Pulte Misses Q3 Earnings & Sales; Orders & Margins Improve
PulteGroup, Inc. PHM missed the Zacks Consensus Estimate for both earnings and revenues in the third quarter of 2015 — for the third quarter in a row.
Third-quarter adjusted earnings of 33 cents per share missed the Zacks Consensus Estimate of 43 cents by 23.3%. Moreover, earnings declined 11% from the year-ago adjusted earnings of 37 cents as lower home sales offset gains from improved gross margins and lower share count. Adjusted earnings exclude a 3-cent per share reserve adjustment related to a legal settlement.
Pulte’s total revenue of $1.51 billion missed the Zacks Consensus Estimate of $1.73 billion by 12.8%. Revenues declined almost 5% year over year.
Pultegroup Inc. - Earnings Surprise | FindTheBest
Quarter in Detail
Pulte conducts its operations through two primary business segments — Homebuilding and Financial Services.
Pulte’s Homebuilding revenues declined 6% year over year to $1.27 billion. Management stated that housing demand is recovering on the back of lower interest rates and a generally improving economic environment. It is optimistic that demand will continue to increase.
Home sales revenues of $1.46 billion declined 6% year over year as higher selling prices were offset by lower home closings. Land sales revenues of $3.7 million declined from $10.1 million in the prior-year quarter.
Number of homes closed declined 6% year over year to 4,356. Home closings decreased in all the operating regions — North, Southwest, Florida and Texas — barring Northeast and Southeast.
Average selling prices (ASP) of homes delivered was $336,000, up 1% year over year. Favorable housing market conditions increased sales price. However, the sales price increase moderated from 1.2% in the previous quarter.
The company’s backlog, which represents orders yet to be closed, was 8,734, up 10% year over year. Potential housing revenues from backlog increased 18% year over year to $3.1 billion.
In the quarter, the company spent $586 million on land acquisitions and development, higher than $444 million last quarter. Management expects to spend approximately $2.3 billion in 2015 on land investments.
New Home Orders
Despite lower home closings, new home orders increased 8% year over year to 4,092 supported by higher sales pace and growing community count. Pulte’s community count was up 2% year over year to 611 communities. Sales pace grew 6%.
Home orders increased in all regions, except Texas where it declined 5%. Orders have been declining in this market in 2015 due to intense competition and shortfall in lot availability in certain communities. Texas’ economy is dependent on the oil complex which is hurting the region’s overall economy and thereby home sales.
The value of new orders increased 17% year over year to $1.5 billion due to higher absorption pace.
Margins Improve
Home sales gross margin increased 70 basis points (bps) year over year to 23.6%. Sequentially, gross margin increased 30 bps – slightly better than management’s expectations of its remaining similar to second-quarter levels.
SG&A expenses improved to 10.6% of homebuilding revenues. However, this includes the impact of the reserve adjustment related to a legal settlement.
Homebuilding pre-tax income declined 23% year over year to $165 million. Consolidated pre-tax income was $179.3 million, down 20% year over year. However, this includes the impact of the reserve adjustment related to a legal settlement.
Financial Services
Revenues from the Financial Services segment increased 16.5% year over year to $39 million. The segment recorded a pre-tax income of $14 million in the third quarter, up from $11 million in the prior-year quarter.
Other Update
In the quarter, the company re-purchased $121 million stock and entered into a new $500 million term loan agreement.
Stocks to Consider
Pulte carries a Zacks Rank #3 (Hold). A couple of homebuilder stocks worth a look are Lennar Corporation LEN and Gafisa S.A. GFA, both sporting a Zacks Rank #2 (Buy). Another stock that can be considered in the broader construction sector is Masco Corporation MAS sporting a Zacks Rank #1 (Strong Buy).
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