Three more public builders released results today, headlined by Pulte—the nation’s No. 3 builder in 2014. Though all three—PulteGroup, Meritage, and M/I Homes—boasted order growth, analysts weren’t entirely pleased with the results, mainly because of weaker-than-expected gross margins for Pulte and Meritage.
Pulte
Atlanta-based Pulte posted order growth of 6%, gross margins of 22% (falling 40 basis points sequentially and 110 basis points year over year), a 4% bump in community count, and a 1% sales-pace increase.
“The underperformance reflects the impact of lower-than-forecast home building revenues that were flat year over year compared to our 3% forecast … ,” said UBS’s Susan Maklari in a research note. “This, in turn, contributed to weaker operating leverage.”
Though analysts were disappointed, sales results were improved. By region, Pulte sales in the Southeast, North, Southwest, and Florida rose 14%, 12%, 9%, and 7%, respectively, while the Northeast and oil price–stricken Texas fell 2% and 5%, respectively.
Pulte’s entry-level Centex brand saw absorption increase 8%. The company is focusing research around Centex and the millennial market. “We are particularly encouraged by the improved experience in our Centex communities,” CEO Richard Dugas said on his earnings call. “We are optimistic that this is the beginning of a more substantial recovery in entry level, which is really a missing piece of the housing recovery to date. Assuming there are no dramatic changes in the U.S. or globally to have a material impact on employment trends, consumer confidence, or interest rates, new-home sales should see continued gains in 2015.”
If that market is turning, Pulte is in position to add land. “We continue to expect community count growth to reaccelerate, related to the increased level of land spend over the last two years,” Maklari said. “We'd note that management has authorized another $2.4 billion of spend for 2015, which would represent a 20% increase over the 2014 authorization.”
Meritage
Meritage disappointed analysts with gross margins dropping 180 basis points sequentially and 430 basis points year over year. The company cited the double whammy of higher lot costs and lower home appreciation as the culprit.
The Scottsdale, Ariz.–based builder did post higher-than-expected home building revenue growth of 28%, order growth of 30%, a 22% increase in community count, and a 9% increase in average sales price.
Texas, where Meritage has a big stake, fell 12%. But North Carolina's 83% increase along with jumps of 52%, 43%, 31%, and 26%, respectively, from Colorado, Florida, California, and Arizona were positives.
“We continue to believe that Meritage is well positioned for the housing recovery given the company continues to pursue a land-light model, which should enable greater financial leverage; and it has more than sufficient liquidity to support future growth,” Maklari wrote.
M/I
M/I’s order and gross margins actually beat projections. The company’s gross margins came in at 20.4%, which exceeded J.P. Morgan’s 19.8% projection.
M/I’s orders rose 13%, and its sales pace jumped 17%, while its community count fell 4%. Its average sales price hit $348,000, a 17% increase. The builder's Southern and Midwest regions rose 23% and 12%, respectively, while the sluggish Mid-Atlantic edged up only 1%.
