Why Pulte Is Getting Pummeled

After the Commerce Department said yesterday that new-home sales soared by 35% last month, everything appeared to be lined up perfectly for homebuilders to have an excellent second quarter. Unfortunately, investors that had been lulled into a sense of complacency by the good news got a reality check today.

Shares of PulteGroup and other homebuilders are getting pummeled in early trading after the nation's second largest builder reported earnings that came up dramatically short of the consensus estimate. Analysts expected the company to record $0.30 in earnings per share over the three months ended June 30. When all was said and done, however, it earned only $0.09.

Pulte attributed the source of the shortfall to three nonoperational charges. It spent $30 million to resolve "a contractual dispute at a previously completed luxury community." It charged off $23 million "associated with the repurchase of $434 million of senior notes in the period." And $13 million for costs related to relocating the company's corporate headquarters.


Once you back these out, in turn, Pulte earned $0.26 per share.

The best news of the report concerned home prices, closings, and backlog. While the Commerce Department said yesterday that home prices fell in June, Pulte said its average selling price grew by 9% compared to the same period last year. In addition, the number of home closings grew by 9% as well -- to 4,152. And finally, the number of units in its backlog shot up by 13% to 8,558.

On top of this, the company sounded an upbeat tone about the economy. "The U.S. housing market continues to gain momentum and remains solidly on track toward a sustained, long-term recovery," said CEO Richard J. Dugas. "Even the recent rise in interest rates has had little effect on overall activity, as consumers continue to perceive good values, amid limited supply and generally rising sales prices, combined with the reality of high lease rates in the rental market. Given these market dynamics, consumers are continuing to exhibit a sense of urgency in their desire to purchase a new home."

Alternatively, far and away the worst news was the company's activity on the order front. Net new orders for the second quarter came in at 4,885 homes, which equated to a decrease of 12% from the prior year. Lest there be any doubt, aside from the woeful EPS performance, this is why investors are broadly selling Pulte's shares today.

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The article Why Pulte Is Getting Pummeled originally appeared on Fool.com.

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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