Profits at PulteGroup, Inc. ($PHM), the U.S.’s second largest homebuilder, skied in the third quarter on the back of a large tax benefit, rising home prices and an increased number of closings, topping analyst expectations and sending share prices higher in early Thursday trading.
For the quarter ended September 30, the Bloomfield Hills, Michigan-based company reported revenue of $1.58 billion, up 21 percent from $1.30 billion in the third quarter last year. Net income was $2.28 billion, or $5.87 per share, including $2.1 billion, or $5.42 per share, relating to the reversal of substantially all of the company's deferred tax asset valuation allowance. This compared to net income of only $116.6 million, or 30 cents per share, last year. Excluding the huge tax benefit, net income would have been $173 million, or 45 cents per share, still topping last year’s adjusted profits by 50 percent on a per share basis.
Wall Street was expecting adjusted earnings of 36 cents per share on revenue of $1.46 billion.
Higher revenues were driven by an 11 percent increase in average selling price to $310,000. At 4,817 homes, Pulte registered 9 percent more closing than during the third quarter of 2012.
Profit margins jumped by 390 basis points to 25.5 percent. Compared to the second quarter, profit margins were up 160 basis points.
New orders for the quarter dropped 17 percent to 3,781 on a unit basis and 8 percent to $1.2 billion on a dollar basis. Backlog at the end of the quarter was 7,522 homes valued at $2.4 billion. From a homes perspective, that’s down from 7,686 in last year’s quarter, but up by $200 million from a value perspective.
"We are extremely pleased with the gains in profitability and overall returns that our Value Creation initiatives continue to drive within our homebuilding operations, while our stronger balance sheet provides us the flexibility to systematically increase investment into the business while also returning funds to our shareholders,” said Richard J. Dugas, Jr., Chairman, President and CEO of PulteGroup, in a statement today.
Dugas added that he believes the slowdown in home buying because of the jump in interest rates and higher home prices will be short-lived.
In the third quarter, Pulte repurchased 5.3 million of its common shares, at a cost of $83 million, and $27 million of outstanding senior notes.
Homebuilders have been taking it on the chin since May when interest rates started rising in preparation for the Federal Reserve to begin hitting the brakes on its monetary stimulus package. Shares of PHM slid from over $24 in May to lows near $14 in August. The stock has found some legs since, including a 6 percent rise in Thursday morning trading following the earnings beat. Shares are printing $17.69 one hour into the session.
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