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TRI Pointe (TPH) to Post Q1 Earnings: What's in the Offing?

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TRI Pointe Group, Inc. (TPH - Free Report) is slated to report first-quarter 2020 results on Apr 23, after market close.

In the last reported quarter, its earnings topped the Zacks Consensus Estimate by 23.2% and increased 21.4% year over year driven by reduced legal settlement expenses and a lower income tax provision in the current year as a result of the energy tax credit that was approved by Congress in December 2019. Notably, the company's earnings topped analysts’ expectations in 10 of the trailing 11 quarters.

Its revenues also surpassed the consensus mark by 5.8% and grew 0.6% from the prior year, mainly owing to pent up demand, low supply and a favorable interest rate environment.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings has remained stable over the past 60 days at 16 cents per share. This indicates a solid increase from break-even earnings recorded a year ago. The consensus estimate for Homebuilding revenues is pegged at $557.57 million, suggesting a rise of 12.9% from the prior-year quarter.

TRI Pointe Group, Inc. Price and EPS Surprise

Factors to Note

Although market fundamentals were strong in most part of first-quarter 2020, given low mortgage/interest rates and strong demand, the outbreak of coronavirus resulted in widespread closure of operations and shutdowns throughout the world in the latter part of the quarter (precisely March).

Owing to this, many builders have provided preliminary updates for the first quarter and withdrawn their previously provided guidance.

However, TRI Pointe didn’t provide any preliminary update for the first quarter in response to the coronavirus outbreak. The following discussions are based on the company’s fundamentals and view provided during the fourth-quarter earnings call.

Revenues: The company is expected to have generated higher earnings and revenues in the first quarter on the back of improved demand in both entry-level and move-up product segments, given decline in mortgage rates. In fact, it has been witnessing improved traffic and demand at its core locations driven by a supply constraint resale market. The company noted that January orders were up 71% year over year.

Per the guidance provided during fourth-quarter earnings call, TRI Pointe expects to deliver 875-950 homes at an average sales price (ASP) of $600,000 in the first quarter. The estimated deliveries indicate an increase of more than 12% from the year-ago period, considering the midpoint of the range. ASP was $605,000 a year ago.

Within Homebuilding, the Zacks Consensus Estimate for home sales (representing 99.7% of total revenues in 2019) is pegged at $557 million, which indicates an increase of 13% from $493 million in the year-ago period. The same for land and lot sales is $0.5 million, indicating more than 50% decline from $1.03 million reported in the prior-year period. The consensus mark for homes delivered and ASP is 924 units and $603,000, respectively.

The consensus mark for Financial Services revenues indicates more than 3 times growth from $0.3 million reported last year.

Orders & Backlogs: The company’s solid backlog level and new order wins, which are key indicators of significant growth opportunities, bode well. The consensus estimate for new orders is currently pegged at 1,406 units, suggesting a 6.4% year-over-year jump. The same for backlog is pegged at 2,234 units, implying growth of 21.3% from 1,842 units reported in the prior year. The consensus mark for ASP in backlogs is $645,000, indicating a decline of 4% from $672,000 reported in the prior year.

Margins: Higher labor costs and land prices have been major concerns for the overall housing industry. Also, coronavirus-led closures and shutdowns might have hurt TRI Pointe’s bottom line in the to-be-reported quarter. To mitigate the bottom-line pressure, the company reduced home prices to make it affordable, which should have ultimately lifted sales. Also, the financial services business — which includes mortgage, title, escrow and insurance services — gives it an edge over peers. These factors are expected to have provided considerable support to its margins and bottom-line performance in the to-be-reported quarter.

The company expects Homebuilding gross margin within 19.5-20.5%, suggesting an improvement of 510-610 basis points year over year in the first quarter. SG&A expenses — as a percentage of home sales revenues — are expected to be 15%. The metric in the year-ago quarter was 15.7%.

What Our Model Indicates

Our proven model doesn’t conclusively predict an earnings beat for TRI Pointe this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The Earnings ESP for the company is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: TRI Pointe currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

frontdoor, inc. (FTDR - Free Report) has an Earnings ESP of +9.76% and holds a Zacks Rank #3.

Rayonier Inc. (RYN - Free Report) has an Earnings ESP of +5.00% and a Zacks Rank #3.

Masco Corporation (MAS - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank #3.

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