TRI Pointe Group, Inc., Irvine (NYSE:TPH) reported Wednesday net income of $8.2 million, or $0.05 per diluted share for the first quarter of 2017 ended March 31, compared to $28.6 million, or $0.18 per diluted share for the first quarter of 2016. The decrease in net income available to common stockholders was primarily driven by lower home sales revenue and a $25.0 million decrease in home building gross margin, resulting in a 450 basis point decrease in home-building gross margin percentage. Analysts were expecting a gain of $0.08 per share.
Home sales revenue decreased $31.1 million, or 7%, to $392.0 million for the first quarter of 2017, compared to $423.1 million for the first quarter of 2016. The decrease was primarily attributable to a 2% decrease in new home deliveries to 758, and a 6% decrease in average selling price of homes delivered to $517,000 compared to $549,000 in the first quarter of 2016.
New home orders increased 13% to 1,299 homes for the first quarter of 2017, compared to 1,149 homes for the same period in 2016. Average selling communities increased 10% to 125.5 for the first quarter of 2017 compared to 114.5 for the first quarter of 2016. The company’s overall absorption rate per average selling community for the first quarter of 2017 was 10.4 orders (3.5 monthly) compared to 10.0 orders (3.3 monthly) during the first quarter of 2016.
The company ended the quarter with 1,734 homes in backlog, representing approximately $1.0 billion. The average sales price of homes in backlog as of March 31, 2017 increased $4,000, or 1%, to $585,000 compared to $581,000 at March 31, 2016.
Home-building gross margin percentage for the first quarter of 2017 decreased to 18.8% compared to 23.3% for the first quarter of 2016. Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted home-building gross margin percentage was 21.3% for the first quarter of 2017 compared to 25.4% for the first quarter of 2016. The decrease in home-building gross margin percentage was largely due to the mix of homes delivered.
Selling, general and administrative (“SG&A”) expense for the first quarter of 2017 increased to 15.7% of home sales revenue as compared to 13.0% for the first quarter of 2016 due to incremental general and administrative costs associated with growing the company and decreased leverage as a result of the 7% decrease in home sales revenue.
“Orders grew 13% in the first quarter on a year-over-year basis thanks to a 10% increase in average selling community count and a strong absorption rate of 3.5 orders per community per month,” said TRI Pointe Group Chief Executive Officer Doug Bauer. “Deliveries and home-building gross margins came in ahead of our projections due to solid execution by our teams in the field. These results, combined with the continued progress we made in bringing our long dated California land assets to market, put us in an excellent position to achieve our goals for this year and beyond.”
“The fact that the majority of our brands achieved a sales pace of at least three homes per community per month in the quarter is a strong indication that the housing fundamentals in our markets are strong and potentially supportive of future price increases,” said TRI Pointe Group President and Chief Operating Officer Tom Mitchell. “We are even more encouraged by the fact that the communities we have opened in 2017 and 2016 are selling at a faster pace than the communities we opened prior to 2016. These trends are great indicators for both sales and pricing momentum going forward.”
For the second quarter of 2017, the Tri Pointe expects to open 18 new communities and close out of 14, resulting in 127 active selling communities as of June 30, 2017. In addition, the company anticipates delivering approximately 58% of its 1,734 units in backlog as of March 31, 2017 at an average sales price of approximately $550,000 and anticipates its home-building gross margin percentage to be in a range of 19.5% to 20.5% for the second quarter.
For the full year 2017, the company is reiterating its original guidance of growing average selling communities by 10%, delivering between 4,500 and 4,800 homes at an average sales price of $570,000, a home-building gross margin percentage in a range of 20.0% to 21.0% and a SG&A expense ratio in the range of 10.2% to 10.4% of home sales revenue. In addition, the company anticipates gross profit from land and lot sales of approximately $45 million, most of which is expected to be realized in the third quarter of 2017.
