A busy day of builder earnings began with positive news from LGI Homes. The Woodlands, Texas-based builder saw home closings increased 67.7% to 934 homes; its average home sales price jumped 12.1% to $186,248; its net income before income taxes rose 120.4% to $23.2 million; and home sales revenues increased 88.0% to $174.0 million.
“LGI Homes' third quarter demonstrates our continued trend of strong results and profitability,” said Eric Lipar, the company's CEO and Chairman of the Board, in a press release. “These results are a reflection of the dedication of our employees and our effective systems and processes that have enabled us to expand and replicate our success in our markets outside of Texas, coupled with a robust demand for homeownership in all of our markets.”
J.P. Morgan’s Michael Rehaut expects a good reaction to the results. “We expect a positive reaction by the stock today as 3Q EPS was above our estimate and the Street consensus, while additionally, LGIH raised its 2015 closings and EPS guidance, despite October closings growth of only 10%,” he wrote.
For LGI, which made its name as an entry-level builder, the average sales price increase is noteworthy.
“This increase is largely attributable to changes in product mix, price points in new markets, and a favorable pricing environment,” LGI said in its earnings release.
Like a number of other builders, LGI saw its adjusted gross margin shrink--falling from 28.3% in the third quarter of 2014 to 27.5%. Rehaut estimated a 26.8% gross margins. LGI attributed the decrease to a combination of increased construction costs and lot costs partially offset by higher average home sales price.
Going forward, LGI looks to be solidly in growth mode. Its active selling communities at quarter-end increased to 50 from 34 and its total owned and controlled lots increased to 23,419 lots.
With this growth, LGI raised its 2015 closings outlook to 3,250-3,400 from 3,000-3,300.
“As we finish out the year,” Lipar said in the release, "we maintain our optimistic outlook on the remainder of 2015. We believe we are well positioned to end the year very strong and are therefore raising our guidance. For 2015, we now anticipate closings between 3,250 and 3,400 homes and believe basic EPS will be in the range of $2.45 and $2.65 per share."
Rehaut likes the company’s prospects going forward, as well.
“We reiterate our overweight rating, as we believe LGIH’s valuation does not properly reflect our outlook for above average and near industry leading order/closings growth, driven by the company’s land position, geographic expansion and unique marketing and sales approach, as well as near industry leading gross margins,” he wrote.