TRI Pointe Group, Inc. (NYSE: TPH) on Thursday morning reported a profit of $34.8 million, $0.22 per diluted share, for the third quarter ended September 30. The results compare with a profit of $50.2 million, or $0.31 per diluted share, in the prior-year quarter. Analysts were expecting a gain of $0.23.
The company attributed the decrease in net income to an $18.5 million decrease in home-building gross margin due to a 90 basis point decrease in home-building gross margin percentage and lower home sales revenue, which resulted from a 10% decrease in new home deliveries.
Home sales revenue decreased $63.7 million, or 10%, to $578.7 million for the quarter, compared to $642.4 million for the third quarter of 2015. The decrease was primarily attributable to a 10% decrease in new home deliveries to 1,019, offset by an increase in average selling price of homes delivered to $568,000 compared to $564,000 in the third quarter of 2015. TriPointe said the decrease in deliveries was primarily related to the timing of deliveries for the year, as it delivered a large number of backlog units in the second quarter of 2016, which resulted in a lower number of backlog units going into the quarter compared to the prior year period. For the nine months ended September 30, 2016, deliveries were up 7% compared to the same period in the prior year.
New home orders decreased 6% to 932 homes for the third quarter of 2016, as compared to 996 homes for the same period in 2015, which was up 24% from 803 orders for the same period in 2014. Average selling communities was 119.0 for the third quarter of 2016 compared to 120.8 for the third quarter of 2015. The Company’s overall absorption rate per average selling community for the third quarter of 2016 was 7.8 orders (2.6 monthly) compared to 8.2 orders (2.7 monthly) during the third quarter of 2015.
The company ended the quarter with 1,711 homes in backlog, representing approximately $950.2 million. The average sales price of homes in backlog as of September 30, 2016 decreased $43,000, or 7%, to $555,000 compared to $598,000 at September 30, 2015.
Home-building gross margin percentage for the third quarter of 2016 decreased to 20.1% compared to 21.0% for the third quarter of 2015. Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted home-building gross margin percentage was 22.7%* for the third quarter of 2016 compared to 23.1%* for the third quarter of 2015. The decrease in home-building gross margin percentage was largely due to the mix of homes delivered, with 50 less homes delivered from California which have gross margins above the Company average.
Selling, general and administrative (“SG&A”) expense for the third quarter of 2016 increased to 10.9% of home sales revenue as compared to 8.8% for the third quarter of 2015 due to decreased leverage as a result of the 10% decrease in home sales revenue.
The company ended the quarter with ratios of debt-to-capital and net debt-to-capital of 43.7% and 41.3%*, respectively and cash of $128.7 million and $420.7 million of availability under the Company’s unsecured revolving credit facility.
“Overall, we continue to see encouraging trends in all of our markets,” said TRI Pointe Group President and Chief Operating Officer Tom Mitchell. “Due to lower new home orders for the quarter, full year deliveries will likely be on the lower end of our previously stated range of 4,200 to 4,400 homes. That said, we expect to end the year with 125 active selling communities compared to 104 at the end of the prior year. We think this community count growth and the progress we have made in accelerating the development of our longer dated assets in California will enable us to continue to create shareholder value through our home-building operations and reach our goal of delivering 5,100 to 5,400 homes in 2018.”
For the fourth quarter of 2016, the company said it expects to open nine new communities, and close out of seven, resulting in 125 active selling communities as of December 31, 2016. In addition, the company anticipates delivering approximately 85% of its 1,711 units in backlog as of September 30, 2016. The company anticipates its home-building gross margin percentage to be approximately 20% for the fourth quarter, resulting in a full year home-building gross margin percentage in a range of 20.5% to 21.5%. Finally, the company expects its SG&A expense ratio to be approximately 9% for the fourth quarter, resulting in a full year SG&A expense ratio in a range of 10.5% to 10.7%.
