Despite a challenging sales environment, higher cancellation rates and significant inflation, PulteGroup, Inc. (PHM Quick QuotePHM - Free Report) has been gaining from land acquisition strategies, margin expansion moves and business expansion via community openings in various locations. The company regularly raises shareholders’ value via repurchases and dividend distributions, boosting investors’ sentiment.

Although backlog is still lower than the prior year for PHM and other leading homebuilders like D.R. Horton, Inc. (DHI Quick QuoteDHI - Free Report) , Lennar Corporation (LEN Quick QuoteLEN - Free Report) and Toll Brothers, Inc. (TOL Quick QuoteTOL - Free Report) , the improving interest rate environment is raising hope. Also, the lack of existing homes for sale, a focus on cost control, stabilized mortgage rates and increased operating leverage are raising hope.

Let’s delve deeper into the factors influencing this leading homebuilder.

Land Acquisition & Development to Improve Profitability

PulteGroup’s land acquisition strategies aim to improve volumes, revenues and profitability on an annual basis. In second-quarter 2023, the company spent $370 million on land acquisition and $523 million on related development. Considering the strong buyer demand and increase in its construction activities, the company expects land acquisition and development investment in 2023 to range within $3.5-$4 billion, up from the previously considered value of $3.3 billion. Of these, it estimates 65% to go toward the development of owned land positions.

Apart from this, PulteGroup’s land strategy emphasizes investing in shorter-lived, smaller land assets while expanding the use of land option agreements, when possible, thereby mitigating market risk.

These initiatives helped PHM post impressive results in second-quarter 2023. Adjusted earnings per share beat the consensus mark by 21.5% and increased by 9.9% year over year.

Home sale revenues increased nearly 8% year over year, mainly due to the higher closings and average price of homes closed. Land sale revenues also rose 11.2% from a year ago.

Cost Control & Focus on First-Time/Entry-Level Buyers

To mitigate the accelerated raw material prices, PHM and its peers have undertaken various cost control measures and focused on making the homebuilding platform more efficient, which in turn is resulting in higher operating leverage. Homebuilders have been controlling construction costs by designing homes efficiently and obtaining construction materials and labor at competitive prices. SG&A expenses (as a percentage of home sales revenues) improved by 50 basis points in the second year.

PulteGroup remains focused on the growing demand for entry-level homes, which aim at lower-priced homes, given affordability concerns prevailing in the U.S. housing market. In second-quarter 2023, it comprised 41% of first-timers, 34% of move-ups and 25% of active adults. The shift from mix to first-time is in line with its strategy of having more than one-third of business in the first-time buyer space.

Community Expansion Strategy to Offset Inflationary Woes

Changing demography has lifted demand for new homes in lower-density markets, including small metro areas, rural markets and large metro exurbs, as people seek larger homes to work from home amid the pandemic. The desire for more space and amenities to accommodate working and learning from home should continue to boost the U.S. housing market in the near term.

PHM has been expanding its reach in various markets via community openings and recently announced community openings in various locations. On Jun 29, it unveiled the opening of its first communities in Greenville and Columbia, SC.

The company expects the community count to grow 5-10% in the third and fourth quarters.

Driving Shareholder Value

PHM has been paying quarterly dividends for nearly four decades. It has consistently focused on sharing its cash flows with shareholders and maintaining a solid financial position. In December 2022, it announced a quarterly dividend hike of 7% to 16 cents per share.

In the first half of 2023, PulteGroup declared cash dividends of $71.8 million and repurchased 6.4 million shares under the repurchase authorization for $400 million. On Apr 24, 2023, its board of directors increased the share repurchase authorization by $1 billion. As of Jun 30, 2023, the company had $982.9 million remaining in authorization.

Recent Releases of Above Mentioned Stocks

D.R. Horton reported third-quarter fiscal 2023 (ended Jun 30, 2023) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.

On a year-over-year basis, although earnings declined, revenues increased. The company highlighted that the supply of both new and existing homes at affordable price points remains limited and that the demographics supporting housing demand remain favorable. This tailwind has helped this Arlington, TX-based homebuilder witness net sales order growth of 37% year over year in the fiscal third quarter.

Lennar reported impressive results for second-quarter fiscal 2023, where earnings and revenues beat the Zacks Consensus Estimate.

The housing market condition is normalizing and has been gaining from the pent-up demand, given the shortage of existing homes in the sector. The homebuilder has also lifted its delivery expectations for the year.

Toll Brothers reported second-quarter fiscal 2023 (ended Apr 30, 2023). Both the top and bottom lines topped the Zacks Consensus Estimate and the company delivered strong quarterly earnings and an improved gross margin for the quarter despite the ongoing challenges in the industry.

The company’s quarterly results reflected stabilized mortgage rates and improved buyer confidence, resulting in higher demand for homes. This, combined with its policy of boosting its supply of spec homes into the spring selling season and focusing on operational efficiency, has helped the company deliver solid fiscal second-quarter results.