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Will Lower Deliveries Impact PulteGroup's (PHM) Q1 Earnings?

Zacks Equity Research

PulteGroup Inc. PHM is slated to report first-quarter 2019 results on Apr 23, before the opening bell. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 1.8%. Notably, the company surpassed estimates in each of the trailing nine quarters.

Moreover, fourth-quarter 2018 earnings and revenues increased 7.3% and 30.6%, respectively, on a year-over-year basis.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 47 cents per share, remaining unchanged over the past 30 days. This indicates a decrease of 20.3% from the year-ago earnings of 59 cents per share. Revenues are expected to be $1.97 billion, down 0.2% year over year.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise | PulteGroup, Inc. Quote

Let’s See How Things are Shaping Up for This Announcement

PulteGroup is expected to come up with lower revenues and earnings in first-quarter 2019, mainly due to the ongoing U.S. housing market uncertainties. Higher home prices and rising interest rates have impacted affordability and resulted in some moderation of the demand for homes over the past few months. The above-mentioned headwinds, which have already impacted PulteGroup’s deliveries, order flow and backlog in fourth-quarter 2018, may impact the to-be-reported quarter as well.
For the to-be-reported quarter, deliveries are expected within 4,300-4,600 homes versus 4,626 in the year-ago period. Average selling price is projected at approximately $420,000 versus $413,000 a year ago.

Overall, the consensus estimate for Homebuilding revenues (accounting for 98% of revenues) of $1.89 billion suggests a decrease from $1.92 billion recorded a year ago and $2.94 billion in the last reported quarter.

Nonetheless, since the beginning of 2019, the U.S. housing market has been regaining its strength, courtesy of declining mortgage rates and moderating home prices. Also, favorable job market and economic conditions are expected to provide support in mitigating the headwinds in the quarter to be reported.

In addition to affordability woes, higher construction material prices, and rising land and labor costs are pressing concerns. PulteGroup expects homebuilding gross margin in the first quarter within 22-22.5% (compared with 23.6% in the year-ago period) due to the continuing impact of higher lumber cost.

Again, the first quarter is expected to experience reduced overhead leverage owing to lower volumes and pricing. SG&A is expected to be 13.5% of home sale revenues versus 12.6% reported in the year-ago period.

In a nutshell, lower revenues and margins are expected to significantly impact the company’s fourth-quarter results.

What the Zacks Model Says

Our proven model does not show that PulteGroup is likely to beat estimates in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: PulteGroup has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks Worth a Look

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.

Potlatch Corporation PCH has an Earnings ESP of +45.46% and holds a Zacks Rank #2.

Installed Building Products, Inc. IBP has an Earnings ESP of +3.52% and carries a Zacks Rank #3.

Lennox International, Inc. LII has an Earnings ESP of +6.21% and a Zacks Rank #3.

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Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
Lennox International, Inc. (LII) : Free Stock Analysis Report
Potlatch Corporation (PCH) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
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