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PulteGroup (PHM) Q4 Earnings Beat Estimates on Solid Demand

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PulteGroup Inc.’s (PHM - Free Report) fourth-quarter 2017 benefited from higher demand, courtesy of positive U.S. housing market dynamics backed by an improving economy and job market.

Adjusted earnings of 85 cents per share beat the Zacks Consensus Estimate of 84 cents by 1.2%. Also, quarterly earnings reflect a solid 27% jump from the year-ago quarter’s 67 cents.

Earnings were adjusted for a $66 million pre-tax benefit associated with insurance-related adjustments, a $57 million pre-tax charge pertaining to land adjustments and $181 million of income tax charges following the newly-enacted federal tax legislation.

Total revenues of $2.79 billion were in line with the Zacks Consensus Estimate. Revenues, however, increased 12.1% year over year on a rise in the number of homes delivered.

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

Homebuilding revenues increased 12.3% year over year to $2.74 billion.

Home sale revenues of $2.72 billion rose 12% year over year on increased home closings and average selling price. Land sale revenues of $20.4 million increased from $15.4 million a year ago.

The number of homes closed increased 7% year over year to 6,632 homes. Home closings increased across all operating regions of the company — Florida, Texas, West and Southeast — barring Northeast and Midwest. Average selling price (ASP) of homes delivered was $410,000, reflecting an increase of 5% year over year.

The company’s backlog, which represents orders yet to be closed, was 8,996, increasing 21% year over year. Potential housing revenues from backlog increased 35% to $4 billion, scaling a 12-year high. Backlog value was driven by a 12% increase in ASP of backlogs.

New home orders increased 14% year over year to 4,805 in the quarter. Home orders rose across all operating regions, baring Midwest. Value of new orders increased 22% year over year to $2 billion.

Margins

Home sales’ gross margin decreased 110 basis points (bps) year over year to 23.8%.

SG&A expenses, as percentage of home sale revenues, were 9.8%, down 100 bps from the prior-year quarter.

Revenues from the Financial Services segment increased 3.7% year over year to $56.2 million. The segment generated pre-tax income of $23 million, lower than $25 million in the prior-year quarter due to a more competitive operating environment which impacted pricing. Mortgage capture rate in the quarter was 81%, compared with 82% in the prior-year quarter.

PulteGroup, Inc. Price, Consensus and EPS Surprise

2017 Highlights

The company’s 2017 earnings of $2.19 per share reflected a solid jump from the year-ago quarter’s $1.66.

Total revenues of $8.6 billion in 2017 increased 11.7% year over year, courtesy of a rise in the number of homes delivered.

Financials

As of Dec 31, 2017, cash and cash equivalents were $272.7 million, down from $698.9 million at the end of 2016.

During the quarter, PulteGroup repurchased 7.6 million common shares for $251 million, or an average price of $33.09 per share.

The company announced that its board of directors approved an increase to the existing share repurchase plan of $500 million.  

Zacks Rank

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

Peer Releases

NVR, Inc. (NVR - Free Report) reported adjusted fourth-quarter 2017 earnings of $43.41 per share, missing the Zacks Consensus Estimate of $48.95 by 11.3%. Without the adjustment, NVR reported earnings of $28.88 per share, decreasing 24% year over year. Total revenues (Homebuilding & Mortgage Banking fees) were $1.8 billion in the quarter, increasing 3.7% from the prior-year quarter on account of higher housing revenues.

Upcoming Releases in the Construction Sector

D.R. Horton (DHI - Free Report) is slated to release quarterly results on Jan 31. The Zacks Consensus Estimate for first-quarter fiscal 2018 earnings is pegged at 63 cents, showing an increase of 14.6% year over year.

Louisiana-Pacific (LPX - Free Report) is scheduled to release quarterly numbers on Feb 13. The consensus estimate for fourth-quarter earnings is pegged at 58 cents, reflecting an increase of 152.2% on a year-over-year basis.

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