PulteGroup profit falls 19% as closings drop 9% and CEO cites rising mortgage rates

PulteGroup (NYSE: PHM), one of the largest US homebuilders, said on Thursday that third-quarter net income fell 19% and that "rising mortgage rates, widespread inflation, and global unrest" were pressuring homebuying demand, according to its earnings release.

What happened

Net income was $476 million, or $2.53 per share, compared with $586 million, or $2.96, a year earlier. Home sale revenues were $3.9 billion, down 9% from $4.2 billion, reflecting a 9% decrease in closings to 6,876 homes and a 1% decrease in the average sales price to $561,000.

Home sale gross margin was 24.8%, compared with 26.2% a year earlier. The margin includes $26 million, or about 70 basis points, of land impairments. Selling, general and administrative expenses were $397 million, or 10.3% of home sale revenues, compared with $401 million, or 9.4%.

Orders and backlog

Net new orders totaled 6,208 homes, down 6% from 6,638, and their value was $3.5 billion, compared with $3.6 billion. The average community count rose 7% to 1,077. Backlog at the end of the quarter was 10,298 homes valued at $6.4 billion, compared with 9,888 homes valued at $6.2 billion a year earlier.

What management said

President and Chief Executive Ryan Marshall said that "the rapid increase in interest rates has stretched affordability even further, made selling an existing home even harder, and has pushed even more consumers to the sidelines." He said more than 60% of the business is now move-up and active-adult buyers, which he credited for strong gross margins.

PulteGroup repurchased 2.8 million shares for $350 million in the quarter, an average of $124.70 a share. It has repurchased 8.4 million shares, or 4% of shares outstanding, in the first nine months.

What to watch

Marshall said the company will "appropriately balance the price and pace of home sales, align production accordingly, and remain disciplined in our allocation of capital." The 30-year fixed mortgage rate averaged 7.32% in Freddie Mac's survey for the week ended October 22, according to St. Louis Fed data.