Pulte's Upside Turn, Incentives or Not (PHM, DHI, TOL, SPF, XHB)

Defying all the mediocre views of the US housing market, PulteGroup Inc. (NYSE:PHM) reported EPS of $0.20 on revenue of $1.3 billion. Analysts had been expecting an EPS loss of -$0.01 on revenue of $1.24 billion. Earnings and revenue handily beat year ago results of an EPS loss of -$0.74 and revenue of $679 million. The profitable quarter was the first for Pulte since 2006.

Homebuilder D.R. Horton Inc. (NYSE:DHI) has already reported EPS of $0.16 on revenue of $1.38 billion for the second quarter, while Toll Brothers Inc. is expected to report an EPS loss of -$0.14 on revenue of $395 million later this month. It’s hard to tell whether the results from Pulte and Horton more accurately reflect the market for new homes or whether the forecast for Toll Brothers is more on target.

Pulte, which became the nation’s largest homebuilder by volume following its merger with Centex last year, closed 5,030 homes in the quarter, double its number of closings in the same period a year ago. The company did not provide pro forma results to show the effects of the transaction, however.

The average selling price of a new home fell 4%, to $251,000. Gross margin, excluding charges, interest expense, and merger-related costs, would have been 17.2% for the second quarter, up 7.8% from the same period a year ago and 0.9% sequentially. As a percentage of sales revenue, gross margins were 12.6%, compared with a negative margin of -10.9% a year ago and 13% sequentially.

The company’s backlog of orders grew 44% year-over-year to 5,644 homes with a value of $1.6 billion. Pulte’s CEO noted that demand has been stable though a “very low levels” following the April 30th end of the federal tax credit for new buyers. He also said that there is unlikely to be “any significant housing recovery” until the economy improves, unemployment falls, and consumers regains some confidence. That’s a pretty tall order.

Perhaps ironically, some homebuilders are expecting the industry to recover on its own, without further federal incentives. The Wall Street Journal cites the CEO of Standard Pacific Corp. (NYSE:SPF), who said he’d prefer not to have any further federal help. Federal incentives create “abnormal demand”, and make it more difficult to run the business. More federal stimulus is not likely to come to the housing market, so every one of the builders had better share this view.

PulteGroup shares are up about 2.5% at $8.65 in early trading this morning versus a 52-week trading range of $7.77 to $13.91.  As far as how this compares with the SPDR S&P Homebuilders (NYSE: XHB) is up only $0.01 at $15.07 and its 52-week trading range is $13.50 to $20.00.

Paul Ausick

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