No. 1 U.S. homebuilder PulteGroup Inc posted a far narrower-than-expected quarterly loss on Wednesday, but shares fell as orders fell short of Wall Street's expectations.
Pulte reported a first-quarter loss of $12.5 million, or 3 cents a share, versus a year-earlier loss of $514 million, or $2.02 per share.
Analysts, on average, had expected a loss of 22 cents per share.
Orders rose 43 percent to 4,320 homes, but analysts had been looking for them to almost double, said FBN Securities analyst Joel Locker.
Pulte made a strategic choice to limit its number of quick-delivery homes, which constrained its ability to capture buyers rushing to take advantage of the federal homebuyer tax credit before it expired on April 30.
The weak orders are consistent with its strategy of focusing on margins and not chasing volume, but we think it may have gone too far in that effort and that this level of orders will catch many by surprise, wrote Credit Suisse analyst Dan Oppenheim. He rates Pulte's shares underperform.
J.P. Morgan analyst Michael Rehaut expects the stock to fall on the orders numbers, according to a client note. He rates Pulte's shares neutral
Pulte's rivals that had homes ready for tax-credit buyers, such as D.R. Horton Inc , made a profit in their most recent quarter.
Most analysts forecast a pending lull in homebuying demand because while the tax credit induced consumers to expedite their purchases, it did not create new homebuyers.
If that happens, homebuilders who were more aggressive in building quick-delivery homes might be stuck with aging inventory on their hands.
Lower charges to write down the value of land explains the discrepancy between Pulte's results and Wall Street's expectations, FBN's Locker said.
Wall Street had anticipated higher charges related to both Pulte's merger with Centex and to write-downs of land that had dropped in value, Locker said.
We believe the worst of the impairment process is behind us, Chief Executive Richard Dugas said during a conference call with analysts.
Last year, Pulte's land charges alone were $410 million.
Total charges were $8 million versus our $100 million forecast, adding 15 cents per share, UBS analyst David Goldberg wrote in a note to clients.
Revenue rose 75 percent to $1.0 billion.
Pulte expects to make a profit in 2010 as market conditions should remain relatively stable, the company said.
Wall Street likes its balance sheet, which ended the first quarter with $2.58 billion of cash, up from $1.86 billion at the end of the fourth quarter.
But analysts want to know how Pulte will use that money, especially since it has an ample land supply after buying Centex in 2009, the acquisition that made it the biggest U.S. builder.
When an analyst on the conference call asked whether the company would buy back shares, Dugas promised the board was considering all options and urged him to stay tuned.
Pulte's balance sheet gives it staying power, for those willing to hold the stock as the housing market heals over the next year or so, said Eric Marshall, director of research for Hodges Capital Management, which owns Pulte shares.
Housing stocks have been a very unloved segment of the market in the past two years, he said. The ones that do survive are underowned by institutional investors. If you're patient enough, Pulte is a name that in two or three years is going to make money for investors.
Pulte's shares were down 1.2 percent at $12.94 during late morning trading on the New York Stock Exchange.
(Reporting by Helen Chernikoff and Bijoy Koyitty; editing by John Wallace and Gerald E. McCormick)