While PulteGroup’s earnings per share were a little below estimates, its 7% increase in orders (to 5,118 homes), and gross margins of 23.3% (up 60 basis points from the first quarter) both beat expectations.
The value of the builder’s new orders for the second quarter increased 11% to $1.8 billion. Pulte saw order growth in the southwest (+22%), southeast (+18%), and north (+17%). That helped offset the declines of weakening Texas (-13%).
“We note that despite the weaker top line, home building gross margins came in 80 basis points ahead of our expectation reflecting the benefits of the company's value creation initiative as it continues to drive building and cost efficiencies,” wrote UBS’ Susan Maklari, who attributed the lower-than-expected EPS to flat home building revenues and land sales that were lower than expected.
Pulte, which purchased $213 Million of stock and retired $238 million of debt in the quarter, also reported a backlog of 8,998 homes valued at $3.1 billion, which was its highest value since 2007. UBS estimates that this backlog provides more than 5 months of forward visibility.
The builder’s net income came in at $103 million versus $42 million in last year’s second quarter. Home sale revenues for the second quarter totaled $1.2 billion, which is unchanged from the prior year. Revenues for the period reflect a 1% increase in average selling price to $332,000, offset by a 1% decrease in closings to 3,744 homes.
“We are very pleased with market conditions as solid buyer demand helped to drive an 11% increase in the value of new orders to $1.8 billion, our highest quarterly order value since 2007,” said Richard J. Dugas, Jr., chairman, president and CEO of PulteGroup in a statement. “Within this positive demand environment, we continue to demonstrate disciplined capital allocation consistent with our value creation strategy by growing our land and community pipeline, while simultaneously paying down $238 million of debt and returning $243 million to shareholders through share repurchases and dividends.”
Dugas further commented that “demand trends experienced throughout the first half of 2015 demonstrate that the recovery in U.S. housing remains on track and continues to be supported by an improving economy, better employment, rising consumer confidence and a low interest rate environment.”
Maklari agrees that Pulte is well positioned to capture demand during the housing recovery. “Pulte remains our top pick and a key call as we believe it offers the best reward vs. risk trade-off in the group,” she wrote.
J.P. Morgan’s Michael Rehaut thinks the negative EPS news could hurt the company’s stock slightly. “We expect a neutral to only slightly negative reaction by the stock today, as while operating EPS was below our estimate, mostly driven by lower than expected closings, it was only modestly below the Street, while more importantly, orders and gross margins were slightly above our estimate and we believe street expectations,” he wrote.