PulteGroup (PHM 22.33, +1.45, +6.94%) reported strong third quarter results this
morning, but earnings news continues to share space with investors’ focus on
the recent slowdown in the housing market.
Management noted that buyer interest remains strong; traffic grew 15% and accelerated throughout the quarter. However, conversion has suffered as competition has picked up. Affordability may be becoming an issue due to an increase in mortgage rates and home prices, so homebuilders are responding with more incentives.
Management remains upbeat on the housing market longer-term. They anticipate that the gradual growth of the last seven years will continue. Strong GDP, low unemployment, high consumer confidence, wage growth, low inventories, and a new home production deficit are all positive signs for the market.
Coming back to third quarter results, home sale revenues increased 25% over the prior year to $2.6 bln, driven by a 17% increase in closings to 6,031 homes, combined with a 7%, or $27,000, increase in average sales price (ASP) to $427K. The company had guided for 6,000-6,300 deliveries at an ASP of $415-425K.
Gross margin increased 10 basis points to $24.0%, in-line with guidance. Selling, general, and administrative expenses as a percentage of revenue fell 180 basis points to 9.8%, helping operating margins grow 190 basis points to 14.2%. As a result, earnings grew 74% to $1.01/share.
Net new orders for the third quarter increased 1% to 5,350 homes.
The company raised ASP guidance for the fourth quarter but guided gross margin to the low end of its prior forecast.
PulteGroup is leading homebuilders higher in early trade after the group had been decimated over the last month. At 6x earnings, the market may think the recent soft spot in the housing market has been priced into PHM shares.
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