Last updated: January 31, 2013 5:04 pm

Pulte profits quadruple but shares fall

By Anjli Raval in New York

PulteGroup quadrupled profits in the fourth quarter as rising demand for new properties helped the recovery in the country’s housing sector.

Net income rose to $58.7m, or 15 cents a share, at the housebuilder in the three months to December 31 from $13.8m, or 4 cents, in the same quarter a year ago.

IN Construction

Slow and steady jobs gains and rising home prices have spurred more Americans to move ahead with purchases, particularly against a backdrop of record-low mortgage interest rates and quickly diminishing inventories of homes for sale on the market.

However, shares in the company, which have risen more than 170 per cent in the past 12 months, fell 3.6 per cent to $20.30 by midday in New York because Pulte’s earnings missed analysts’ expectations of 31 cents. The latest quarter included charges of 13 cents a share for potential future loan repurchase obligations and 8 cents related to the repurchase of senior notes, partially offset by 2 cents in tax benefits.

Robert Wetenhall, analyst at RBC Capital Markets, said investors were worried Pulte was at the risk of having to buy back bad mortgages that were originated during the housing boom.

“Pulte is on the hook for some of this action. They missed forecasts as they had to take this charge. Investors are questioning whether this is the end of these charges or the start,” said Mr Wetenhall.

Megan McGrath, analyst at MKM Partners said other factors were also driving down the shares.

“Pulte lowered community (estate developments) count guidance this year, which could compress order growth. It also highlighted headwinds such as higher interest rate expenses and higher labour and material costs, even though they are bullish on the housing market,” said Ms McGrath.

The Michigan-based company, which was the best performer in the S&P 500 last year, said revenue rose to $1.57bn from $1.26bn. This beat expectations of $1.5bn.

“Looking ahead to 2013 we have every reason to expect that housing has indeed turned the corner and that industry sales in 2013 can continue to move higher as pent-up demand is released,” said Richard Dugas, chief executive of PulteGroup.

New orders increased 27 per cent to 3,926 homes from the same quarter a year ago, while backlog, an indication of future earnings, jumped 82 per cent to $1.9bn.

Adam Rudiger, analyst at Wells Fargo, said order growth was still below those of its rivals.

“Community count was down 4 per cent year over year. Similarly, while peers are generally growing their inventory balances, Pulte contracted this quarter both sequentially and on a year-over-year basis,” he said.

Pulte’s gross margin rose to 17.1 per cent from 12.4 per cent a year ago. The average selling price of a home gained 6 per cent to $287,000. For the full year, Pulte reported net income of $206m, compared with a net loss of $210m in 2011.

Smaller US housebuilders Meritage Homes, MDC Holdings and M/I Homes also reported sizeable jumps in new orders for their quarters ending in December.

Earlier this week DR Horton, the largest US housebuilder by revenues, said profits for the company’s last quarter doubled from the same period a year ago. New orders jumped 39 per cent to 5,259 homes, while the backlog of houses under contract rose 62 per cent.

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