PulteGroup Falls After Saying Profit Margins Will Drop in 2017

  • Labor and land costs rising, homebuilder says on earnings call
  • Shares decline as much as 6%, the most intraday since April

PulteGroup Inc. shares fell the most in more than six months after the U.S. homebuilder said profit margins will decline next year as labor and land costs rise.

The company said in an earnings call with analysts Thursday that the gross margin will be 20.5 percent to 21 percent in the fourth quarter and in 2017. In January, it projected 21.5 percent to 22 percent for 2016, so “the large guide-down was a surprise,” said Megan McGrath, an analyst with MKM Holdings LLC in Stamford, Connecticut.

Other builders “talked about labor and land hitting margins to some extent,” McGrath said by e-mail. But PulteGroup’s projected 2017 decline “is just more than anyone expected.”

PulteGroup shares fell as much as 6 percent, the most in intraday trading since early April. They were down 3.5 percent to $19.18 percent at 11:27 a.m., the biggest decline in an S&P index of U.S. homebuilders.

For a Bloomberg Intelligence earnings summary for PulteGroup, click here.

Chief Executive Officer Ryan Marshall said costs have been rising as PulteGroup uses up cheaper land it purchased in the aftermath of the housing crash. The gross margin for the third quarter was 21.1 percent, 10 basis points lower than the bottom end of the company’s guidance range.

“We’re certainly cycling through newer land that is more expensive, and that’s a drag on our margins,” Marshall said on the call. Also, costs are “increasing both on the material and, specifically, on the labor side.”

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