PulteGroup Inc.’s (PHM) fourth-quarter 2014 adjusted earnings of 43 cents per share beat the Zacks Consensus Estimate of 41 cents by 4.9%. However, adjusted earnings declined 24.6% from the year-ago figure of 57 cents owing to soft margins. We believe that the earnings beat was driven by strong revenues and lower expenses.
Pulte reported total revenue of $1.82 billion in the fourth quarter, up 9.6% year over year, and surpassed the Zacks Consensus Estimate of $1.78 billion by 2.3%. The year-over-year increase was driven by higher number of homes delivered and increased pricing.
Quarter in Detail
The company conducts its operations through two primary business segments — Homebuilding and Financial Services.
Pulte’s Homebuilding revenues rose 9.8% to $1.79 billion on the back of home price increases and higher number of homes delivered. Home sales revenues increased 10.6% to $1.78 billion, driven by an increase in average selling price (ASP) and increased number of homes delivered. Land sales declined 16.7% to $10.0 million.
Number of home closed rose 7% year over year to 5,316 as the company witnessed strong home closing numbers in the Southeast, Florida, Texas and the North. However, the number of homes closed declined in the Northeast and Southwest.
Average selling prices of homes delivered stood at $334,000, up 3% year over year due to price increases across all the three brands, Pulte move-up, Del Webb active adult and Centex. Also, strategic pricing initiatives increased ASPs. Pulte’s strategic pricing programs allow buyers to select the lots and options that they value most, resulting in increased selling prices.
The company’s backlog, which represents orders yet to be closed, stood at 5,850, up 1.4% year over year. Potential housing revenues from backlog remained flat year over year at $1.9 billion.
New home orders increased 1% year over year to 3,232 as home order increases in Southeast, Florida and Texas were offset by weak orders in Northeast, North and Southwest. The value of new orders increased 2% year over year to $1.1 billion due to higher sales pace. Pulte community count was up 4% year over year to 598 communities.
Gross margin decreased 10 basis points (bps) year over year to 23.1% of home sales. Sequentially, gross margin improved 20 bps.
Selling, general and administrative expenses as a percentage of home sale revenues were down 110 bps to 8.2%.
Financial Services
Revenues from the Financial Services segment increased 18.8% to $36.1 million due to higher origination volume as a result of increased home closings in homebuilding operations and higher capture rate. The segment recorded a pre-tax income of $13 million in the fourth quarter, up 88% year over year due to higher volume and gains on mortgage sales.
2014 Results
PulteGroup’s 2014 adjusted earnings of $1.11 per share lagged the Zacks Consensus Estimate of $1.22 by 9%. However, adjusted earnings declined drastically from the year-ago figure of $6.72 owing to higher expenses.
Pulte reported total revenue of $5.82 billion, up 2.5% year over year and beat the Zacks Consensus Estimate of $5.76 billion by 1%. The year-over-year revenue increase was driven by increased pricing.
Outlook
Pulte is optimistic about the upcoming quarters of 2015 with improving economic conditions, declining energy costs, improving employment, lower mortgage rates and related fees, favorable long-term demographic trends and adequate inventory.
Pulte carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks in the building/construction industry worth considering include Headwaters Inc. (HW), USG Corp. (USG) and TRI Pointe Homes, Inc. (TPH). All three companies sport a Zacks Rank #1 (Strong Buy).
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