It has been about a month since the last earnings report for PulteGroup (PHM). Shares have added about 6.4% 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 catalysts.
PulteGroup's (PHM) Q2 Earnings & Revenues Beat, Margins Dip
PulteGroup Inc.’s second-quarter 2019 earnings and revenues surpassed the respective Zacks Consensus Estimate. The company remains confident about upbeat housing demand for the remainder of 2019, given recent declines in mortgage rates, and improving economic, employment and demographic trends.
Inside the Headlines
Earnings per share came in at 86 cents, beating the consensus mark of 82 cents by 4.9%. The bottom line, however, decreased 3.4% from the year-ago level.
Total revenues of $2.49 billion outpaced the consensus mark of $2.48 billion by 0.5% but decreased 3.4% from the year-ago figure of $2.57 billion.
PulteGroup primarily operates through two business segments — Homebuilding and Financial Services.
Revenues from the Homebuilding segment were down 3.3% year over year to $2.43 billion.
Moreover, home sale revenues of $2.4 billion declined 1.9% year over year as higher average selling price or ASP was offset by lower deliveries. Land sale revenues dropped 56% to $29.5 million from $66.9 million a year ago.
The number of homes closed also dropped 3% year over year to 5,589. Notably, home closings remained subdued across most of the operating regions served (barring Florida and Texas), namely Northeast, Southeast, Midwest and West. ASP of homes delivered was $430,000, up 1% year over year.
Importantly, the company’s backlog — which represents orders yet to be closed — was 11,793, down 0.4% year over year. In addition, potential housing revenues from backlog decreased 1.8% from the prior-year quarter to $5.11 billion.
Nonetheless, new home orders increased 7% year over year to 6,792 units in the quarter. Home orders were up across all operating regions served, barring Midwest. Value of new orders grew 7% from a year ago to $2.9 billion.
Home sale gross margin was down 90 basis points (bps) year over year to 23.1% in the quarter. Furthermore, adjusted operating margin contracted 90 bps to 12.3%.
Adjusted homebuilding SG&A expenses — as a percentage of home sale revenues — were 10.8%, flat with the prior-year quarter.
Revenues from the Financial Services segment improved 6.1% year over year to $56 million. The segment generated pre-tax income of $25.1 million, up from $20.7 million a year ago. Mortgage capture rate in the quarter was 81%, up from 76% in the year-ago period.
As of Jun 30, 2019, cash and cash equivalents were $631.3 million, down from $1.11 billion at the end of 2018.
In the reported quarter, PulteGroup repurchased 2.6 million shares for $83 million.
Deliveries are expected within 5,700-6,000 homes versus 6,031 in the year-ago period. ASP is projected between $425,000 and $430,000 versus $427,000 registered 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.
Home closing or deliveries are expected within 22,300-22,800 homes versus 23,107 in the year-ago period.
The company expects gross margins for the full year to be in the range of 23-23.3%. 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 review have trended downward during the past month.
At this time, PulteGroup has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, PulteGroup has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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