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Why Is PulteGroup (PHM) Down 0.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for PulteGroup (PHM - Free Report) . Shares have lost about 0.5% 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 (PHM - Free Report) Q3 Earnings & Revenues Beat

PulteGroup reported third-quarter 2019 results, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. Higher demand owing to favorable housing dynamics backed by lower interest rates and improved affordability had a positive impact on PulteGroup’s performance in the quarter.

The company remains confident about upbeat housing demand for the remainder of 2019, given expectations for lower interest rates and improvement in macroeconomic backdrop.

Inside the Headlines

Earnings per share came in at $1.01, beating the consensus mark of 92 cents by 9.8%. The bottom line, however, was flat year over year.

Total revenues of $2.71 billion outpaced the consensus mark of $2.6 billion by 4.1% and increased 2.3% from the year-ago figure of $2.65 billion.

Segment Discussion

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

Revenues from the Homebuilding segment were up 1.8% year over year to $2.65 billion.

Moreover, home sale revenues of $2.64 billion improved 2.5% year over year, given higher deliveries. However, land sale revenues dropped 66.5% to $8.5 million from $25.5 million a year ago.

The number of homes closed increased 3% year over year to 6,186. Notably, home closings grew across most of the operating regions served (barring Southeast and Midwest). ASP of homes delivered was $426,000, down 0.2% year over year.

Importantly, the company’s backlog — which represents orders yet to be closed — was 11,638, up 4.2% year over year. In addition, potential housing revenues from backlog increased 2% from the prior-year quarter to $5.01 billion.

Moreover, new home orders increased 12.7% year over year to 6,031 units in the quarter. Home orders were up across all operating regions served. Value of new orders also grew 11.4% from a year ago to $2.54 billion.

Margins

Adjusted home sales gross margin was down 60 bps year over year to 23.4% in the quarter. Furthermore, operating margin contracted 140 bps to 12.8%.

Homebuilding SG&A expenses — as a percentage of home sale revenues — were 10.3%, up 50 bps from the prior-year quarter.

Revenues from the Financial Services segment improved 25.6% year over year to $64.8 million. The segment generated pre-tax income of $32 million, up 64% from a year ago. Mortgage capture rate in the quarter was 84%, reflecting an increase from 75% in the year-ago period.

Financials

As of Sep 30, 2019, cash and cash equivalents were $737 million, down from $1.11 billion at the end of 2018.

In the reported quarter, PulteGroup repurchased 4.1 million shares for $136 million.

Q4 Guidance

Deliveries are expected within 6,600-6,800 homes versus 6,709 in the year-ago period. ASP is projected between $425,000 and $430,000 versus $430,000 registered a year ago.

Homebuilding gross margin for the quarter is guided in the range of 23.2-23.4% (compared with 23.8% in the year-ago period).

2019 Guidance

Home closing or deliveries are expected within 23,000 — 23,200 (versus 22,300-22,800 homes expected earlier) compared with 23,107 in the year-ago period.

SG&A expense for the full year is expected to be 10.8-11.3% of home sale revenues.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, PulteGroup has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 B. 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. 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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