LENB Lennar Corporation (Class B)

PulteGroup Inc. said earnings rose 19% in the third quarter amid better-than-expected new order growth as demand in the U.S. housing market remained solid.

However, the company missed its gross margin guidance and doesn't see margins improving in 2017. Shares were down 4.2% at $19.06 in morning trading.

The results come after the home builder last month resolved a public dispute between management and the company's founder over PulteGroup's future. Ryan Marshall was named chief executive, replacing Richard J. Dugas Jr., who had been embroiled in a public battle with PulteGroup founder William J. Pulte over the direction of the company.

On Thursday's call, Mr. Marshall said he was happy the company has "removed any uncertainties related to company leadership."

"Now we can focus conversations on talking about the business," he said.

After hedge fund Elliott Management Corp. took a stake in the company earlier this year, executives also announced a plan to slow the company's growth in future land spending. Mr. Marshall said Thursday that he wants the company to continue bringing down its inventory of land to meet goals of "generating higher returns while managing our risk."

Based on the number of homes delivered, Mr. Marshall said the company currently owns about 5.2 years worth of lots. He said in the coming years he would like to get that number down to around three years worth of owned lots.

For the quarter that ended in September, new orders at PulteGroup grew by 17% to 4,775 homes. Analysts polled by FactSet had expected new unit orders of 4,546.

Gross margin in the latest period was 21.1%, 10 basis points below the company's guidance range, pressured by higher land and labor costs, and labor rate inflation. On a conference call with analysts, Chief Financial Officer Robert O'Shaughnessy said that "assuming those conditions continue," the company decided to lower its fourth-quarter margins guidance to a range of 20.5% to 21%. Mr. O'Shaughnessy said he expects that the trend to continue into 2017.

Citing an improving economy and more demand from first-time buyers, Mr. Marshall also said he expects the company to focus more on that segment than earlier in the recovery. "As the economy and, frankly, the housing-recovery cycle has continued to progress, we're seeing strength from the first-time buyers, and thus additional opportunities for us to put capital to work," he said.

In September, rival home builders KB Home and Lennar Corp. posted better-than-expected earnings amid gains in new orders. Home-building in the U.S. fell in September after a rebound in June. But builders received more permits, a sign that residential construction should pick up in the coming months amid steady demand.

Mr. Dugas left the CEO post in September but will remain chairman through the company's annual meeting, expected to be held in May 2017. He first said in April he would be retiring next year amid pressure from Mr. Pulte, the company's largest shareholder. But Mr. Pulte demanded Mr. Dugas's immediate resignation, arguing in a series of letters that PulteGroup's stock performance and sales volume have lagged behind rival home builders throughout the housing recovery.

Over all, PulteGroup reported a profit of $128.5 million, or 37 cents a share, compared with $107.8 million, or 30 cents a share, in the year-earlier period. The company said excluding certain items, such as those associated with a contract settlement and previously announced plans to reduce overhead expenses, the company earned 43 cents a share.

Analysts had expected 44 cents a share in earnings, according to FactSet.

Total revenue grew 29% to $1.94 billion, meeting expectations.

Write to Joshua Jamerson at joshua.jamerson@wsj.com and Chris Kirkham at chris.kirkham@wsj.com

(END) Dow Jones Newswires

October 20, 2016 12:45 ET (16:45 GMT)

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