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PulteGroup (PHM) Tops Earnings & Sales Estimates in Q2

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PulteGroup Inc. (PHM - Free Report) surpassed the Zacks Consensus Estimate for both earnings and revenues in the second quarter of 2016, for the third time in a row.

Second-quarter 2016 adjusted earnings of 37 cents per share beat the Zacks Consensus Estimate of 33 cents by 12.1%. Moreover, earnings increased 61% from the year-ago quarter figure of 23 cents on the back of higher home sales, and lower share count.

Adjusted earnings in the second quarter 2016 are adjusted for 3 cents per share of land and corporate office relocation charges whereas adjusted earnings per share in the second quarter of 2015 excluded 5 cents of benefits related to legal settlement.  

 



PulteGroup’s total revenue of $1.80 billion beat the Zacks Consensus Estimate of $1.71 billion by 5.3%. Revenues were also up 40.6% year over year as the company reported an increase in the number of homes delivered.

Quarter in Detail

The company conducts its operations through two primary business segments – Homebuilding and Financial Services.

PulteGroup’s Homebuilding revenues rose 40.8% year over year to $1.76 billion. The company stated that overall housing demand remained positive on the back of lower interest rates and a generally improving economic environment. The company also believes that demand will continue to increase, going ahead.

Revenues from the Financial Services segment increased 40% year over year to $43.1 million. Financial Services segment generated pre-tax income of $17 million, higher than $10 million in the prior year quarter, driven by higher closing volumes in homebuilding operations and a favorable interest rate environment.

Home sale revenues of $1.75 billion increased 41.1% year over year due to double-digit increase in both home closings and average selling price. Land sale revenues of $5.0 million decreased from $6.5 million a year ago.

The number of homes closed increased 27% year over year to 4,772. Home closings increased in all operating regions of the company – Southeast, Florida, Midwest, Texas and West – barring Northeast.

Average selling prices (ASP) of homes delivered was $367,000, up 11% year over year. Favorable housing market conditions drove sale prices. Also, strategic pricing initiatives led to higher ASPs. PulteGroup’s strategic pricing programs allow buyers to select the lots and options that they value most, resulting in increased selling prices.

The company’s backlog, which represents orders yet to be closed, was 9,679, up 8% year over year. Potential housing revenues from backlog increased 21% to $3.7 billion.  Backlog value was driven by a 13% increase in average sales price of backlogs, which indicates a shift in mix toward move up products and inclusion of luxury homes in Wieland communities.  

New home orders increased 11% year over year to 5,697. Home orders increased in all operating regions, except Northeast and Southeast. Value of new orders increased 21% year over year to $2.1 billion.

Margins Soft

In line with management’s guidance, home sales gross margin decreased 70 basis points (bps) year over year to 21.5%, owing to the Wieland asset purchase in Jan 2016.

Next Phase of Value Creation

The company provided an update regarding the next phase of Value Creation, initiatives launched in 2011 to drive growth of invested capital. As a part of the next phase, the company will lower land spend and instead use the extra cash flow to repurchase shares worth $1.5 billion over the next six quarters.

The company intends to reduce its SG&A ratio from the expected 10% of home sale revenues in 2016 to a targeted rate of 9% or less of home sales revenues in 2017.  

The board of directors increased the current share repurchase authorization by $1 billion, raising the total authorization to $1.5 billion. The company intends to repurchase $250 million of shares in the third and fourth quarters of 2016. The rest of the shares worth $1.0 billion are expected to be repurchased in 2017.

The company also announced the addition of three new directors, John Peshkin, Joshua Gotbaum and Scott Powers. John Peshkin and Josh Gotbaum will be a part of the company’s CEO search committee. 

PULTE GROUP ONC Price, Consensus and EPS Surprise

PULTE GROUP ONC Price, Consensus and EPS Surprise | PULTE GROUP ONC Quote

Outlook

Pulte’s management is positive about the housing industry and believes that demand will increase at a slow and steady pace over the next several years, supported by improving economic conditions, job creation and low interest rates. The company expects its previous land investment to position it well for consistent earnings growth.  

Pulte carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks include CalAtlantic Group, Inc. , KB Home (KBH - Free Report) and Meritage Homes Corporation (MTH - Free Report) . While CalAtlantic sports a Zacks Rank #1 (Strong Buy), KB Home and Meritage Homes have a Zacks Rank #2 (Buy).

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