UPDATE 3-Pulte swings to 2nd-qtr profit as orders jump

Thu Jul 26, 2012 4:25pm BST

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* Q2 earnings 11 cents/shr vs estimated 5 cents

* Q2 orders jump 32 pct, revenue up 15 pct (Adds details)

By Michelle Conlin and A. Ananthalakshmi

July 26 (Reuters) - PulteGroup Inc on Thursday posted quarterly profit that beat market expectations and reported a sharp jump in new orders as home buyers took advantage of record affordability and rock-bottom interest rates.

Pulte, the nation's second largest home builder, said new orders jumped 32 percent to 5,578 units in the second quarter.

New home orders are a bellwether for builders, and analysts view it as an indicator of the housing market's momentum.

Net income topped expectations by 6 cents per share while revenue jumped 15 percent in the quarter.

"With each passing quarter, we grow more confident that new home demand has found its footing and is moving along a path toward a gradual recovery," said Pulte Chief Executive Richard Dugas Jr.

Pulte's shares were up 14 percent to $11.43 on the Nasdaq in morning trading.

Over the past year, the shares have risen 60 percent, mirroring an industrywide rally that has the sector on track for its best year ever. The Standard & Poor's homebuilder index is up 42 percent this year.

Last month, Pulte's biggest rival, Lennar Corp also reported a rise in new orders for a fifth straight quarter.

Pulte CEO Dugas attributed the surge in new sales in large part to one thing: the artificially low inventory of the kinds of homes that consumers want to buy versus those that are in distressed conditions or in the wrong locations.

"We are still selling a preposterously low number of homes relative to historical trends," Dugas said on an earnings call with Wall Street analysts.

Interest rates, which have been falling for years, have never been this low for this long. The current rate on a 30-year, fixed mortgage is at a record low of 3.55 percent.

The strong results are markedly different from the hand-to-mouth environment in the company's recent past. Pulte posted losses in six of the last eight quarters.

The company has been re-engineering construction processes to build homes more quickly and cheaply.

It has also boosted margins by moving away from homes loaded with lots of built-in options, and instead enabling consumers to personalize homes.

Pulte has also focused on capturing more "move-up" buyers, a more profitable demographic for whom financing is often easier to secure than for first-time home buyers.

Sales to those looking to trade up to new homes enabled the company to increase its home prices by 8 percent, to an average $268,000.

Still, Pulte's results came at a time when the housing market's performance has been anything but linear, struggling in stop-and-go fashion to gain sustained strength.

This week saw yet another batch of seemingly contradictory reports.

The Commerce Department reported Wednesday that new U.S. home sales tumbled in June to their lowest level in more than a year and prices resumed their downward slide.

Applications for loans to buy new homes have also fallen.

On the other hand, U.S. home builder sentiment surged in July to notch its biggest jump in nearly a decade, the National Association of Home Builders said last week.

Many analysts say the worst housing slump since the Great Depression is over. But a minority of them caution that the housing market is still at risk of moving sideways, or stumbling, for years to come.

They point to structural shifts that will weigh heavily on the market for the indefinite future, including record levels of student debt, 15 years of flat incomes nearly one-half of homeowners effectively being stranded in their homes either having negative equity or less than the 20 percent equity required to move in to a new residence.

To help counter those pressures and lure more first-time buyers, Pulte notes it is now cheaper to own than it is to rent in virtually every major city.

It is using a marketing campaign to convince renters who don't think they can afford to own, that they actually can.

In markets like San Antonio, Pulte introduced a $100,000 starter home, whose all-in payment of $775 a month is specifically designed to undercut nearby rental rates.

Dugas cautioned that in order for the housing market's stability to continue through the second half of this year, a stronger economy is needed.

"For housing to take a big leg up, we are going to need job growth," Dugas said.

Pulte posted second-quarter net income of $42 million, or 11 cents per share, compared with a net loss of $55 million, or 15 cents per share, a year ago.

Revenue jumped about 15 percent to $1.07 billion.

Analysts expected a profit of 5 cents per share on revenue of $1.11 billion, according to Thomson Reuters I/B/E/S. (Michelle Conlin and A. Ananthalakshmi; editing by Alden Bentley and Jeffrey Benkoe)

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