Despite strong housing demand in the ongoing spring selling season, PulteGroup Inc. PHM missed both on earnings per share and revenues in the first quarter of 2015. First quarter results were impacted by higher income tax expenses, acquisition accounting and construction delays, which resulted in a decline in the number of homes closed and weaker gross margins.
First-quarter 2015 adjusted earnings of 15 cents per share missed the Zacks Consensus Estimate of 20 cents by 25%. Moreover, adjusted earnings declined 21.1% from the year-ago figure of 19 cents.
First quarter 2014 earnings included a net benefit of 2 cents from the reversal of mortgage reserves, partially offset by debt redemption charges. The weak first quarter earnings were due to higher taxes, increased expenses and soft revenues.
Pulte’s total revenue of $1.13 billion in the first quarter of 2015 missed the Zacks Consensus Estimate of $1.27 billion by 11%. Revenues were flat year over year.
Quarter in Detail
The company conducts its operations through two primary business segments — Homebuilding and Financial Services.
Pulte’s Homebuilding revenues rose 1.8% to $1.11 billion on the back of home price increases, partially offset by lower number of homes delivered. Home sales revenues of $1.09 billion remained flat year over year. Land sales revenues of $17.5 million increased from $5.98 million in the prior-year quarter.
Number of homes closed declined 2.1% year over year to 3,365 as the company witnessed soft home closing numbers in the Northeast, Southeast, Texas, and Southwest. However, the number of homes closed increased in the North and Florida region.
Average selling prices (ASP) of homes delivered stood at $323,000, up 1.9% 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 7,624, up 5.9% year over year. Potential housing revenues from backlog increased 5.8% year over year to $2.56 billion.
New home orders increased 5.7% year over year to 5,139 as home order increases in Southeast, Florida, North and Southwest were offset by weak orders in Northeast and Texas. The value of new orders increased 6.2% year over year to $1.71 billion due to higher absorption pace. Pulte’s community count was up 5% year over year to 613 communities.
Home sales gross margin of 22.7% decreased owing to acquisition accounting related Dominion Homes buy in 2014. Sequentially, gross margin declined 40 basis points (bps).
Selling, general and administrative expenses as a percentage of home sale revenues were up 150 bps to 14.8%.
Financial Services
Revenues from the Financial Services segment increased 10.8% to $27.6 million due to higher origination volume as a result of higher capture rate. The segment recorded a pre-tax income of $5 million in the first quarter, down from $22 million in the prior year quarter.
Pulte carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Investors interested in the building sector can also consider Toll Brothers Inc. TOL, Meritage Homes Corporation MTH and Ryland Group Inc. RYL. All the three companies sport a Zacks Rank #1 (Strong Buy).
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