PulteGroup's Earnings, Revs Beat

PulteGroup Inc.’s ( PHM - Analyst Report ) first quarter 2013 adjusted earnings (excluding mortgage and debt-repurchase charges and tax benefits) of 21 cents per share beat the Zacks Consensus Estimate of 16 cents by 31.3%. Earnings were also significantly better than the prior-year quarter loss of 3 cents.

The earnings upside was driven by improved demand for homes and pricing, gross margin expansion and solid overhead leverage.

PulteGroup reported total revenue of $1.16 billion in the quarter, up 31.8% year over year, owing to double-digit revenue growth in the homebuilding segment. Total revenue beat the Zacks Consensus Estimate of $1.14 billion by 1.8%.

Quarter in Detail

The company conducts its operations through two primary business segments – Homebuilding and Financial Services. Pulte’s Homebuilding revenues, derived from popular brands like Pulte Homes, Centex and Del Webb, rose 32.9% to $1.13 billion, driven by an increase in new home orders and average selling prices.

Home sales increased 35.0% to $1.10 billion as the company witnessed improved demand in almost every market. Land sales declined 32.0% to $26.1 million in the quarter as the company strategically divested non-core land assets.

New home orders were up 4.2% year over year to 5,200 homes in the quarter despite a 14% decline in the number of communities, driven by improved demand. The value of new orders grew 17.9% year over year to $1.58 billion in the quarter.

Home closings were up 23% year over year to 3,833 homes in the reported quarter. The average sales price of homes delivered stood at $287,000, up 10% 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 7,825 homes, up 35% year over year, driven by net order growth. Potential housing revenues from backlog rose 51.6% to $2.41 billion in the quarter.

Adjusted homebuilding gross margins expanded 420 basis points (bps) from the prior-year quarter and 110 bps sequentially to 22.9% of home sales. It was driven by improved demand and pricing and better mix of sales (particularly of move-up homes).

Solid overhead leverage brought down selling, general and administrative expenses by 340 basis points to 11.8% of homebuilding revenues.

Financial Services

Revenues from the company’s Financial Services segment scaled up 2.8% to $36.9 million, benefiting from increased home sales volume. The segment recorded a pretax income of $14 million in the quarter, up 100% from the prior-year quarter. Segment performance was boosted by the increased number of loans originating from higher homebuilding volumes.

2013 Outlook

The company intends to redeem all its senior notes due in 2014, worth $399 million. The company has also increased its authorized land and related development investment from $1.2 billion to $1.4 billion annually for 2013 and 2014.

PulteGroup currently carries a Zacks Rank #2 (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 KB Home ( KBH - Analyst Report ) . While D.R Horton and Ryland carry a Zacks Rank #1 (Strong Buy), KB Home carries a Zacks Rank #2 (Buy).