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PulteGroup (PHM) Q2 Earnings Beat, Revenues Miss, Stock Down

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PulteGroup Inc. (PHM - Free Report) reported mixed results for second-quarter 2022, with earnings surpassing the Zacks Consensus Estimate but revenues missing the same.

Shares of this homebuilder lost 1.3% in the pre-market trading session following the earnings release.

The Fed’s move to hike interest rates for combating inflation, along with lower consumer confidence and increasing fears of a recession have been moderating the demand environment. Although the recent 200-basis points (bps) increase in mortgage rates has impacted affordability, PulteGroup continues to believe “the desire for homeownership is high and the long-term outlook for housing remains positive.”

Inside the Headlines

Earnings per share came in at $2.73, surpassing the consensus mark of $2.58 by 5.8%. Earnings grew 58.7%, from $1.72 per share a year ago. The upside was driven by gains in revenues, improved gross margin and overhead leverage.

Total revenues of $3.93 billion, however, missed the consensus mark of $4.03 billion by 2.5%. Revenues increased 16.9% from the year-ago figure of $3.36 billion.

PulteGroup, Inc. Price, Consensus and EPS Surprise

PulteGroup, Inc. Price, Consensus and EPS Surprise

PulteGroup, Inc. price-consensus-eps-surprise-chart | PulteGroup, Inc. Quote

Segment Discussion

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

Revenues from the Homebuilding segment were up 17.6% year over year to $3.84 billion. Home sale revenues of $3.81 billion also improved 17.1% year over year, mainly due to the higher average price of homes closed. Land sale revenues also improved 2.2% from a year ago to $33.8 million.

The number of homes closed declined 1% from the year-ago level to 7,177 units. Home closings slipped across all operating regions served, barring Florida, Midwest and West. The average selling price of homes delivered was $531,000, up 19% year over year.

Importantly, its backlog, which represents orders yet to be closed, was 19,176 units, down 4% year over year. In addition, potential housing revenues from backlog increased 18% from the prior-year quarter to $11.6 billion.

However, new home orders dropped 23% year over year to 6,418 units for the quarter, owing to a number of headwinds like rising mortgage rates, lower affordability, lower consumer confidence and slowed demand. This has resulted in an increased number of previous buyers cancelling their contracts. Home orders were down across all operating regions served. The value of new orders also slipped 8.3% from a year ago, to $4.26 billion.

Margins

Home sales gross margin was up 430 bps year over year to 30.9% for the quarter. Adjusted operating margin grew 500 bps year over year to 21.7%. Adjusted SG&A expenses (as a percentage of home sales revenues) improved to 9.2% from 9.8% a year ago.

Revenues from the Financial Services segment declined 9.1% year over year to $82.8 million. Pretax income for the segment decreased to $40 million from $51 million a year ago. Benefits from higher mortgage originations resulting from growth in homebuilding operations were offset by the impacts of a more competitive operating environment.

Financials

At June 2022 end, cash and cash equivalents (including restricted cash) were $732.1 million, down from $1.83 billion at 2021 end. Debt to total capital of 20.8% at second-quarter end was down from 21.3% at 2021 end.

In the second quarter, the company repurchased 7.1 million common shares for $294 million.

Zacks Rank

PulteGroup currently has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A Few Recent Construction Releases

D.R. Horton, Inc.’s (DHI - Free Report) third-quarter fiscal 2022 earnings beat the Zacks Consensus Estimate but revenues missed the same.

DHI also lowered its revenue guidance for the full year, given expected completion dates of homes under construction and current market conditions.

UFP Industries, Inc. (UFPI - Free Report) reported stellar second-quarter 2022 results. Both earnings and net sales beat the Zacks Consensus Estimate and increased on a year-over-year basis.

UFPI expects that its balanced business model and operational improvements will continue to help it navigate new challenges, like rising interest rates and historically high inflation. In the near term, it expects more normalized demand in its largest segment — retail solutions — but year-over-year improvement in the third quarter.

Fastenal Company (FAST - Free Report) reported second-quarter 2022 results, wherein earnings came in line with the Zacks Consensus Estimate but revenues missed the mark.

That said, the top and bottom lines of FAST improved on a year-over-year basis, given strong demand for manufacturing and construction equipment and supplies, along with higher pricing.