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Why Is PulteGroup (PHM) Up 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for PulteGroup (PHM - Free Report) . Shares have added about 0.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PulteGroup 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.

PulteGroup (PHM - Free Report) Stock Gains on Q1 Earnings & Revenue Beat

PulteGroup Inc.’s first-quarter 2019 earnings and revenues surpassed the respective Zacks Consensus Estimate. Shares of the company gained more than 4% in the pre-market trading session following the earnings release. The recent declines in mortgage rates have helped homebuyers to return to the market after a period of slowing demand that began in second-half 2018.

Earnings per share came in at 59 cents, beating the consensus mark of 47 cents by 25.5%. The bottom line was in line with the year-ago figure.

Total revenues of $1.99 billion outpaced the consensus mark and the year-ago figure of $1.97 billion.

Segment Discussion

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

Revenues at the Homebuilding segment were up 1.5% year over year to $1.95 billion.

Moreover, home sale revenues of $1.95 billion rose 2% year over year on higher average selling price or ASP. Land sale revenues totaled $3 million compared with $12.6 million a year ago.

The number of homes closed grew by just 0.2% year over year to 4,635. Notably, home closings remained subdued across most of its operating regions (barring Florida and Texas), namely Northeast, Southeast, Midwest and West. ASP of homes delivered was $421,000, up 2% year over year. Notably, Absorptions declined 7.5%, improving significantly from the fourth quarter’s 13.9% decline.

Importantly, the company’s backlog, which represents orders yet to be closed, was 10,550, down 6.2% year over year. In addition, potential housing revenues from backlog decreased 6.8% from the prior-year quarter to $4.62 billion.

New home orders decreased 6% year over year to 6,463 units in the quarter. Home orders were down across all its operating regions barring Texas. Value of new orders also decreased to $2.7 billion from $2.9 billion a year ago.

Margins

Home sale gross margin was down 20 basis points (bps) year over year to 23.4% in the quarter. Higher capitalized interest expense in 2019 impacted gross margins. Furthermore, operating margin contracted 50 bps to 10.5%.

Homebuilding SG&A expenses, as a percentage of home sale revenues, were 13%, up 40 bps from the prior-year quarter.

Revenues from the Financial Services segment declined 4.5% year over year to $43.9 million. The segment generated pre-tax income of $12 million, down from $14 million a year ago. Competitive operating conditions continue to impact overall pricing. Mortgage capture rate in the quarter was 80%, up from 78% in the year-ago period.

Financials

As of Mar 31, 2019, cash and cash equivalents were $1.1 billion, down from $1.11 billion at the end of 2018.

In the reported quarter, PulteGroup repurchased 0.9 million shares for $25 million.

Q2 Guidance

Deliveries are expected within 5,400-5,700 homes versus 5,741 in the year-ago period. ASP is projected between $430,000 and $435,000 versus $427,000 a year ago.

Homebuilding gross margin for the quarter is guided in the range of 22.8-23.3% (compared with 24% in the year-ago period), consistent with current market dynamics. SG&A is expected in the range of 11-11.5% of home sale revenues.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.71% due to these changes.

VGM Scores

Currently, PulteGroup has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. It comes with little surprise PulteGroup has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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