Real Estate

Home builder PulteGroup's quarterly profit drops 72% on a tax charge

Key Points
  • PulteGroup reported a 12.1 percent rise in fourth-quarter revenue.
  • The U.S. home builder sold more homes at higher prices.
  • The housing market that is witnessing supply constraints in the face of rising demand.
Construction on a new Pulte Homes development in Phoenix.
Justin Sullivan | Getty Images

U.S. home builder PulteGroup said on Tuesday rising costs are likely to weigh on 2018 gross margins despite the U.S. homebuilder benefiting from selling more homes at higher prices in the fourth quarter.

Pulte's shares fell 3.3 percent to $32.33 in morning trading after it reported fourth-quarter revenue below Wall Street estimates.

Housing demand remains robust in the United States but labor shortage has been hurting the pace of construction of new homes, leading to higher cost for homebuilders.

Pulte, which also sells townhouses and condominiums, said it expects 2018 home sales gross margins between 23 percent and 23.5 percent, compared with 23.6 percent last year.

If the gross margins were to fall in 2018, it would be third straight year of declines in the metric for Pulte.

"Margins for the year (2018) reflect the impact of higher land, labor and material costs, particularly lumber and concrete, partially offset by higher selling prices," Pulte Chief Financial Officer Robert O'Shaughnessy said on the earnings call.

To tackle rising costs, homebuilders have been acquiring smaller rivals and land developers.

Last year, the No. 1 U.S. home builder D.R. Horton bought Forestar Group, while Lennar, the second-biggest U.S. home builder, agreed to buy CalAtlantic.

Pulte, which mainly sells single-family homes, expects to deliver between 22,0000 and 23,000 homes this year, up about 5 percent to 10 percent from last year, at an average price of $400,000 to $415,000.

Chief Executive Ryan Marshall said housing demand is expected to remain higher despite climbing interest rates and changes in U.S. tax laws.

Earlier this month, bigger rival Lennar said strong economic growth in 2018 would offset concerns about housing demand being hit by cuts to tax relief on mortgages.

Pulte's orders in the quarter ended Dec. 31, a measure of its future revenue, expanded at its fastest clip in eleven quarters to rise 14.4 percent to 4,805 homes.

In the current quarter, the company expects to sell between 4,250 and 4,500 homes. It sold 4,225 homes a year earlier.

Net income fell 72 percent to $77.4 million in the fourth quarter, hurt by charges related to the new tax plan and land adjustments.

On an adjusted basis, the company said it earned 85 cents per share. Analysts on average expected earnings per share of 85 cents compared with Pulte's profit of 88 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 12.1 percent to $2.79 billion, but missed the average analyst estimate of $2.82 billion.

Separately, the company announced on Tuesday a $500 million increase to its share repurchase plan.

Up to Monday's close, the Atlanta, Georgia-based company's shares had risen 57.2 percent in the last 12 months.