NEW YORK (AP) -- Standard & Poor's Ratings Services on Tuesday lowered its ratings for homebuilder PulteGroup Inc., saying the company's earnings will likely remain weak into next year due to a slower-than-expected U.S. housing recovery.
The homebuilder posted its first quarterly profit in nearly four years for the quarter ended in June, but S&P doesn't anticipate that improvement to continue in the near term.
"We do not expect PulteGroup to report substantial profits in the second half of 2010 or in 2011 because the housing market is recovering more slowly than we had previously anticipated," said credit analyst James Fielding.
The ratings firm lowered its corporate credit rating for PulteGroup and its rating on roughly $4.3 billion of senior unsecured notes to "BB-" from "BB." Both ratings are considered non-investment, or junk," grades.
The notes have a recovery rating of "4," which means S&P expects an average 30 percent to 50 percent recovery in the event of default.
S&P also revised its outlook on the homebuilder to "Stable" from "Negative," concluding that PulteGroup's net losses will continue to narrow and the company will be able to maintain its adequate liquidity position.
U.S. home sales have slowed sharply since federal homebuyer tax credits expired in April. In July, sales of newly built homes tumbled to the slowest pace on records dating back to 1963. Sales rose in June, but it was the second-weakest month on record.
A sluggish economic recovery, nearly 10 percent unemployment and slow job growth continue to keep many people from buying homes.
PulteGroup, based in Bloomfield Hills, Mich., posted a profit of $76.3 million, or 20 cents per share, in the second quarter ended June 30. Revenue rose 92 percent to $1.31 billion. The company is expected to report third-quarter results in early November.
Its results were helped by the company's acquisition of Centex Corp., which closed in August 2009 and made the company the largest U.S. homebuilder based on the number of homes sold.
S&P said PulteGroup has adequate liquidity to weather another year or two of weak housing demand while it continues to acquire new land so it can be ready for when the housing market does recover.
PulteGroup could turn profitable again before the market fully recovers, S&P said.
The ratings firm could upgrade its ratings on the company if PulteGroup gains a larger share of the market or sees improvement in the demand for homes.
S&P could lower ratings further if new home construction slows further or the company starts taking significant write-downs if home prices tumble.
PulteGroup shares slipped 4 cents to $8.78 in afternoon trading.
Published: Thu, Sep 16, 2010
