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PulteGroup Beats Q3 Earnings, Revenues In Line, Orders Soft

Share prices of PulteGroup Inc.’s (PHM) increased 1.7% as the homebuilding company’s third-quarter 2014 adjusted earnings of 37 per share beat the Zacks Consensus Estimate of 36 cents by 2.8%. However, earnings declined 18% from the year-ago figure of 45 cents as orders continued to remain soft and the number of homes closed declined yet again.

Pultegroup, Inc - Earnings Surprise | FindTheBest

Pulte reported total revenue of $1.59 billion in the quarter, up 0.6% year over year. Total revenue was in line with the Zacks Consensus Estimate.

Quarter in Detail

The company conducts its operations through two primary business segments — Homebuilding and Financial Services. Pulte’s Homebuilding revenues rose 0.7% to $1.56 billion as home price increases made up for the order shortfall. Home sales increased 4% to $1.55 billion, driven by an increase in average selling prices. Land sales declined 82% to $10.1 million in the quarter.

Third-quarter 2014 results include the impact of acquisition of some assets of Dominion Homes on Aug 25, 2014. This acquisition includes control of about 8,200 lots and 622 homes in backlog. The results also include 64 signups and 86 closings from 33 communities as part of the Dominion acquisition.

Home closings declined 4% year over year to 4,646 homes in the reported quarter as the company witnessed weak home closing numbers in all the regions, excluding the Southeast and North. However, the decline in the number of homes closed was narrower than a decline of 9% in the second quarter.

ASP of homes delivered stood at $334,000, up 8% year over year, driven by the shift in product mix toward higher priced move up and active adult communities and strategic pricing initiatives.

Pulte’s strategic pricing programs allow buyers to select the lots and options that they value most, resulting in higher levels of house options and lot premiums.

The company’s backlog, which represents orders yet to be closed, stood at 7,934 homes, up 5.5% year over year. Backlog for the third quarter of 2014 included the assets from Dominion acquisition. Potential housing revenues from backlog rose 8.3% year over year to $2.6 billion in the quarter.

In the quarter, the company spent $525 million on land development and acquisitions, up from $395 million in the previous quarter. During the first nine months of 2014, the company spent $1.25 million of the full-year 2014 land spending target of $2 billion. Management has authorized to spend $2.4 billion for land investment in 2015, which is $600 to $700 million over the expected land expenditures in 2015.

Net Orders

New home orders remained flat year over year at 3,779 homes in the quarter as home order increases in Southeast, Texas and North were offset by weak orders in Northeast, Florida and Southwest. However, order trends declined 21% sequentially. The value of new orders increased 3% year over year to $1.3 billion in the quarter due to higher absorption per community.

Pulte community count remained flat year over year at 600 communities in the third quarter.

Margins Strong

Adjusted gross margin increased 200 bps year over year but declined 70 bps sequentially to 22.9% of home sales. The year-over-year rise was driven by improved pricing; better mix of sales (particularly of higher margin move-up homes and commonly managed plans); and strategic pricing initiatives.

Homebuilding pre-tax income was $214 million in the quarter, up 31% from the prior year quarter due to higher gross margins.

Financial Services

Revenues from the Financial Services segment declined 2.3% to $33.5 million due to lower origination volume as a result of lower home closings in homebuilding operations and an extremely competitive landscape for mortgage originations. The segment recorded a pre-tax income of $11 million in the quarter, flat year over year.

Financial Position

Pulte had cash and cash equivalents and restricted cash of $1.25 billion as of Sep 30, 2014, compared with $1.27 billion as of Jun 30, 2014.

During the quarter, Pulte repurchased 2.7 million of common shares at a cost of $50.3 million. The board of directors approved a 60% increase in quarterly dividend to 8 cents per share. The board also raised the share repurchase authorization by $750 million. Pulte had $85 million available under its existing repurchase authorization at the end of the third quarter.

PulteGroup carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the homebuilding and related sector include Vulcan Materials Company (VMC), Hovnanian Enterprises Inc. (HOV) and NVR, Inc. (NVR). While Vulcan sports a Zacks Rank #1 (Strong Buy), Hovnanian Enterprises and NVR carry a Zacks Rank #2 (Buy).

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