2nd Update: Builder PulteGroup's 1Q Loss Widens

Date : 04/28/2011 @ 9:38AM
Source : Dow Jones News
Stock : Pultegrp., Inc. (PHM)
Quote : 35.15  0.55 (1.59%) @ 4:02PM

2nd Update: Builder PulteGroup's 1Q Loss Widens

Pulte Homes (NYSE:PHM)
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Builder PulteGroup Inc.'s (PHM) first-quarter loss widened as the builder's total revenue tumbled by 21%, dragged by fewer closings and lower selling prices.

The loss beat analyst expectations, fueling a 2% rise in pre-market trading to $8.13. But overall, the results continue what has been a rough earning season for home builders, including KB Home (KBH) and the Ryland Group Inc. (RYL), that continue limping through the worst housing crash in decades.

Consumers, wary of home prices falling further, remain hesitant to buy homes. More would-be buyers, meanwhile, are having trouble meeting tightened lending requirements for a mortgage. Builders can't compete with bargain-priced foreclosures. Dozens of private players have gone out of business and no relief is in sight.

"We expect the industry will continue to face low levels of demand and that overall operating conditions will remain highly competitive," Chief Executive Richard J. Dugas said in the pre-market release.

But Bloomfield Hills, Mich.-based Pulte faces more complicated issues. The builder, the nation's second-largest builder by annual closings, continues trying to justify its 2009 acquisition of competitor Centex Corp.

When it announced the deal, Pulte touted the benefit of cutting overhead costs, entering new markets -- including Seattle and Portland -- and returning to profitability more quickly. But the housing market has weakened further since the surprise deal, weighing on Pulte's performance.

Still, Pulte said there is reason for optimism. It labeled the most recent quarter's consumer traffic encouraging and said that orders -- which spiked 43% from the fourth quarter -- and margins exceeded internal forecasts. Should such improvement continue, the company could be profitable later this year.

"I'm very encouraged with how the year has started and the potential for gains as the year progresses," Dugas said in an earnings conference call with analysts and investors.

For the quarter ended March 31, Pulte reported a loss of $40 million, or 10 cents per share, compared with a loss of $12 million, or 3 cents per share, a year earlier. The most-recent quarter included a modest $700,000 in land-related charges. Revenues dropped 21% to $805 million.

Analysts polled by Thomson Reuters had most recently forecast a loss of 13 cents on $814 million in revenue. The low land-related charges, well below Credit Suisse's $50 million estimate, helped the results beat expectations.

Pulte's revenue from home sales fell to $782 million, depressed by a 17% decrease in closings and a 3% reduction in the in average selling price. Closings came in at 3,141, while the average price fell $8,000 to $249,000. The adjusted gross margin was 16.9%, up 60 basis points from the prior year.

On a bright note, the cancellation rate fell to 16.1%, from 18.3%, "partially reflecting more consistent underwriting standards from lenders," UBS said.

The company ended the quarter with a $1.4-billion cash balance, which should be enough to pay the bills as it awaits housing's recovery. Pulte and the rest of the battered sector think that could come soon.

"An improving economy is slowly beginning to generate new jobs which over the long term should translate into stronger consumer confidence, both of which are critical to a meaningful and sustained recovery in the U.S. housing industry," Dugas said in the release.

-By Dawn Wotapka; Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com


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