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Why Is PulteGroup (PHM) Down 1.8% 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 lost about 1.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PulteGroup due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

PulteGroup Q1 Earnings Beat, Revenues Miss

PulteGroup Inc. reported first-quarter 2021 results, wherein earnings handily surpassed the Zacks Consensus Estimate, buoyed by solid housing market momentum. However, the company’s revenues missed the consensus mark.

That said, Ryan Marshall, president and chief executive officer of PulteGroup, highlighted, “The year has gotten off to an outstanding start with strong demand across all of our markets and buyer groups which helped drive a 31% increase in net new orders, including a 49% gain in active-adult sales,” said Ryan Marshall, PulteGroup President and CEO.

Inside the Headlines

Adjusted earnings per share came in at $1.28, beating the consensus mark of $1.19 by 7.6%. The bottom line also grew from 80 cents per share a year ago.

Total revenues of $2.72 billion missed the consensus mark by 3.6% but increased 18.9% from the year-ago figure of $2.29 billion.

Segment Discussion

PulteGroup primarily operates through two business segments — Homebuilding and Financial Services.

Revenues from the Homebuilding segment were up 17.1% year over year to $2.62 billion. Home sale revenues of $2.59 billion also improved 16.9% year over year, mainly due to higher deliveries and average price of homes closed. Land sale revenues improved 43.4% from a year ago to $27.2 million.

The number of homes closed increased 12% year over year to 6,044. Home closings grew across most of the operating regions served. Average selling price of homes delivered was $430,000, up 4% year over year.

Importantly, its backlog — which represents orders yet to be closed — was 18,966, up 50% year over year. In addition, potential housing revenues from backlog increased 58.1% from the prior-year quarter to $8.8 billion.

Importantly, new home orders grew 31% year over year to 9,852 units for the quarter. Home orders were up across all operating regions served. Value of new orders also improved 42% from a year ago to $4.6 billion.

Margins

Home sales gross margin was up 180 basis points (bps) year over year to 25.5% for the quarter. Furthermore, adjusted operating margin expanded 280 bps to 14.6% as adjusted homebuilding SG&A expenses (as a percentage of home sales revenues) improved 100 bps year over year to 10.9%.

Revenues from the Financial Services segment improved 94.5% year over year to $106.1 million. Pretax income for the segment more than tripled from a year ago to $66 million.

Financials

As of Mar 31, 2021, cash and cash equivalents were $1.58 billion, down from $2.58 billion at 2020-end. Debt to total capital of 23.3% at first quarter-end was down from 29.5% at 2020-end. In the quarter, the company repurchased 3.3 million common shares for $154 million, or an average price of $46.11 per share.

2021 Guidance

The company increased its guidance for full-year closings to 32,000 homes from 30,000 expected earlier. This indicates a 30% increase in 2021 deliveries from a year ago. For the second quarter, it expects deliveries in the range of 7,400-7,700 homes. At the midpoint, this suggests a 27% increase in deliveries year over year.

It expects ASP for the second quarter in the range of $440,000-$445,000. For 2021, it now anticipates ASP between $450,000 and $455,000 (versus prior expectation of $430,000-$435,000).

For 2021, it now expects adjusted SG&A — as a percentage of homebuilding revenues — to be 9.8% versus prior expectation of 10%.

It continues to expect tax rate to be 23.5% for the balance of 2021, including the benefits from energy tax credits that it expects to realize this year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 18.47% due to these changes.

VGM Scores

At this time, PulteGroup has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise PulteGroup has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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