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PulteGroup, Inc.’s (PHM - Analyst Report) fourth-quarter 2013 adjusted earnings of 57 cents per share surpassed the Zacks Consensus Estimate of 47 cents per share by 21.3%. Earnings grew 280% year over year driven by margin growth and pricing power, which made up for the decline in net order and number of closings.
PulteGroup reported total revenue of $1.66 billion in the quarter, up 5.7% year over year driven by increased homebuilding revenues. Total revenue beat the Zacks Consensus Estimate of $1.65 billion by 0.6%.
Quarter in Detail
The company conducts its operations through two primary business segments — Homebuilding and Financial Services. Pulte’s Homebuilding revenues rose 6.6% to $1.62 billion, driven by higher average selling price (ASP) which offset the order shortfall and decline in number of homes closed. Home sales increased 8.8% to $1.61 billion while land sales declined 67.4% to $12.0 million in the quarter.
Revenues from the Financial Services segment declined 37.3% to $30.4 million. However, the segment recorded pre-tax income of $7 million in the quarter, much better than the prior year loss of $24 million, due to increased competitive landscape for mortgage originations resulting from higher interest rates.
Home closings were down 3.7% year over year to 4,964 homes in the reported quarter as Texas and Southwest regions reported weak results. The ASP of homes delivered stood at $325,000, up 13.2% year over year, attributable to a change in mix toward steeply-priced/higher margin homes and improving housing market conditions resulting in better pricing.
The company’s backlog, which represents orders yet to be closed, stood at 5,772 homes, down 10.6% year over year. Potential housing revenues from backlog declined 0.2% to $1.90 billion in the quarter.
Net Order Down Once Again
New home orders were down 18.0% year over year to 3,214 homes in the quarter due to lower community count and higher interest rates. In fact, all the regions witnessed a decline in net new orders. The value of new orders declined 7.7% year over year to $1.08 billion in the quarter.
Pulte’s net orders were weak due to a 14% decline in the number of communities as the company has been intentionally slowing down sales in some markets due to the lack of land development and scarcity of finished lots. The company is focusing more on driving price and margin rather than pushing up unit volumes, which, we believe, has been affecting net order growth.
Pulte reported 590 basis points (bps) increase in adjusted gross margin to 27.7% during the quarter. It was driven by improved pricing, better mix of sales (particularly of move-up homes) and efforts to reduce construction costs. Solid overhead leverage and management’s continuous efforts to improve operating efficiencies brought down SG&A expenses (excluding office relocation costs) by 30 bps to 9.3% of homebuilding revenues.
During the quarter, Pulte repurchased 2.0 million of its common shares at a cost of $35 million.
Pulte’s fiscal 2013 adjusted earnings of $6.72 per share beat the Zacks Consensus Estimate of $6.64 per share by 1.2%. Earnings grew drastically from the year over year level of 54 cents driven by margin growth and pricing power.
PulteGroup reported total revenue of $5.68 billion in 2013, up 17.8% year over year driven by increased homebuilding revenues. Total revenue beat the Zacks Consensus Estimate of $5.67 billion by 0.2%.
Pulte expects to operate communities in the range of 560 to 580 throughout 2014. The company raised its land investment authorization to $2.0 billion in 2014, versus $1.3 billion invested in 2013
PulteGroup carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the homebuilding sector include Beazer Homes USA Inc. (BZH - Snapshot Report), Toll Brothers, Inc. (TOL - Analyst Report) and Standard Pacific Corp. (SPF - Snapshot Report). All the three companies carry a Zacks Rank #2 (Buy).