By Lisa Beilfuss
Home builder PulteGroup Inc. said its first-quarter profit
dropped 26%, as closings fell and orders were soft.
Shares in the company, which had gained 15% over the past 12
months through Wednesday's close and outpaced the gain in a basket
of home builder stocks, slumped 9% in morning trading.
Climbing consumer confidence, low mortgage rates and low
inventory have helped spur new home sales over the quarter. The
annual sales pace hit a seven-year high in the most recent report
from the U.S. Census Bureau, while the National Association of
Realtors reported a 7.8% surge in new home prices in March from a
year earlier.
But while Chief Executive Richard Dugas acknowledged improving
demand, orders rose 6% over the quarter at Pulte versus 30% at
rival DR Horton.
Pulte was hit by a higher-than-anticipated income tax expense,
acquisition accounting and weather-related construction delays that
slowed closings, Mr. Dugas said.
The Atlanta-based home builder, one of the nation's largest,
said closings slid 2% to 3,365 homes. Net new orders rose 6% to
5,139 homes, and the value of net new orders also rose 6% to $1.7
billion. Backlog totaled $2.6 billion, up from $2.4 billion a year
earlier.
"We expect that we'll be able to get our production-related
closings back on schedule over the balance of the year with the
majority of the delayed closings occurring in the third and fourth
quarters," said Chief Financial Officer Robert O'Shaughnessy. Mr.
O'Shaughnessy said that land investment stands behind its full-year
expectation as some developments and loan approvals have taken
longer. "We still have a lot in the pipeline," he said, "and are
working hard to get deals approved and into production."
On its call, management said Texas was a weak spot during the
quarter, with sign-ups down 5%, but the problem wasn't oil. Mr.
Dugas instead pointed to the completion of two large communities in
the state.
While promotions have been pressuring some builders' margins,
Pulte's margin has held up and incentive levels remain low. In its
latest quarter, home-building cost of revenue increased 1.5%. The
company's gross margin fell to 22.7% from 23.8%, a rate the company
says is largely in line with its projection for the year and,
according to analysts, is one of the highest in the space.
"Pulte has been public about the fact that it is focused less on
top-line growth and more on driving better margins and returns over
the medium to longer term," said MKM Partners analyst Megan
McGrath, who went on to say that "the relatively low rate of order
growth for Pulte was not unexpected, and we would not expect to see
a meaningful acceleration in the next several quarters."
For the quarter ended March 31, Pulte booked profit of $55
million, or 15 cents a share, down from $74.8 million, or 19 cents,
a year earlier.
Revenue rose 1.3% to $1.13 billion.
Analysts surveyed by Thomson Reuters had projected 20 cents in
per-share profit and $1.24 billion in revenue.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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