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PulteGroup (PHM) to Report Q1 Earnings: What's in Store?

Zacks Equity Research

PulteGroup Inc. PHM is slated to report first-quarter 2020 results on Apr 23, before the opening bell.

In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 5.6% and 1.5%, respectively. Moreover, earnings and revenues grew 2.7% and 0.6%, respectively, from the year-ago level. Higher demand owing to favorable housing dynamics, backed by lower interest rates and improved affordability, had a positive impact on PulteGroup’s performance in the quarter.

Notably, the company surpassed earnings estimates in each of the trailing 13 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been unchanged at 70 cents per share over the past 60 days. The said figure indicates a 18.6% increase from the year-ago earnings of 59 cents per share. The consensus mark for revenues is $2.33 billion, suggesting a 16.8% year-over-year decline.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. price-eps-surprise | PulteGroup, Inc. Quote

Factors at Play

Housing market fundamentals mostly remained solid throughout first-quarter 2020, given low interest rates on mortgage loans and strong demand owing to limited supply of homes at affordable prices across most of the markets served by the builders. Precisely, PulteGroup’s first-quarter results are expected to reflect land acquisition strategies that have been resulting in solid revenues and profitability for quite some time now.

However, widespread slowdown in economic activity owing to the coronavirus outbreak began to affect business operations of homebuilding companies and the demand for homes in the latter part of March, with continuation of the same in April. Softness in homebuying demand due to general market uncertainty is expected to have impacted its order flow in the latter part of the quarter.

Unlike many notable homebuilders like D.R. Horton DHI and Meritage Homes Corporation MTH, PulteGroup didn’t provide any preliminary update for the first quarter in response to the coronavirus outbreak.

Hence, according to the guidance provided by the company during the fourth-quarter earnings call, deliveries are expected within 5,300-5,500 homes. At the midpoint, the guided range indicates an increase of 17% from first-quarter 2018. Average selling price or ASP is projected between $410,000 and $415,000, suggesting a decrease from $421,000 registered a year ago.

Overall, the Zacks Consensus Estimate for Homebuilding revenues (accounting for nearly 98% of total revenues) of $2.3 billion suggests a 16.7% year-over-year increase. However, the figure implies a 22.7% sequential decline.

Lower ASP along with higher land, labor and material costs is expected to have weighed on first-quarter 2020 margins. PulteGroup expects homebuilding gross margin for the first quarter within 23-23.3%. The metric was 23.4% in the year-ago period. Nonetheless,  the company expects gross margin to improve sequentially from 22.8% in fourth-quarter 2019.

Other Projections

For the quarter to be reported, the consensus mark for the number of homes closed is 5,481, which points to 18.3% year-over-year growth but a 19.7% sequential decline. Moreover, the consensus estimate for home sale revenues is pegged at $2,262 million, implying a 16% rise from a year ago but 22.7% sequential decrease.

The Zacks Consensus Estimate for first-quarter 2020 new home orders is pegged at 7,238 units, pointing to 12% year-over-year and 27.2% sequential improvement. The same for backlog is 12,127 units, implying a rise of 14.9% from the prior-year period and 15.4% from the last reported quarter.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for PulteGroup this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here as you will see below.

Earnings ESP: PulteGroup has an Earnings ESP of -3.77%. 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.

Stock Worth a Look

Eagle Materials Inc. EXP — which belongs to the broader construction sector — has the right combination of elements to post an earnings beat in the quarter to be reported. It has an Earnings ESP of +4.60% and carries a Zacks Rank #3.

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
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