PulteGroup 3Q loss narrows on lower charges
LOS ANGELES—Demand for new homes is stalled at historic lows, but homebuilder PulteGroup Inc. is making more money off the homes it does sell.
The company's efforts to lower construction costs, boost home presales and slash other expenses have led to stronger profit margins in its homebuilding operations. That, plus higher home closings, helped the builder turn in an operating profit for the third quarter, the company said Thursday.
Including one-time charges and gains, PulteGroup posted a smaller loss for the July to September period. The builder last reported a quarterly profit in summer 2010.
Richard Dugas Jr., PulteGroup's chairman, president and CEO, said he's confident the company can continue growing its profit margins over the long term.
He added that he expects business conditions will remain relatively stable through the end of this year, positioning the company to turn in another operating profit in the fourth quarter.
PulteGroup shares closed up 46 cents, or 9.3 percent, at $5.39. The stock has lost about 28 percent of its value this year.
Cost savings aside, the builder's sales trends for the quarter were mixed.
Home closings rose 9 percent to 4,198 homes, ahead of analysts' consensus forecast for an increase of 5 percent, according to FactSet. But new homes orders were flat at 3,564 homes. Analysts had anticipated orders would grow 6.6 percent compared to the same period last year, when home sales dropped sharply industry wide following the end of homebuyer tax credits.
New home sales have declined nationally this summer amid growing uncertainty over the U.S. economy, stubbornly high unemployment and concerns that U.S. home prices have yet to hit bottom.
March through August is typically the peak buying season. But this year, Americans bought fewer new homes in that stretch than in any other six-month period on records going back to 1963.
The Commerce Department reported Wednesday that new home sales rose in September, but that increase was largely due to builders slashing prices in the face of lackluster demand.
Pulte said the average selling price of homes closed during the quarter slipped to $262,000, from $265,000 a year earlier.
Some other homebuilders say demand has risen from last year. On Thursday, rival builder Meritage Homes Corp. reported third-quarter home orders surged 28 percent, while home closings slipped 1 percent. Another major homebuilder, Ryland Group Inc., said Wednesday that home closings for the third quarter jumped nearly 20 percent, while new orders grew nearly 30 percent.
CEO Dugas said it appears Pulte's first-time homebuyers are taking a little longer to decide on whether to buy a home and struggling with tougher mortgage financing standards.
The executive said third-quarter sales were strongest in parts of Washington D.C., northern Virginia, Florida, Phoenix and the West. Demand for its homes softened in markets in New England, Tennessee, Dallas and Raleigh, N.C.
With demand weak, PulteGroup said cost savings helped boost its adjusted home-sale gross margin to 18.5 percent in the third quarter, up from 16.7 percent a year earlier.
PulteGroup, which is based in Bloomfield Hills, Mich., operates in 29 states.
The builder said it lost $129.3 million, or 34 cents a share, in the July-September quarter. That compares with a loss of $995.1 million, or $2.63 a share, a year earlier.
The company booked charges related to the decline in its stock price and land values, which were partially offset by a higher tax benefit.
Stripping out the special items, PulteGroup earned 11 cents a share.
Analysts polled by FactSet had expected a loss of a penny per share.
Revenue rose 8 percent to $1.14 billion from $1.06 billion, beating Wall Street's $1.06 billion estimate.