Back to top

Image: Bigstock

Why Is PulteGroup (PHM) Down 7.2% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for PulteGroup (PHM - Free Report) . Shares have lost about 7.2% 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 the most recent earnings report in order to get a better handle on the important drivers.

PulteGroup Q4 Earnings & Revenues Beat, Margins Rise

PulteGroup Inc. reported impressive results in fourth-quarter 2022, where earnings and revenues surpassed their respective Zacks Consensus Estimates and increased year over year.

Pertaining to the result, Ryan Marshall, PulteGroup’s president and CEO, stated, “Our strong fourth quarter results allowed PulteGroup to lower its debt-to-capital ratio to 18.7% and deliver a full year return on equity of 32.9%.”

Inside the Headlines

Adjusted earnings per share came in at $3.63, which topped the consensus mark of $2.88 by 26% and increased 45% from $2.51 per share a year ago. The upside was driven by gains in revenues, improved gross margins and overhead leverage.

Total revenues of $5.17 billion also beat the consensus mark of $4.6 billion by 12.3% and increased 13.4% from the year-ago figure of $4.36 billion.

Segment Discussion

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

Revenues from the Homebuilding segment were up 19.8% year over year to $5.1 billion. Home sale revenues of $5.05 billion increased 19.7% year over year, mainly due to the higher average price of homes closed. Land sale revenues also rose 22.3% from a year ago to $45.5 million.

The number of homes closed increased 3% from the year-ago level to 8,848 units. The average selling price of homes delivered was $571,000, up 17% year over year.

Most importantly, its backlog, which represents orders yet to be closed, was 12,169 units, down 32.4% year over year. In addition, potential housing revenues from backlog decreased 22.2% from the prior-year quarter to $7.67 billion.

However, new home orders dropped 41% year over year to 3,964 units for the quarter, owing to several headwinds like rising mortgage rates, lower affordability, lower consumer confidence and slowed demand. This resulted in a cancellation rate of 32%, up from 11% in the prior year period and 24% in the third quarter of 2022. Home orders were down across all operating regions served. The value of new orders also declined 43.1% from a year ago to $2.15 billion.

Home sales gross margin was up 200 bps year over year to 28.8% for the reported quarter. Adjusted SG&A expenses (as a percentage of home sales revenues) improved 50 bps to 8.2% from 8.7% a year ago. Adjusted operating margin increased by 250 bps year over year to 20.6%.

Revenues from the Financial Services segment declined 28.6% year over year to $72.1 million. Pretax income for the segment decreased to $24 million from $55 million a year ago. The decline was due to a reduction in loan volumes owing to a fall in capture rate to 75% compared with 85% last year and the more competitive pricing environment.

Financials

At the end of 2022, cash, cash equivalents and restricted cash were $1.09 billion, down from $1.83 billion in 2021-end. Net debt-to-capital was 9.6% at 2022-end, significantly up from 2.5% at 2021-end. Net cash provided by operating activities was $668.5 million in 2022 versus $1,004 million in 2021.

In fourth-quarter 2022, the company repurchased 2.4 million common shares for $100 million at an average price of $41.81 per share. For 2022, PHM repurchased 24.2 million common shares for $1.1 billion at an average price of $44.48 per share.

Guidance

PulteGroup expects home deliveries to be within 5,400-5,700 homes, indicating a decline from 6,039 homes delivered a year ago. It expects ASP within $565,000-$575,000, indicating an increase of 12% from a year ago. PHM expects homebuilding gross margins to contract 200 bps to 27% for first-quarter 2023 from the year-ago period. The company anticipates SG&A (as a percentage of home sales revenues) to be in the range of 10.5-11% versus 10.7% in the prior year. Tax rate in the first quarter of 2023 is likely to be 25%.

The average community count in the first quarter is likely to be flat sequentially (approximately 850 communities). For the remainder of 2023, it expects the quarterly community count to be up 5-10% over the comparable prior-year quarter.

PHM assumed its current cycle time of 6-plus months will remain the headwind for the next several months. With 18,000 homes currently in production, it expects to close approximately 25,000 homes in 2023, down from 29,111 units reported in 2022.

Given the slowdown in overall housing activity, PHM plans to dramatically lower its land spend in 2023. It expects total land investment to be approximately $3.3 billion, including 65% of the investment in the development of owned land positions.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 5.97% due to these changes.

VGM Scores

At this time, PulteGroup has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. Notably, PulteGroup has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


PulteGroup, Inc. (PHM) - free report >>

Published in