A month has gone by since the last earnings report for PulteGroup, Inc. (PHM - Free Report) . Shares have added about 3.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? 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.
Second Quarter 2017 Results
PulteGroup's second-quarter 2017 adjusted earnings of $0.47 per share beat the Zacks Consensus Estimate of $0.45 by 4.4%. Also, quarterly earnings reflected a solid 27% jump from the year-ago quarter’s adjusted figure of 0.37 per share. Earnings in the quarter under review were adjusted for 15 cents per share, related to land and corporate office relocation charges.
The company benefitted from higher demand, courtesy of positive U.S. housing market dynamics on an improving economy and job market. Also, high consumer confidence, low interest rates and a generally limited supply of homes across the nation bode well.
PulteGroup’s total revenue of $2.02 billion missed the Zacks Consensus Estimate of $2.03 billion by a meager 0.5%. Revenues, however, increased 12.3% year over year owing to a rise in the number of homes delivered.
The company conducts operations through two primary business segments – Homebuilding and Financial Services.
Homebuilding revenues increased 12.3% year over year to $1.97 billion.
Home sale revenues of $1.96 billion rose 12.2% year over year on increased home closings and average selling price. Land sale revenues of $7.93 million fell 60.2% from $4.95 million a year ago.
The number of homes closed increased 5.7% year over year to 5,044. Home closings increased across all operating regions of the company – Florida, Midwest and Texas – barring Northeast, Southeast and West. Average selling price (ASP) of homes delivered was $395,000, reflecting an increase of 6.3% year over year.
The company’s backlog, which represents orders yet to be closed, was 10,674, up 10.3% year over year. Potential housing revenues from backlog increased 11.7% to $4.46 billion. Backlog value was driven by a 19% increase in average sales price of backlogs.
New home orders increased 12% year over year to 6,395 in the quarter. Home orders increased across all operating regions, including Northeast. Value of new orders rose 23% year over year to $2.63 billion.
Home sales’ gross margin decreased 40 basis points year over year to 21.1%. Adjusted gross margin in the quarter was 23.4%.
SG&A expenses, as percentage of home sale revenues, were 11 %, same as the prior-year quarter. Adjusted SG&A expenses, as percentage of home sale revenues, came in at 12% in the second quarter.
Revenues from the Financial Services segment increased 9.7% year over year to $47.3 million. The segment generated pre-tax income of $18.9 million, higher than $17 million in the prior-year quarter, driven by increased closing volumes in homebuilding operations and average size loan. Mortgage capture rate in the quarter was 79%, compared with 81% in the prior-year quarter.
As of Jun 30, 2017, cash and cash equivalents were $208.2 million, down from $698.9 million at the end of 2016.
During the quarter, PulteGroup repurchased 12.8 million common shares for $300 million, at an average price of $23.42 per share.
For the third and fourth quarter of 2017, gross margin is expected in the 23.6% to 24.1% range, implying an increase of 20 bps to 70 bps sequentially, respectively.
For full-year 2017, SG&A ratio is anticipated in the 11.7% to 12% range, compared to the previous guidance of 12% to 12.5%.
Gross margin is now expected at around 23.7%, Earlier gross margin was expected at the lower end of the 24% to 24.5% range.
Effective tax rate is expected at around 37% (36.5% previously).
Community count growth is anticipated at around 5% to 10%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, PulteGroup's stock has an average Growth Score of C, though it is lagging a bit on the momentum front with D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth.
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.