Homebuilder PulteGroup (PHM, Financial) reported an 11% increase in its second quarter revenue. Its results were primarily driven by the improved average selling prices for homes during the quarter. It realized a 12% increase in its average selling price due to favorable market conditions and better product mix. Better pricing strategies that caters to base house and option pricing to lot premiums and discounts added growth for its top and bottom lines during the quarter. However, its orders for new homes declined 2.2% to 4,778 from 4,885, despite the value for new homes for the period improving 5% to $1.6 billion.
The Bloomfield Hills, Michigan-based company posted revenue of $1.29 billion, an uptick of 11.22% compared to $1.16 billion in the corresponding period last year. But it failed to meet the consensus estimates of $1.34 billion in revenue for the quarter. Also, its net income for the quarter rose to $41.9 million or earnings of $0.11 cents, from net income of $36.4 million or earnings of $0.09 per share in the year-ago quarter. Its bottom line performance was in line with consensus estimates for the quarter.
Higher expectations for the future
Looking ahead, Richard J. Dugas, Jr., Chairman, President and Chief Executive Officer of PulteGroup said, “Our view of the U.S. housing market remains positive, as improvements in both the economy and employment provide ongoing support to an industry already benefiting from low inventory, low mortgage rates, better pricing and favorable demographic trends. Within this environment, our strong operating gains enable us to continue increasing investment into the business, while continuing to drive excellent returns on invested capital."
The homebuilder continues to experience strong demand for its homes in the western markets such as Northern California and Pacific Northwest. It is also seeing strong demand in the regions like southwest states of Arizona, New Mexico and Nevada that should enhance performance for its top line in the second half of the year. It is also seeing a similar positive trend for its houses in Texas across various markets such as Carolinas, Florida, the East Coast, Dallas, and Houston. The company is now off to the tough winter season in these regions that would lead to better demand for the homes in the remaining half of the year.Â
In addition, the company is aggressively executing various pricing strategies that should assist the company to tap better opportunities going forward. Its pricing strategies are resulting gain in its operation efficiency and savings related with lower interest costs. Also, its pricing strategies are expected to yield incremental improvements in its gross margin in the upcoming quarters. Further, it is realizing a reasonable pricing environment in the home markets along with better demand in the apartment lease rates and support that should certainly drive its growth. It is seeing a strong buyer demand which in turn is producing higher absorptions. This is also assisting the company to realize higher selling prices.
Moreover, the homebuilder also should benefit from its growing brands such as Centex and Dell Webb that are gaining tremendous tractions in the market. Pulte remains on track to expand the profit margins for these brands going forward. The company is developing various customized pricing strategies that could effectively address the various aspects of customers from different segments such as from base houses and option pricing to lot premiums and discounts. It is seeing a potential future demand for the entry-level buyers that was earlier under-represented in the housing cycle. Moreover, the company should benefit from the growing selling prices in these brands. Centex average selling prices has risen to 3% $202,000 in the Centex communities, while Dell’s average selling price has appreciated approximately 9% to $325,000 in Dell Webb communities.
Conclusion
Pulte is practicing various pricing actions that should uplift its performance in the second-half as the housing market is getting better after a terrific winter season. Also, better product mix should support its growth in the long-run and enhance its bottom line performance going forward. The company is currently trading at the trailing P/E of 2.50 and forward P/E of 11.67. Its forward P/E looks quite healthy and promises sound improvements for its profit in the coming years. Also, the company has profit and operating profit margin of 46.41% and 10.59% respectively, indicating a reasonably strong growth potential for the stock in the future.
