Pulte Homes’ earnings miss estimates on sluggish LV sales

Jennifer Shubinski

Tuesday, Oct. 26, 2004 | 10:58 a.m.

Pulte Homes on Monday reported that its third-quarter revenue increased almost 24 percent, despite sluggish sales and price cuts in Las Vegas.

Bloomfield Hills, Mich.-based Pulte Homes reported a profit of $269.9 million, or $2.07 per share, for the third quarter ended Sept. 30, up from $168.8, or $1.34, in the year-ago quarter.

Revenue grew almost 24 percent to $2.96 billion.

Despite the strong results, they still fell short of Wall Street expectations.

Earlier this month, Pulte lowered its guidance for the quarter by a nickel to $1.95-$2.05. It also lowered its full-year guidance to $7.40-$7.70, a range it reaffirmed Monday. The company's previous full-year guidance was $7.80-$8.

"Pulte's strong third quarter and nine month financial results continue to benefit from our focus on four key areas of operational improvement, namely market share growth through segmentation, operational excellence, people development and financial discipline," Richard J. Dugas Jr., president and chief executive of Pulte Homes, said in a statement.

Pulte Homes, along with its Del Webb division, is the second largest homebuilder in the Las Vegas Valley. In 2003, it sold more than 2,700 homes, Home Builders Research Inc. reported.

The homebuilder made headlines earlier this month for its price reductions in the Las Vegas Valley, claiming a slowdown in demand and an over-aggressive pricing strategy.

At the end of September, Pulte reduced prices at its four Las Vegas Del Webb communities between 5 percent and 25 percent, or $50,000 to almost $160,000.

Pulte also reduced prices in 18 of its 23 Pulte Home communities, with reductions ranging from $25,000 to $170,000.

During a conference call this morning, Dugas said a system of checks and balances in the pricing process have been put in place in Las Vegas to assure a market correction is not needed again.

"We have taken action to correct our market position in Las Vegas and we have put additional checks in the pricing process to ensure this doesn't occur again," he said.

He said pricing decisions will still be made at a local level, but there will be an increased focus at all levels of management, combined with reviews, to avoid similar issues in the future.

Dugas stressed that the price adjustments that sent other public homebuilders' stock plummeting earlier this month was a "company-specific event."

"Pulte's local pricing got ahead of the market and we've taken action to address the problem," he said.

Since reducing prices in Las Vegas, Pulte Homes has written almost 300 new contracts in the area for the month of October, as compared to 500 for the entire third quarter, Steve Petruska, executive vice president and chief operating officer. Petruska is former area president for Pulte Homes' Arizona and Nevada operations.

"Sign ups during the third quarter totaled almost 500 homes on a gross basis, but cancellations were extremely high," he said. "The cancellation rate is what created the issue we've spoken about."

Later in the conference call Petruska said the cancellation rate for Las Vegas area homes during the third quarter was as high as 60 percent.

Petruska said since lowering home prices, traffic in Las Vegas area communities has doubled.

The Las Vegas market ended the third quarter with 1,550 homes in backlog (sold but not built), of which the company expects 77 percent to be followed through with purchases based on the new pricing structure. Petruska said about 23 percent of the backlog as of Sept. 30 elected to cancel contracts because of the new pricing.

In trading this morning, Pulte stock was up $3.12, or 6 percent to $54.62.