PulteGroup (PHM) Down 8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for PulteGroup (PHM). Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PulteGroup due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

PulteGroup (PHM) Q4 Earnings, Revenues Beat on Solid Housing

PulteGroup Inc. reported solid results for fourth-quarter 2021. Both earnings and revenues topped the Zacks Consensus Estimate and improved year over year on the back of a solid housing market backdrop and resilient economy.

Ryan Marshall, president and CEO of PulteGroup, said, “Given the country’s resilient economy, outstanding job market, rising wages and an ongoing desire for home ownership, we anticipate the strong buyer demand we realized in 2021 to continue in the year ahead. Although ongoing supply chain disruptions continue to challenge our industry, we believe that our size, growing community count and an available inventory of new homes have us well positioned to grow our business in 2022 while continuing to deliver exceptional returns.”

Inside the Headlines

Adjusted earnings per share came in at $2.51, surpassing the consensus mark of $2.29 by 9.6%. Earnings grew 64.1% from $1.53 per share a year ago. The upside was driven by gains in home closings, strong revenues, improved gross margin and overhead leverage.

Total revenues of $4.36 billion topped the consensus mark of $4.16 billion by 4.7%. Revenues increased 36.5% from the year-ago figure of $3.19 billion.

Segment Discussion

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

Revenues from the Homebuilding segment were up 37.9% year over year to $4.26 billion. Home sale revenues of $4.22 billion also improved 38% year over year, mainly due to higher deliveries and average price of homes closed. Land sale revenues also improved 55.2% from a year ago to $37.2 million.

The number of homes closed increased 25.5% year over year to 8,611 units. Home closings grew across all operating regions served, barring West. The average selling price of homes delivered was $490,000, up 10% year over year.

Importantly, its backlog — which represents orders yet to be closed — was 18,003 units, up 19% year over year. In addition, potential housing revenues from backlog increased 45% from the prior-year quarter to $9.9 billion.

Yet, new home orders dropped 4% year over year to 6,769 units for the quarter due to 7% lower average community count and the company’s actions to limit the rate of sales in many of its communities. Home orders were down across all operating regions served. That said, the value of new orders improved 16% from a year ago to $3.8 billion.

Margins

Home sales gross margin was up 180 basis points (bps) year over year to 26.8% for the quarter. Adjusted operating margin grew 280 bps to 18.1% year over year. SG&A expenses (as a percentage of home sales revenues) improved 100 bps year over year to 8.7%.

Revenues from the Financial Services segment declined 4.8% year over year to $100.9 million. Pretax income for the segment increased to $55 million from $43 million a year ago. Benefits from higher mortgage originations resulting from growth in homebuilding operations were offset by the impacts of a more competitive operating environment.

Financials

At December 2021-end, cash and cash equivalents were $1.78 billion, down from $2.58 billion at 2020-end. Debt to total capital of 21.3% at 2021-end was down from 29.5% at 2020-end.

In 2021, it repurchased 17.7 million common shares for an average price of $50.80 per share totaling $897 million.

Q1 Guidance

PulteGroup expects closings of 5,600-6,000 homes, indicating a decline from 6,044 homes delivered a year ago. It expects ASP for the quarter in the range of $500,000-$510,000, suggesting an increase from $430,000 in the year-ago period. Meanwhile, it projects average community count to be 790 in Q1, 815 in Q2, 840 in Q3 and 870 in Q4 of 2022.

It expects gross margin for the first quarter between 28.5% and 29%. This implies an increase from 25.5% in first-quarter 2021. SG&A expenses — as a percentage of home sale revenues — are expected in the range of 10.7-10.9%, flat to down slightly from the last year.

2022 Guidance

The company expects to deliver 31,000 homes. It expects ASP for the year to be $515,000. The company expects gross margin between 28.5% and 29%. This implies an increase from 25.5% in first-quarter 2021. For 2022, it expects SG&A expense (as a percentage of revenues) to decrease in the range of 9.3-9.5% of home sale revenues. For 2022, the company expects the tax rate to increase to 25% owing to changes in certain underlying state tax rates. Also, legislation to extend the energy tax credits beyond 2021 has not been passed.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, PulteGroup has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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.

Outlook

PulteGroup has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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