit the development best. With the architects designing upwards of 300 home concepts each year, there are plenty of options from which to choose. Thus, a “typical” Centex home can span from 900 to over 5000 square feet, and cost from as little as $50,000 to as much as $1.1 million (the higher-end projects are sold under the name Centex Custom Homes).

Centex has also involved itself with “Homes Across America,” a building initiative of Habitat for Humanity. Habitat was formed to provide volunteer-constructed, low-cost homes for those who otherwise couldn’t afford housing. Centex participation has resulted in activity in all of its markets; the company announced in 1992 that 23 Habitat homes would be built in the following year.

Though its primary focus is on residential homes, Centex has had a hand in the development of some public buildings. Contracts for 1992 included Veterans Administration medical centers in Detroit and Indianapolis; hospital expansions in San Diego and Miami; a wastewater treatment plant in Hot Springs, Arkansas; and even a Wal-Mart in Paducah, Kentucky. Other high-profile Centex projects include Cinderella’s Castle, EPCOT Center’s Land Pavilion, and the Grand Floridian Beach Resort, all built for Disney World in Orlando, Florida.

The company’s success can be attributed in part to the team-building attitude demonstrated by its top managers. Indeed, “in an industry famous for its flamboyant, ego-driven characters, [CEO Larry] Hirsch and his crew are quiet, low-key types who keep pretty much to themselves,” reports Barrett. When CEO successor William J. Gillilan was introduced, a New York Times article quoted a securities analyst as remarking: “One of the beauties of Centex is that they are decentralized. The company has demonstrated its ability to grow and to build its markets without running into the control problems that have plagued others.” Centex describes its business plan as based on a “3-D” strategy: diversify, decentralize, and differentiate.

Whatever the strategy, it has resulted in top scores for Centex. A Builder survey of America’s top 100 building manufacturers ranked by closings rated Centex number one. Its unit output in 1992 (9,184) easily outdistanced second-place, Michigan-based Pulte Homes (6,493). As Builder goes on to report, Centex also posted a 29 percent increase in closings over 1991, as well as a ten percent increase in gross revenues covering the same period.

While the early 1990s was not a banner period for the home building industry, conditions have begun to improve. While hardly recession-proof, Centex took advantage of the times. Then-CEO Larry Hirsch even remarked to Forbes, “I think a national recession would be a tremendous opportunity for Centex.” As Forbes ’ Barrett explains, Hirsch meant that a recession would “drive down the cost of land and interest rates—the bread of life for home builders—and would almost certainly weed out some smaller, highly leveraged competitors.”

These predictions proved correct. By late 1992, with a slow recovery in the works, housing interest rates dropped to new lows and sales began to take flight. “Wall Street has started to appreciate home builders as manufacturers of a basic consumer product,” a securities analyst told Builder. Centex benefited, posting 1992 revenues of $2.3 billion, with the high margins attributed to improvements in both the home-building and mortgage banking areas. (The company claims the distinction of never having reported either a quarterly or an annual loss since becoming a public company.)

For all Centex’s success in Texas, Florida, and other densely populated areas, one important region has proven difficult for the company to penetrate. The company entered highly competitive southern California several years ago, but the area proved “a tough market to crack,” as Centex president Tim Eller told Builder. Eller noted, however, that the shaky economy “has given us an opening we needed. We expect to increase our volumes there significantly.” Eller’s words reflect the confidence of Centex founder Tom Lively, who told Newsweek in 1956: “We’re only beginning. We will build in every market that justifies it. And with the growing American population, [we] face a limitless future.”