PulteGroup expects slowdown in housing orders to be 'short-lived' period in midst of multi-year housing recovery, says CEO
Allison Oesterle
NEW YORK
,
October 24, 2013
(Thomson Reuters Corp.)
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* Reports higher third-quarter gross margins
* Average selling price rises 11 pct * Sets aside $1.6 billion to invest in land in 2014 * Shares rise as much as 7 pct PulteGroup Inc, the No. 2 U.S. homebuilder, said a slowdown in new home orders would be "short-lived" as Americans return to the market after a period of economic uncertainty. PulteGroup also reported fatter margins and higher selling prices for the third quarter. Its shares rose as much as 7 percent on Thursday, pulling up the Dow Jones Home Construction index by 3 percent. "The slowdown (in orders) will ultimately prove to be short-lived within a sustained, multi-year housing recovery," Chief Executive Richard Dugas said in a statement. Mortgage rates began rising in May and touched a two-year high in July after the Federal Reserve started talking about easing the stimulus put in place during the crisis. Already put off by higher rates, some would-be home buyers deferred big purchases in September given the potential of a U.S. government shutdown and a debt default. The ongoing threat of a debt default is expected to hurt housing demand in the current quarter, before easing in 2014, according to analysts. PulteGroup's orders - a key indicator for builders, who do not book revenue until they finish a house - fell 17 percent to 3,781 homes in the third quarter ended Sept. 30. The company's orders have also suffered this year due to a shortage of land on which to build, putting it at a disadvantage to builders that built up their land banks through the last economic crisis. MARGINS EXPAND PulteGroup expects to nearly double its spending on land and development to $1.4 billion this year, and will increase the amount to $1.6 billion in 2014. The company, along with No. 1 U.S. homebuilder D.R. Horton Inc, is building up its land bank to catch up with Lennar Corp and Toll Brothers Inc, which have the strongest land banks among the large U.S. homebuilders. PulteGroup's gross margins expanded to 20.9 percent in the third quarter from 17.0 percent a year earlier. The average selling price of its homes rose 11 percent to $310,000. "What we do like about the story is really the gross margin control," Williams Financial Group analyst David Williams said. Net profit rose to $2.28 billion, or $5.87 per share, from $116.6 million, or 30 cents per share, a year earlier. The results include the reversal of a deferred tax asset valuation allowance of $2.1 billion, or $5.42 per share. Excluding this reversal, PulteGroup earned 45 cents per share in the quarter ended Sept. 30. Home sale revenue rose 21 percent to $1.49 billion. Shares of the company were up 5 percent at $17.55 in late morning trade on the New York Stock Exchange.
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