Very positive moves by share prices of two of the biggest US home builders, DR Horton and PulteGroup, Thursday — even before US housing starts data came out — provide further indication that the long-suffering US housing market is slowly continuing to improve.
US Home Builder Share Prices Rise
Even before new US housing start data for June officially came out Thursday, CNBC announced early positive moves by two major US home builders:
DR Horton — Matched estimates with quarterly profit of US$0.66 per share, though revenue was below forecasts. The company did see a 13 per cent increase in sale orders but also had a cancellation rate of 21 per cent.
PulteGroup — Came in US$0.02 a share above estimates, with earnings per share of US$0.34. Revenue beat Street forecasts, as well. The home builder’s results were helped by selling more homes at higher prices.
In fact, PulteGroup, which is the number three largest US homebuilder, reported a 14 per cent rise in quarterly profit as it sold more homes at higher prices, said Reuters also Thursday.
The company’s net income rose to US$117.8 million, or 34 US cents per share, in 2Q, from US$103.3 million, or 28 cents per share, a year earlier.
Total revenue rose about 41 per cent to US$1.80 billion. PulteGroup’s new orders rose 11.3 per cent to 5,697 homes.
As for DR Horton, the largest US homebuilder reported an increase in fiscal 3Q earnings as a limited number of existing properties on the market helped fuel demand for new houses, said Bloomberg Thursday.
Net income for the three months through June climbed to US$249.8 million, or 66 US cents a share, from US$221.4 million, or 60 US cents, a year earlier, the Fort Worth, TX-based company said in a statement Thursday.
The company, with it’s a heavy presence in the important Texas and Florida markets, is expanding its geographic base and boosting sales volume through the company’s entry-level Express brand, which attracts buyers discouraged by tight supplies for existing homes.
Single-family home starts in the US increased 4.4 per cent last month, to the highest level since February, Commerce Department data showed this week.
Back to PulteGroup, the stock rose 4.1 per cent to US$21.26 in afternoon trading Thursday, after the company released it’s earnings report and announced a shift in strategy Thursday, outlining plans to slow down its growth in future land spending and make an additional US$1 billion in share repurchases.
As part of an agreement with hedge fund Elliott Management, PulteGroup will aim to reduce selling, general, and administrative expenses to 9 per cent of home sales revenue next year, down from 10 per cent this year. In exchange, Elliott will support the company’s board nominees at its annual meeting next May and won’t engage in any kind of proxy battle.
The agreement expires in a year. It would also add three new board members a month after Elliott took a 4.7 per cent stake in PulteGroup.
A person at Elliott Management said to Bloomberg the company has a significantly longer pipeline of land than its competitors, allowing it to boost earnings by convert- ing that idle land into homes that can be sold. A more efficient land strategy, along with the additional repurchases and other cost controls, should allow the home builder’s stock to again trade at a premium to peers.
Dave Miller, a senior portfolio manager at Elliott Management, said in the company appreciated PulteGroup’s “ongoing efforts to run a more efficient home-building business and toward building long-term shareholder value.”