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PulteGroup's (PHM) Q4 Earnings Top, Orders Fall, Shares Dip

Zacks Equity Research

PulteGroup Inc.’s PHM fourth-quarter 2018 earnings and revenues not only surpassed the Zacks Consensus Estimate but also grew considerably on a year-over-year basis. However, the company posted its largest decline in orders in five years. Shares of the company also declined 3.7% in the pre-market trading session following the earnings release.

While concerns surrounding affordability and general market uncertainty have been plaguing the housing industry of late, resulting in softness in homebuying demand, PulteGroup remains positive for the coming periods, given continued strength in economy and jobs, along with consumer confidence.

The company’s adjusted earnings per share came in at $1.11, beating the consensus mark of $1.09 by 1.8%. The bottom line also improved 30.6% on a year-over-year basis.

Total revenues of $2.99 billion surpassed the consensus mark of $2.93 billion by 2.5% and also increased 7.3% on a year-over-year basis.

PulteGroup, Inc. Price, Consensus and EPS Surprise

 

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

Segment Discussion

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

Revenues at the Homebuilding segment were up 7.5% year over year to $2.94 billion.

Home sale revenues of $2.88 billion rose 6.2% year over year on higher average selling price or ASP. Land sale revenues totaled $59.5 million compared with $21.7 million a year ago.

The number of homes closed increased 1% year over year to 6,709. Notably, home closings remained subdued across most of its operating regions, namely Southeast, Midwest, Texas and West. ASP of homes delivered was $430,000, up 5% year over year.

Importantly, the company’s backlog, which represents orders yet to be closed, was 8,722, down 3% year over year. Potential housing revenues from backlog decreased 3.6% from the prior-year quarter to $3.84 billion.

New home orders decreased 11% year over year to 4,267 units in the quarter. Home orders were down across all its operating regions barring Florida. Value of new orders also decreased to $1.8 billion from $2 billion a year ago.

Margins

Home sale gross margin (on an adjusted basis) remained flat year over year at 23.8% in the quarter. Furthermore, adjusted operating margin contracted 20 basis points (bps) to 13.7%.

Adjusted homebuilding SG&A expenses, as a percentage of home sale revenues, were 10.1%, up 30 bps from the prior-year quarter.

Revenues from the Financial Services segment declined 2% year over year to $55.1 million. The segment generated pre-tax income of $5 million, down from $23 million a year ago. The downside was mainly due to a pre-tax charge associated with reserve adjustments undertaken during the quarter, as well as more competitive operating conditions that continue to impact overall profitability. Mortgage capture rate in the quarter was 77%, down from 81% in the year-ago period.

Financials

As of Dec 31, 2018, cash and cash equivalents were $1,110.1 million, up from $272.7 million at the end of 2017.

In the reported quarter, PulteGroup repurchased 5.1 million common shares for $122 million. In 2018, the company bought back 4% of its outstanding shares for $295 million.

Currently, PulteGroup has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Peer Releases

NVR, Inc. NVR reported fourth-quarter 2018 earnings of $58.57 per share, beating the Zacks Consensus Estimate of $48.46 by 20.9%. Also, earnings of NVR, one of the country’s leading homebuilding and mortgage banking companies, increased 103% from the prior-year quarter, primarily owing to a reduction in effective tax rate.

D.R. Horton, Inc.’s DHI earnings came in at 76 cents per share in first-quarter fiscal 2019, missing the Zacks Consensus Estimate by 2 cents. The reported figure also decreased 1.3% from the year-ago adjusted profit level of 77 cents.

Lennar Corporation’s LEN fourth-quarter 2018 adjusted earnings of $1.96 per share topped the consensus mark of $1.93 by 1.6%. However, total revenues of $6.46 billion missed the consensus estimate of $6.53 billion.

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