Earnings Preview: Pulte Homes to post 3Q results

LOS ANGELES - Homebuilder Pulte Homes Inc. reports earnings for the third quarter on Wednesday. The following is a summary of key developments and analyst commentary related to the period:

OVERVIEW: Pulte, based in Bloomfield Hills, Mich., has operations in 29 states. Its Del Webb brand is the nation's largest builder of communities for adults age 55 and over. The company has posted losses in each of the past 11 quarters.

Like other builders, Pulte continues to grapple with competition from heavily discounted foreclosed properties and a market that remains hampered by tighter mortgage-lending standards and high unemployment.

Still, it has seen new home orders pick up this year, thanks in part to low mortgage rates and a tax credit of up to $8,000 for first-time homebuyers. The tax credit due to expire at the end of this month.

The looming expiration of the tax credit helped fuel builders' sales during much of the third quarter, but the impact of the incentive began to wane by September as it became less likely buyers could close a deal in time to qualify for the credit.

As a result, new home sales in September dropped 3.6 percent nationwide — the first decline since March.

Wall Street will be looking for clues as to how the tax credit affected sales for Pulte, which in August acquired rival Centex Corp. in part to bolster its reach into the first-time homebuyer market.

Prior to the acquisition of Centex, Pulte's active adult home sales accounted for about 45 percent of its business, while first-time buyers represented only 17 percent. Now, the active adult segment makes up about one-third of its business.

At an investors conference last month, Pulte Chief Financial Officer Roger Cregg said that housing demand had stabilized in some markets, but noted "It's hard to say that this is the bottom of the market at this point."

The builder took steps to pay down some $1.5 billion in debt in connection to the Centex acquisition during the quarter.

BY THE NUMBERS: Analysts polled by Thomson Reuters predict a loss of 64 cents per share on revenue of $1.17 billion for the quarter. In the third quarter of last year, Pulte posted a loss of $1.11 per share.

ANALYST TAKE: Fox-Pitt Kelton analyst Robert Stevenson said he expects Pulte's new home orders will show some weakness as fewer buyers looked to take advantage of the tax credit toward the end of the quarter.

"For most of the other (builders), that started weakening around September when they couldn't really market properties using the $8,000 tax credit on anything other than finished inventory," Stevenson said.

"My guess is this quarter was not a particularly great quarter for the Del Webb active adult business either," he added. "So it will be interesting to see where the sales came from and what wound up happening with pricing during the quarter."

WHAT'S AHEAD: Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year. One approach touted by a group of senators last week would give homebuyers until the end of April to sign deals and still qualify, as long as they complete the transaction by the end of June.

An extension would likely give builders a boost, but there's concern that the credit has already pulled housing demand forward several months.

"I question, especially if mortgage rates start going up, what's going to be the real impact on housing sales," Stevenson said.

STOCK PERFORMANCE: Pulte shares climbed 23 percent during the quarter.

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