PulteGroup Inc.’s (PHM) first quarter 2013 adjusted earnings (excluding mortgage and debt-repurchase charges and tax benefits) of 21 cents per share beat the Zacks Consensus Estimate of 16 cents by 31.3%. Earnings were also significantly better than the prior-year quarter loss of 3 cents.
The earnings upside was driven by improved demand for homes and pricing, gross margin expansion and solid overhead leverage.
PulteGroup reported total revenue of $1.16 billion in the quarter, up 31.8% year over year, owing to double-digit revenue growth in the homebuilding segment. Total revenue beat the Zacks Consensus Estimate of $1.14 billion by 1.8%.
Quarter in Detail
The company conducts its operations through two primary business segments – Homebuilding and Financial Services. Pulte’s Homebuilding revenues, derived from popular brands like Pulte Homes, Centex and Del Webb, rose 32.9% to $1.13 billion, driven by an increase in new home orders and average selling prices.
Home sales increased 35.0% to $1.10 billion as the company witnessed improved demand in almost every market. Land sales declined 32.0% to $26.1 million in the quarter as the company strategically divested non-core land assets.
New home orders were up 4.2% year over year to 5,200 homes in the quarter despite a 14% decline in the number of communities, driven by improved demand. The value of new orders grew 17.9% year over year to $1.58 billion in the quarter.
Home closings were up 23% year over year to 3,833 homes in the reported quarter. The average sales price of homes delivered stood at $287,000, up 10% year over year, attributable to a change in mix toward steeply-priced Pulte-brand move-up homes and improving housing market conditions resulting in better pricing.
The company’s ending backlog, which represents orders yet to be closed, was 7,825 homes, up 35% year over year, driven by net order growth. Potential housing revenues from backlog rose 51.6% to $2.41 billion in the quarter.
Adjusted homebuilding gross margins expanded 420 basis points (bps) from the prior-year quarter and 110 bps sequentially to 22.9% of home sales. It was driven by improved demand and pricing and better mix of sales (particularly of move-up homes).
Solid overhead leverage brought down selling, general and administrative expenses by 340 basis points to 11.8% of homebuilding revenues.
Revenues from the company’s Financial Services segment scaled up 2.8% to $36.9 million, benefiting from increased home sales volume. The segment recorded a pretax income of $14 million in the quarter, up 100% from the prior-year quarter. Segment performance was boosted by the increased number of loans originating from higher homebuilding volumes.
The company intends to redeem all its senior notes due in 2014, worth $399 million. The company has also increased its authorized land and related development investment from $1.2 billion to $1.4 billion annually for 2013 and 2014.
PulteGroup currently carries a Zacks Rank #2 (Buy).
Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI), Ryland Group Inc. (RYL) and KB Home (KBH). While D.R Horton and Ryland carry a Zacks Rank #1 (Strong Buy), KB Home carries a Zacks Rank #2 (Buy).
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