TRI Pointe Group, Inc. (NYSE:TPH), Irvine, Calif., on Wednesday reported net income of $57.9 million, or $0.36 per share, for the fourth quarter ended Dec. 31, compared to net income of $85.1 million, or $0.52 per diluted share for the fourth quarter of 2015. The company attributed the decrease to lower home sales revenue and a $33.9 million decrease in home building gross margin, resulting in a 220 basis point decrease in home building gross margin percentage. The gain met analyst expectations.
Home sales revenue decreased $76.7 million, or 9%, to $770.7 million for the fourth quarter, compared to $847.4 million for the fourth quarter of 2015. The decrease was primarily attributable to a 2% decrease in new home deliveries to 1,427, and a 7% decrease in average selling price of homes delivered to $540,000 compared to $583,000 in the fourth quarter of 2015.
New home orders increased 21% to 909 homes for the fourth quarter of 2016, compared to 753 homes for the same period in 2015. Average selling communities rose to 122.8 for the fourth quarter of 2016 from112.8 for the fourth quarter of 2015. The company’s overall absorption rate per average selling community for the fourth quarter of 2016 was 7.4 orders (2.5 monthly) compared to 6.7 orders (2.2 monthly) during the fourth quarter of 2015.
The company ended the quarter with 1,193 homes in backlog, representing approximately $661.1 million. The average selling price of homes in backlog as of December 31, 2016 decreased $49,000, or 8%, to $554,000 compared to $603,000 at December 31, 2015.
Home building gross margin percentage for the fourth quarter of 2016 decreased to 20.0% compared to 22.2% for the fourth quarter of 2015. Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted home building gross margin percentage was 22.2%* for the fourth quarter of 2016 compared to 24.2%* for the fourth quarter of 2015. The decrease in home building gross margin percentage was largely due to the mix of homes delivered during the quarter, with 58 fewer homes delivered from California which have gross margins above the company average.
Selling, general and administrative (“SG&A”) expense for the fourth quarter of 2016 increased to 9.2% of home sales revenue as compared to 8.4% for the fourth quarter of 2015 due to decreased leverage as a result of the 9% decrease in home sales revenue.
“TRI Pointe Group continues to strive for operational excellence in our current business while investing in the future, most notably with the continued development of our longer-dated California assets,” said TRI Pointe Group COO Tom Mitchell. “These assets will provide us with a great runway of lots in land constrained California for years to come and will be a key contributor to our success moving forward. We are extremely optimistic about the potential of these assets, as well as the prospects for all of our brands as we head into 2017.”
For the full year 2017, the company expects to grow average selling communities by 10% compared to the prior year and deliver between 4,500 and 4,800 homes at an average sales price of $570,000. It expects its home building gross margin for the full year 2017 to be in the range of 20% to 21%, with quarterly fluctuations based on the mix of California deliveries, and expects its SG&A expense ratio to be 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 close in the third quarter of 2017.
