PulteGroup (PHM) Up 1.7% Since Last Earnings Report: Can This Continue?

A month has passed since PulteGroup’s (PHM) last earnings report. Shares rose about 1.7% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PulteGroup headed for a decline? 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 better understand the important catalysts.

PulteGroup’s highest profits and revenues in the first quarter, the number of orders increases year over year

PulteGroup Inc. reported stellar first-quarter 2024 results, with earnings and revenues beating the Zacks Consensus Estimate.

Additionally, both metrics increased year-over-year due to favorable demand conditions and a sustainable operating model that allows the company to more effectively meet the individual needs of first-time, transitioning and active adult consumers.

PHM President and CEO Ryan Marshall said: “Given PulteGroup’s broad operating platform and deep product portfolio, as well as the powerful incentive programs we can offer to help improve the overall affordability equation, we are well positioned to grow our share of market, while helping to provide much-needed new housing stock.”

The solid first quarter result helped the company achieve a return on equity of 27.3%.

Inside the headlines

PHM reported adjusted earnings per share of $2.87, topping the consensus estimate of $2.36 by 21.6% and up 22.1% from the $2.35 reported a year earlier. Total revenues of $3.95 billion topped the consensus estimate of $3.59 billion by 10.1% and were up 10.4% from the prior-year period of $3.58 billion.

Segment discussion

PulteGroup primarily operates in two business segments – residential construction and financial services.

Revenue from Building a house segment grew 9.6% year over year to $3.86 billion. Home sales revenue of $3.82 billion increased 9.5% year-over-year, primarily due to solid home closings. Revenues from land sales increased by 23.8% compared to the previous year to USD 37.2 million.

Home closures increased 11% to 7,095 units compared to year-ago levels. The average sales price of completed homes was $538,000, down 1.3% year-over-year.

New housing orders increased 14% year-over-year to 8,379 units in the quarter, driven by higher gross orders and a lower cancellation rate. New order value also increased 24% from a year ago to $4.7 billion. The cancellation rate was 10% of the initial order backlog, down 300 basis points (bps) compared to the prior-year period.

Most importantly, the backlog of orders that have not yet been closed stood at 13,430 units, up 2.3% year-on-year. Additionally, potential residential property revenues from housing construction backlogs increased 2.8% from the prior-year quarter to $8.2 billion.

Gross margin on home sales increased 50 basis points year-over-year to 29.6% in the quarter, supported by continued strong demand from homebuyers and a favorable geographic mix of closed homes. SG&A expenses (as a percentage of home sales revenue) increased 20 basis points to 9.4% from 9.6% a year ago.

Revenue from Financial services segment grew 59.4% year over year to $92.4 million. The segment’s pre-tax income increased to $41 million from $14 million a year ago.

Financial

Cash, cash equivalents and restricted cash were $1.77 billion at the end of the first quarter, compared to $1.85 billion at the end of 2023. Net debt to equity was 1.7% at the end of the first quarter, compared to 1.1% at the end of 2023. Net cash from operating activities was $239.8 million in the first quarter, compared to $711.4 million in the previous year. During the reported quarter, the company repurchased 2.3 million shares of common stock for $246 million at an average price of $106.73 per share.

Conductivity

The company expects to close 7,800 to 8,200 homes in the second quarter, up from 7,518 homes reported in the prior year.

Supported by strong orders and closures, PHM raised its full-year closure forecast to almost 31,000 from 30,000 previously expected, reflecting an 8% year-over-year increase. Notably, the company is moving toward its long-term goal of increasing transaction volume at close by 5-10% annually. ASP is still expected to be in the $540,000-$550,000 range for each quarter of 2024.

It forecast gross margin to be 29.2% in the second quarter and likely to be 29% in both the third and fourth quarters, compared to previous guidance of 28-28.5% for each quarter. Last year, PulteGroup reported gross margins of 29.6%, 29.5 and 28.9% in the second, third and fourth quarters. Selling, general and administrative expenses are expected to be 9.2% to 9.5% of home sales this year, up from 8.4% in 2023. For the rest of 2024, the company expects the tax rate to be range from 24 to 24.5%.

PulteGroup continues to expect average community growth in the range of 3-5% for each quarter of 2024.

How have estimates changed since then?

It turns out that the review estimates have been trending upwards over the past month.

As a result of these changes, the consensus estimate moved by 6.45%.

VGM results

At this point, PulteGroup has a weak Growth Score of D, but its Momentum Score is doing slightly better at C. Plotting a somewhat similar path, the stock was given a grade of B on the Value side, which placed it in the second quintile for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. It’s no surprise that PulteGroup carries a Zacks Rank #1 (Strong Buy). We expect an above-average rate of return on shares in the coming months.

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