High Deliveries & Margin to Aid PulteGroup (PHM) Q1 Earnings

PulteGroup Inc. PHM is scheduled to report first-quarter 2021 results on Apr 27, before the opening bell.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 8% and 2.5% as well as increased 30.7% and 5.8% on a year-over-year basis, respectively.

Notably, the company surpassed earnings estimates in each of the trailing 17 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has decreased 0.8% to $1.19 per share over the past 30 days. The said figure indicates a 60.8% increase from the year-ago earnings of 74 cents per share. Also, the consensus mark for revenues is $2.83 billion, suggesting 23.5% year-over-year growth.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise

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

Factors to Consider

PulteGroup is likely to have witnessed impressive growth in first-quarter 2021, given resilient housing market conditions in the United States. The company’s Homebuilding revenues (accounting for 98% of total revenues) are expected to have witnessed growth on improvement in the U.S. housing market, prudent land investment strategy and focus on entry-level buyers. Apart from a low mortgage rate environment, the rising trend of work from home owing to the coronavirus outbreak has been prompting many families to purchase a house, thereby boosting demand.

The improved sales trends can be attributed to solid monthly housing sales data. Notably, new home sales were up 19.3% and 8.2% year over year for January and February 2021. Existing home sales were up 23.7% for January, 9.1% for February and 12.3% for March, on a year-over-year basis. There’s no denying that the U.S. housing data was weak for February as severe cold weather, rise in lumber prices, and a lack of supply took a toll on sales pace and pushed average home prices higher nationwide. Nonetheless, builders have been witnessing higher demand amid the COVID 19 pandemic, with Americans seeking more space for offices and classrooms.

Also, the company has been reaping benefits from the successful execution of initiatives to boost profitability, with focus on entry-level homes.

Overall, the Zacks Consensus Estimate for Homebuilding revenues of $2.78 billion suggests an increase of 24% on a year-over-year basis, courtesy of higher average selling price or ASP and deliveries. PulteGroup expects ASP within $430,000-$435,000, indicating an increase from $413,000 registered a year ago. It expects deliveries within 6,300-6,600 homes. At the midpoint, the guided range indicates an increase of 20% from 5,373 units in the year-ago period.

Meanwhile, the consensus mark for ASP is $433,000, which points to a 4.8% year-over-year improvement. For the quarter to be reported, the consensus mark for the number of homes closed is 6,454, which points to 20.1% year-over-year growth.

From the margin perspective, input cost inflation — especially lumber — and high costs associated with labor are expected to have weighed on margins to some extent. That said, higher leverage owing to solid demand across each of the buyer groups is expected to have mitigated the risks. As such, the company expects homebuilding gross margins to be 24.5% for the first quarter, indicating an improvement from 23.7% a year ago. SG&A expenses (as a percentage of home sales revenues) for the quarter are expected in the 10.5-10.9% range, indicating a decline from 11.9% a year ago.

Overall, higher sales and prices, improved deliveries along with improved operating leverage are expected to have benefited PulteGroup’s earnings and revenues in the first quarter.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for PulteGroup for the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: Its Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Martin Marietta Materials, Inc. MLM has an Earnings ESP of +2.88% and a Zacks Rank #3.

Masco Corporation MAS has an Earnings ESP of +6.76% and holds a Zacks Rank #3.

United Rentals, Inc. URI has an Earnings ESP of +6.27% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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