TRI Pointe Group, Inc., Irvine (NYSE: TPH) on Wednesday reported net income of $64.0 million, or $0.43 per diluted share, for the third quarter ended September 30, 2018, down from $72.3 million, or $0.48 per diluted share, for the third quarter of 2017. Analysts were expeIting a gain of $0.34.
Included in net income available to common stockholders for the third quarter of 2017 was gross margin of $55.4 million related to the sale of a land parcel consisting of 69 home building lots located in the Pacific Highlands Ranch community in San Diego, California.
Home sales revenue increased $123.1 million, or 19%, to $771.8 million for the third quarter of 2018, compared to $648.6 million for the third quarter of 2017. The increase was primarily attributable to a 10% increase in the average sales price of homes delivered to $640,000, compared to $584,000 in the third quarter of 2017, and an 8% increase in new home deliveries to 1,205, compared to 1,111 in the third quarter of 2017.
Home building gross margin percentage for the third quarter of 2018 increased to 21.3%, compared to 19.5% for the third quarter of 2017. Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.0% for the third quarter of 2018, compared to 22.0% for the third quarter of 2017.
Selling, general and administrative expense for the third quarter of 2018 increased to 10.7% of home sales revenue as compared to 10.2% for the third quarter of 2017, primarily due to accounting changes related to expenses.
New home orders decreased 18% to 1,035 homes for the third quarter of 2018, as compared to 1,268 homes for the same period in 2017. Average selling communities decreased 2% to 127.3 for the third quarter of 2018 compared to 129.8 for the third quarter of 2017. The company’s overall absorption rate per average selling community decreased 17% for the third quarter of 2018 to 8.1 orders (2.7 monthly) compared to 9.8 orders (3.3 monthly) during the third quarter of 2017.
The company ended the quarter with 2,101 homes in backlog, representing approximately $1.4 billion, down from 2,265 and $1.48 billion a year earlier. The average sales price of homes in backlog as of September 30, 2018 increased $27,000, or 4%, to $681,000, compared to $654,000 as of September 30, 2017.
TRI Pointe Group CEO Doug Bauer commented, “Our absorption rates did slow in the quarter as compared to the same period last year, which we feel is a natural reaction by buyers confronted by higher mortgage interest rates and higher home prices. It is important to note that, while not as strong as the same period last year, our overall absorption rate of 2.7 homes per community per month for the quarter was similar to the company's historical third quarter absorption rate in other years.”
Bauer continued, “We remain focused on the long-term outlook for our company and industry, which we believe is positive given the current strong economic fundamentals and favorable demographic trends.
For the fourth quarter of 2018, the company expects to open 19 new communities, and close out of 14, resulting in 130 active selling communities as of December 31, 2018. In addition, the company anticipates delivering 80% to 85% of its 2,101 units in backlog as of September 30, 2018 at an average sales price of $640,000. For the full year, the company expects to deliver between 5,025 and 5,130 homes at an average sales price of $635,000. The company anticipates its home building gross margin percentage will be in a range of 20.0% to 20.5% for the fourth quarter, resulting in a full year range of 21.0% to 21.5%. Finally, the company expects its SG&A expense as a percentage of home sales revenue to be in the range of 8.8% to 9.2% for the fourth quarter, resulting in a full year range of 10.1% to 10.5%.
