Pulte Homes Loses Almost $1 Billion in Third Quarter
Want to know how the new homes construction market is doing?
Forget about the statistics. Pay no attention to weekly rising or decreasing sales numbers. Ignore prognostications from the trades groups.
Just study the newest third-quarter performance data from one of the largest homebuilders in the U.S. – PulteGroup Inc. of Bloomfield Hills, MI.
The Michigan-based builder lost nearly a billion dollars. Pulte booked $986 million in charges and orders declined, underscoring the home-building sector’s continued problems.
With the housing market expected to weaken further next year, Pulte said it will slash costs by about $100 million by consolidating divisions and reducing staff, The Wall Street Journal reported.
Richard Dugas Jr.
“We’re frustrated…to be bumping around at the break-even level–a small bit above, a small bit below at any given quarter–on our core business, and that’s not acceptable,” Pulte CEO Richard Dugas said in a conference call with analysts.
“We want to be solidly profitable, so that’s why we’re taking the actions.”
Pulte’s cost cutting comes as home builders are battling a multiyear downturn. Earlier this year builders thought their fortunes were improving.
But that confidence came from the federal government’s tax credit of up to $8,000 for first-time home buyers. Since the credit finished April 30, home buys and home-construction orders have dropped.
Several builders in recent weeks have reported double-digit earnings declines. Pulte said third-quarter orders dropped 12% from a year earlier and 15% from the second quarter.
The company reported a third-quarter loss of $995.1 million, or $2.63 a share, compared with a loss of $361.4 million, or $1.15 a share, a year earlier.
Revenue fell 3.1% to $1.06 billion.
Yucky margin on home sales fell to 7% from 12.6%. Closings dropped 7.2% to 3,865 units.
The company’s home-building operations generated a pretax loss of $1 billion.
Goodwill impairment, construction and insurance reserves, and land-related charges totaled $986 million. Pulte reported a pretax loss of $292 million a year earlier, the WSJ reported.
Betting that the housing sector had hit bottom, Pulte last year bought competitor Centex Corp. for $1.3 billion.
Pulte took a $655 million third-quarter charge, driven primarily by expectations for lower demand. Pulte has now written down $1.15 billion, or 83%, of the original $1.395 billion goodwill recorded, according to Credit Suisse.
“The charges were everywhere,” wrote Stephen East, a building analyst with New York City-based Ticonderoga Securities.
“No one should be surprised by the goodwill write-off,” says East. “Our only surprise was that all of it was not written off. But, we still reckon that could happen.”
Pulte says the buy was a excellent one. Even so, Pulte reduced its operating areas to four from six and consolidated divisions in Arizona, Florida and in the New York and New Jersey area. It also cut corporate staffing.
“These actions will result in a fourth-quarter charge,” Dugas said. “But with many forecasting demand in 2011 will show only modest gains, we are acting proactively now to make sure we maximize the savings opportunity.”