PulteGroup's First Quarter Earnings Disappoint Wall Street (Part 1 of 4)
Revenue growth beginning to stall out
PulteGroup (PHM) reported first quarter revenues of $1.13 billion, which missed Wall Street’s estimate of $1.25 billion. Homebuilding revenues were flat with a year ago, while land sales and financial services revenues increased.
The increase in revenues was driven by a 2% decrease in closings combined with a 2% increase in average selling price (or ASP) to $323,000 per home. Most builders have been seeing a flattening trend in average selling prices as buyers balk at higher prices and builders need to add incentives.
For most of 2014, we saw increasing revenues being driven by growth in ASPs. Now, any ASP growth seems to be driven by larger home sizes, which is what D.R. Horton (DHI) pointed out in its first quarter earnings.
Orders were slightly higher on a unit basis, to 5,139 net new orders. The dollar value of new orders increased 6%, to $1.7 billion. At the end of the year, the backlog was 5,850 homes valued at $1.9 billion compared to a prior-year backlog of 7,624 homes valued at $2.6 billion. The average selling price of the company’s backlog increased to $336,000, which was flat with the prior quarter and up 1% on an annual basis.
Pulte’s take on the state of the housing market
Richard J. Dugas, Jr., president and chief executive officer of PulteGroup, stated, “The improving demand conditions that we noted toward the end of 2014 carried through the first quarter of 2015 and provided a strong start to the spring selling season. We remain encouraged by overall housing demand which continues along a sustained but slow recovery path supported by an improving job market, favorable demographics, low interest rates and generally low inventory of available homes.”
So far, we’ve heard from PulteGroup, D.R. Horton (DHI), Lennar (LEN), and KB Home (KBH). Lennar, KB Home, and D.R Horton all beat estimates, but forward guidance was disappointing.
Investors interested in trading the homebuilding sector as a whole should look at the SPDR S&P Homebuilder ETF (XHB).
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