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Why Is PulteGroup (PHM) Up 15% Since Last Earnings Report?
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It has been about a month since the last earnings report for PulteGroup (PHM - Free Report) . Shares have added about 15% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PulteGroup due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
PulteGroup Inc. reported unimpressive results in third-quarter 2022. Quarterly earnings and revenues missed their respective Zacks Consensus Estimate thanks to prevailing industry headwinds.
Nonetheless, the metrics increased on a year-over-year basis.
Ryan Marshall, PulteGroup’s president and CEO, stated, “While we reported significant growth in our third quarter earnings, demand clearly slowed in the period as dramatically higher interest rates created financial and psychological hurdles for potential homebuyers,” said Marshall. “In response to today’s more challenging market conditions, we continue to adjust our sales, construction and investment practices as we work to turn inventory and balance our housing starts to appropriately match the pace of sales.”
Inside the Headlines
Earnings per share came in at $2.69, missing the consensus mark of $2.73 by 1.5% but increasing 47.8% from $1.82 per share a year ago. The upside was driven by gains in revenues, improved gross margin and overhead leverage.
Total revenues of $3.94 billion also missed the consensus mark of $4.04 billion by 2.5% but increased 13.4% from the year-ago figure of $3.48 billion.
Segment Discussion
PulteGroup primarily operates through two business segments — Homebuilding and Financial Services.
Revenues from the Homebuilding segment were up 14.3% year over year to $3.87 billion. Home sale revenues of $3.84 billion increased 16% year over year, mainly due to the higher average price of homes closed. Land sale revenues declined 51.4% from a year ago to $30.7 million.
The number of homes closed increased 1% from the year-ago level to 7,047 units. The average selling price of homes delivered was $545,000, up 15% year over year.
Importantly, its backlog, which represents orders yet to be closed, was 17,053 units, down 14% year over year. In addition, potential housing revenues from backlog increased 3% from the prior-year quarter to $10.58 billion.
However, new home orders dropped 28% year over year to 4,924 units for the quarter, owing to several headwinds like rising mortgage rates, lower affordability, lower consumer confidence and slowed demand. This resulted in a cancelation rate of 24%, up from 10% in the prior year period and 15% in the second quarter of 2022. Home orders were down across all operating regions served. The value of new orders also slipped 8.3% from a year ago to $2.81 billion.
Margins
Home sales gross margin was up 360 bps year over year to 30.1% for the quarter. Adjusted operating margin grew 410 bps year over year to 21%. Adjusted SG&A expenses (as a percentage of home sales revenues) improved to 9.1% from 9.6% a year ago.
Revenues from the Financial Services segment declined 20.5% year over year to $72.7 million. Pretax income for the segment decreased to $27.5 million from $48.6 million a year ago. The decline was due to a reduction in loan volumes owing to a fall in capture rate to 77% compared with 85% last year and the more competitive pricing environment.
Financials
At September-end, cash and cash equivalents (including restricted cash) were $291.4 million, down from $1.83 billion in 2021 end. Debt to total capital of 22.5% at third-quarter end was down from 21.3% at 2021 end.
In the third quarter, the company repurchased 4.4 million common shares for $180 million at an average price of $41.20 per share.
Q4 Guidance
PulteGroup expects ASP within $560,000-$570,000, indicating an increase from $490,000 registered a year ago. It expects home deliveries to be 8,000, indicating a decline from 8,611 homes delivered a year ago. The decrease reflects the challenging sales environment, higher cancellation rates and the ongoing impact of Hurricane Ian on Florida operations.
PHM expects homebuilding gross margins to expand 120 bps to 28% for fourth-quarter 2022 from the year-ago period.
The company remains on track for full year SG&A (as a percentage of home sales revenues) to be in the range of 9.2% to 9.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -22.22% due to these changes.
VGM Scores
Currently, PulteGroup has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise PulteGroup has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is PulteGroup (PHM) Up 15% Since Last Earnings Report?
It has been about a month since the last earnings report for PulteGroup (PHM - Free Report) . Shares have added about 15% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PulteGroup due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
PulteGroup (PHM - Free Report) Misses on Q3 Earnings & Revenues
PulteGroup Inc. reported unimpressive results in third-quarter 2022. Quarterly earnings and revenues missed their respective Zacks Consensus Estimate thanks to prevailing industry headwinds.
Nonetheless, the metrics increased on a year-over-year basis.
Ryan Marshall, PulteGroup’s president and CEO, stated, “While we reported significant growth in our third quarter earnings, demand clearly slowed in the period as dramatically higher interest rates created financial and psychological hurdles for potential homebuyers,” said Marshall. “In response to today’s more challenging market conditions, we continue to adjust our sales, construction and investment practices as we work to turn inventory and balance our housing starts to appropriately match the pace of sales.”
Inside the Headlines
Earnings per share came in at $2.69, missing the consensus mark of $2.73 by 1.5% but increasing 47.8% from $1.82 per share a year ago. The upside was driven by gains in revenues, improved gross margin and overhead leverage.
Total revenues of $3.94 billion also missed the consensus mark of $4.04 billion by 2.5% but increased 13.4% from the year-ago figure of $3.48 billion.
Segment Discussion
PulteGroup primarily operates through two business segments — Homebuilding and Financial Services.
Revenues from the Homebuilding segment were up 14.3% year over year to $3.87 billion. Home sale revenues of $3.84 billion increased 16% year over year, mainly due to the higher average price of homes closed. Land sale revenues declined 51.4% from a year ago to $30.7 million.
The number of homes closed increased 1% from the year-ago level to 7,047 units. The average selling price of homes delivered was $545,000, up 15% year over year.
Importantly, its backlog, which represents orders yet to be closed, was 17,053 units, down 14% year over year. In addition, potential housing revenues from backlog increased 3% from the prior-year quarter to $10.58 billion.
However, new home orders dropped 28% year over year to 4,924 units for the quarter, owing to several headwinds like rising mortgage rates, lower affordability, lower consumer confidence and slowed demand. This resulted in a cancelation rate of 24%, up from 10% in the prior year period and 15% in the second quarter of 2022. Home orders were down across all operating regions served. The value of new orders also slipped 8.3% from a year ago to $2.81 billion.
Margins
Home sales gross margin was up 360 bps year over year to 30.1% for the quarter. Adjusted operating margin grew 410 bps year over year to 21%. Adjusted SG&A expenses (as a percentage of home sales revenues) improved to 9.1% from 9.6% a year ago.
Revenues from the Financial Services segment declined 20.5% year over year to $72.7 million. Pretax income for the segment decreased to $27.5 million from $48.6 million a year ago. The decline was due to a reduction in loan volumes owing to a fall in capture rate to 77% compared with 85% last year and the more competitive pricing environment.
Financials
At September-end, cash and cash equivalents (including restricted cash) were $291.4 million, down from $1.83 billion in 2021 end. Debt to total capital of 22.5% at third-quarter end was down from 21.3% at 2021 end.
In the third quarter, the company repurchased 4.4 million common shares for $180 million at an average price of $41.20 per share.
Q4 Guidance
PulteGroup expects ASP within $560,000-$570,000, indicating an increase from $490,000 registered a year ago. It expects home deliveries to be 8,000, indicating a decline from 8,611 homes delivered a year ago. The decrease reflects the challenging sales environment, higher cancellation rates and the ongoing impact of Hurricane Ian on Florida operations.
PHM expects homebuilding gross margins to expand 120 bps to 28% for fourth-quarter 2022 from the year-ago period.
The company remains on track for full year SG&A (as a percentage of home sales revenues) to be in the range of 9.2% to 9.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -22.22% due to these changes.
VGM Scores
Currently, PulteGroup has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise PulteGroup has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.