Recently, Fitch Ratings downgraded their ratings and outlook on PulteGroup Inc. (PHM) owing to the ongoing weakness in the housing and construction industry. Fitch reduced PulteGroup's issuer default rating and its senior unsecured ratings to "BB" from "BB+." The ratings agency also downgraded its outlook on the homebuilder to "Negative" from "Stable".
The building industry continues to remain weak despite the ongoing economic recovery in the U.S. Both housing starts and applications for building permits declined consistently over the last few months, indicating a slow pace of future home construction.
Poor employment growth, increased availability of foreclosed homes, strict mortgage lending rules and lower confidence levels have negatively impacted the demand for new homes. The homebuilders are forced to sell properties at lower prices given the excessive availability of unsold repossessed properties in the market. This has in turn affected their earnings in the recent quarters and will also hamper business prospects going forward.
Accordingly, Pulte posted an adjusted loss of $14 million or 4 cents per share in the recently reported quarter compared with the adjusted income of $110 million or 29 cents per share, a year ago. Consolidated revenues slipped 29% to $927.2 million from $1.31 billion in the year-ago period.
Revenues from the Homebuilding segment totaled $904.8 million, down 28.7% from $1.27 billion a year ago, driven by lower revenues from both home sales and land sales. Home sales plunged 28.8% to $899.8 million while land sales dropped almost 24.9% to $5.07 million in the quarter.
Lower home sales during the quarter reflected a 28% decrease in closings and a 1% dip in average selling price to $248,000. The decrease in average selling price was primarily attributed to a shift in the mix of homes closed during the quarter.
The shares of PulteGroup are maintaining a Zacks #3 Rank, which translates into a short-term “Hold” rating.
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