PulteGroup's Fourth Quarter 2014 Earnings Review (Part 3 of 4)
PulteGroup has been steadily increasing its earnings per share
PulteGroup (PHM) reported net income of $217 million, or $0.58 per share, which beat the Wall Street estimate of $0.40 per share. The company earned $0.57 per share in the corresponding quarter last year.
Earnings per share (or EPS) were driven by the increase in average selling prices and deliveries. The company’s tax rate was 19%, lower than the statutory amount due to a tax benefit of $0.13 per share. Ex the tax benefit, earnings per share came in $0.45 per share, still better than Wall Street.
Activity for Financial Services, PulteGroup’s mortgage business, increased 88% as both origination volumes and gain on sale margins increased. Selling, general, and administrative expenses fell from 9.1% of revenues to 8% of revenues.
Balance sheet activity
The company continued its share repurchase plan, buying 5.2 million shares at an average price of $18.87 per share. It retired $246 million worth of debt as well.
PulteGroup spent $539 million on land and development during Q4. The company plans to invest about $2.4 billion into the business in 2015, and that could increase if the company can find higher-returning projects.
Texas demand holds up in spite of lower oil prices
On the East Coast, PulteGroup (PHM) is seeing stronger demand, particularly in the Carolinas, Georgia, and Florida. In the Midwest, demand is generally positive. Texas remains the strongest geographical area, although the company is watching developments in its economy as oil and gas prices fall.
The company isn’t seeing any sort of drop-off in demand so far. The West Coast market was volatile, with Coastal California and the Bay Area performing the best. That said, the rally in West Coast real estate is getting a little long in the tooth and becoming very dependent on foreign investors, who can come and go very quickly.
Overall, this could mean investors may want to start thinking about rotating out of West Coast–centric builders such as Standard Pacific Homes (SPF) and KB Home (KBH) into more diversified builders such as PulteGroup (PHM) and D.R. Horton (DHI).
In many ways, PulteGroup and D.R. Horton are first-time homebuyer plays. We’re starting to see some signs of life there. Note that the government is pursuing additional policies designed to benefit the first-time homebuyer. This should help PulteGroup.
An alternative way to play the homebuilder sector would be with the SPDR S&P homebuilder ETF (XHB).