Why PulteGroup expressed optimism with its 1Q 2014 earnings (Part 4 of 5)
Pulte has been steadily increasing its earnings per share
Pulte reported net income of $75 million, or $0.19 a share, which missed the Street estimate of $0.20 a share due to a special tax charge. The company earned $0.21 in the first quarter of 2013 and $0.57 in the fourth quarter. The Street has largely been fearing the first quarter numbers out of the builders, so there has been a bit of a relief rally in the entire sector.
Earnings per share were driven by the big increase in average selling prices, which offset the drop in deliveries almost perfectly. SG&A (selling, general, and administrative expenses) increased to 144 million (or 13.3% of revenue) from $129 million (or 11.8% of revenue last year).
Chairman and chief executive officer Richard Dugas Jr. had this to say regarding the quarter: “PulteGroup has gotten off to a strong start in 2014, with first quarter results showing gains resulting from our efforts to drive better pricing, operating margins and pretax earnings in support of higher returns on invested capital. Our first quarter gross margin of 23.8% is up 580 basis points over last year and 60 basis points over the prior quarter, marking our ninth consecutive quarter of gross margin expansion.”
Balance sheet activity
The company continued its share repurchase plan, buying 2.2 million shares at an average price of $19.95 a share. It also redeemed a $246 million senior bond issue.
Geographical shift seems to be occurring
The company noted that activity seemed to be shifting geographically, in that the previously red-hot West Coast markets were beginning to cool, while the lagging markets—particularly the Midwest—were beginning to pick up. Pulte noted weakness in the Washington, DC, market and the Northeast. Texas, Florida, and the Carolinas are doing well. Overall, this could mean investors will want to shift out of West Coast–centric builders like Standard Pacific (SPF) and KB Home (KBH) into more diversified builders like Pulte (PHM) and D.R. Horton (DHI). NVR’s miss indicates the DC market has cooled as well.
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