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PulteGroup, Inc.’s (PHM - Analyst Report) second quarter 2013 adjusted earnings (including charges from a contractual dispute, debt repurchase and corporate relocation) of 26 cents per share lagged the Zacks Consensus Estimate of 29 cents by 10.3%.

Earnings were, however, significantly better than the prior-year quarter earnings of 13 cents per share on the back of a double-digit increase in top line and margin expansion.

PulteGroup reported total revenue of $1.28 billion in the quarter, up 19.6% year over year, owing to double-digit revenue growth in the homebuilding segment. Total revenue however lagged the Zacks Consensus Estimate of $1.39 billion by 7.9%.

We believe that Pulte missed both the estimates due to declining net order units and value in the quarter. The double-digit decline in community count took its toll on net orders.

Quarter in Detail

The company conducts its operations through two primary business segments – Homebuilding and Financial Services. Pulte’s Homebuilding revenues rose 20.4% to $1.24 billion, driven by higher average selling prices and increased number of homes closed.

Home sales increased 19.6% to $1.22 billion as the company witnessed improved demand in almost every market. Land sales rose 131.8% to $20.4 million in the quarter.

New home orders were down 12.4% year over year to 4,885 homes in the quarter due to 16% decline in the number of communities. Most of the regions except Southeast and Florida witnessed decline in net new order units. The value of new orders declined 5.6% year over year to $1.52 billion in the quarter.

Net orders were weak as the company has been intentionally slowing down sales due to  lack of land development and scarcity of finished lots. The company had also limited sales pace across its communities in order to raise prices and drive margins in most communities.

Home closings were up 8.8% year over year to 4,152 homes in the reported quarter. The average selling price of homes delivered stood at $294,000, up 9.7% 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 8,558 homes, up 13.2% year over year. Potential housing revenues from backlog rose 24.9% to $2.71 billion in the quarter.

Adjusted homebuilding gross margins expanded 360 basis points (bps) from the prior-year quarter and 100 bps sequentially to 23.9% of home sales. It was driven by improved demand and pricing and better mix of sales (particularly of move-up homes).

Financial Services

Revenues from the company’s Financial Services segment went up 8.5% to $39.4 million, benefiting from increased home sales volume. The segment recorded a pretax income of $16 million in the quarter, flat year over year.

Pulte recently declared a quarterly cash dividend of 5 cents per share, payable on Aug 12, to shareholders as of Aug 5, 2013. The board of directors also increased the total share repurchase authorization by $250 million to $352 million.

2013 Outlook

Pulte is optimistic about the growing momentum of the housing market. They believe the housing demand will continue to grow despite increase in interest rates and price appreciation.

Pulte currently carries a Zacks Rank #1 (Strong Buy).

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report) and MDC Holdings Inc. (MDC - Snapshot Report). All the three homebuilding companies carry a Zacks Rank #1 (Strong Buy).

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