PulteGroup's 2Q16 Earnings: Higher Revenues and Lower Gross Margins

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PulteGroup's 2Q16 Earnings: Higher Revenues and Lower Gross Margins PART 1 OF 4

PulteGroup Reports a Big Jump in Revenues

PulteGroup’s revenues rose 41%

PulteGroup (PHM) reported 2Q16 revenues of $1.8 billion—a 41% increase from a year ago. Revenues increased in home sales and financial services, while land sales fell.

PulteGroup Reports a Big Jump in Revenues

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The increase in revenues was driven by a 27% increase in deliveries combined with an 11% increase in ASP (average selling prices) to $367,000 per home. Most builders have been seeing a flattening trend in average selling prices—buyers are balking at higher prices.

For most of 2014 and 2015, we saw increasing revenues driven by growth in ASPs. Now, any ASP growth seems to be driven by larger home sizes. Some builders are starting to focus on the first-time homebuyer.

Orders increased 11% on a unit basis to 5,697 net new orders. New orders’ dollar value increased 21% to $2.1 billion. At the end of the quarter, the backlog was 9,679 homes valued at $3.7 billion. The average selling price of the company’s backlog increased to $387,000—up 13% on an annual basis.

State of the housing market

PulteGroup’s chairman and CEO, Richard Dugas, Jr., discussed the state of the housing market. He said that “We remain optimistic about the direction of the overall housing market and expect that current economic conditions, continued job formations and low interest rates can support slow and steady growth in housing demand for the next several years. Against this backdrop, we believe that our prior period land investments position us well for continued strong earnings growth.”

So far, we’ve heard from PulteGroup, D.R. Horton (DHI), Lennar (LEN), and KB Home (KBH). Lennar, KB Home, and D.R Horton all beat estimates. It looks like everyone thinks that we’re in a multiyear recovery. This would make sense since household formation is increasing, while the homeownership rate is at a four-decade low. We’re still waiting for Toll Brothers’ (TOL) earnings report.

Investors interested in exposure to the homebuilding sector should look at the SPDR S&P Homebuilder ETF (XHB).


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