Homebuilders' Q4 Profits Rise, But Land, Other Costs Mount

Investor's Business Daily

The housing recovery continued to pick up steam at the end of last year, with five homebuilders reporting rapidly improving earnings and revenue. But their shares mostly retreated amid fears of higher costs for land and other charges.

That failed to spoil the debut of the first homebuilder IPO since 2004. California-based Tri Pointe Homes (TPH) rose 12% to 19.05 after pricing at $17 a share, above its expected range.

PulteGroup (PHM), Meritage Homes (MTH), MDC (MDC) and MI Homes (MHO) reported fourth-quarter earnings early, with Standard Pacific (SPF) out after the closing bell. All are benefiting from a gradually improving economy, low interest rates and a constrained supply of new homes.

But rising land prices, costs associated with buy-back reserves for bad loans from the housing boom and other costs pose a challenge.

Land Cost 'Pressure'

MDC CEO Larry Mizel noted in a statement that the company has been acquiring land, including purchasing more than 2,300 lots in Q4.

"We believe that our focus on the balance between price and sales pace will continue to be critical to our success in 2013, as we expect to see pressure on land and building costs based on improving demand," Mizel said.

The comment raised concerns that higher costs could impact its bottom line.

MDC shares closed down 6%.

Pulte reported a 24% revenue gain, the best in 10 quarters. Profit soared to 28 cents a share — but that fell 3 cents shy of views. It disclosed a $49 million charge last quarter for potential loan repurchases. That raised fears it may have to buy back a slew of bad loans.

But while Pulte shares dived 9% intraday, they recovered to end down just 1.5%.

MI Homes had EPS of 23 cents vs. a 16-cent loss last year, but that missed views by 4 cents. Sales shot up 42% to $250.9 million, topping guidance. MI shares tumbled 8% early but recovered to close down 1.7%.

Meritage bucked the trend, as shares rose 2.5% to a new high. The builder earned 63 cents a share, reversing a year-earlier 36-cent loss. That cruised past estimates for a 42-cent gain. Revenue rose 48%.

Standard Pacific rose sharply in late trading as profit per share doubled. The stock slid nearly 2% in the regular session.

Meanwhile, paint maker and retailer Sherwin-Williams (SHW) reported earnings of $1.12 a share, up 33% vs. a year earlier. But that slightly missed forecasts. Revenue rose 7%, the third straight quarter of single-digit growth.

Shares fell a fraction, their fifth straight modest loss from a record high.

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