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PulteGroup (PHM) Tops Earnings & Sales Yet Again in Q1

PulteGroup Inc. PHM surpassed the Zacks Consensus Estimate for both earnings and revenues in the first quarter of 2016, for the second quarter in a row.

First-quarter 2016 adjusted earnings of 24 cents per share surpassed the Zacks Consensus Estimate of 19 cents by 26.3%. Moreover, reported earnings increased 60% from the year-ago quarter figure of 15 cents on the back of higher home sales, and lower share count.

PulteGroup’s total revenue of $1.43 billion beat the Zacks Consensus Estimate of $1.36 billion by 5.2%. Revenues were also up 26.6% year over year as the company reported an increase in the number of homes delivered.

Quarter in Detail

The company conducts its operations through two primary business segments – Homebuilding and Financial Services.

PulteGroup’s Homebuilding revenues rose 26% year over year to $1.40 billion. The company stated that overall housing demand remained positive on the back of lower interest rates and a generally improving economic environment. The company also believes that demand will continue to increase, going forward.

Revenues from the Financial Services segment increased 30% year over year to $35.9 million.

Home sale revenues of $1.39 billion increased 27.5% year over year due to higher home closings. Land sale revenues of $2.5 million decreased from $17.5 million a year ago.

The number of homes closed increased 17% year over year to 3,945. Home closings increased in all operating regions of the company – Northeast, Southeast, Florida, Texas and West – except the Midwest.

During the fourth quarter, the company fulfilled expectations as it was successful in correcting the production delays of the previous quarters. Resource constraints, like labor shortages in many markets and difficult weather conditions in some markets in the first half of 2015, hurt home closings in the first three quarters of the 2015. Nonetheless, since the past two quarters, the company has managed to capitalize on its strong backlog and deliver the homes in its pipeline, which resulted in strong first-quarter results.

Average selling prices (ASP) of homes delivered was $353,000, up 9% year over year. Favorable housing market conditions drove sale prices. Also, strategic pricing initiatives led to higher ASPs. PulteGroup’s strategic pricing programs allow buyers to select the lots and options that they value most, resulting in increased selling prices.

The company’s backlog, which represents orders yet to be closed, was 8,755, up 15% year over year. Potential housing revenues from backlog increased 31% to $3.4 billion. Backlog value was driven by a 14% increase in average sales price of backlogs, which indicates a shift in mix towards move up products and inclusion of luxury homes in Wieland communities.  

New home orders increased 10% year over year to 5,652. Home orders increased in all operating regions, except Northeast. Value of new orders increased 24% year over year to $2.1 billion.

Margins soft

Home sales gross margin decreased 80 basis points (bps) year over year to 21.9%, owing to the Wieland asset purchase during the quarter.


Pulte’s management is positive about the housing demand and believes that the housing recovery is stable. The company believes that new home sales will continue to gain traction in the upcoming years, driven by stronger economy, improving employment  and wage trends, historically low interest rates, and limited supply of homes. The company expects to benefit from these economic trends, owing to its investment practices and focus on high return projects.   

Update on Management Dispute

The public battle between Pulte’s board of directors and founder and the largest shareholder, William J. Pulte continues to date. William J. Pulte demands that CEO Richard Dugas and Lead Director Jim Postl resign immediately on the ground of “PulteGroup's Value Destruction and Chronic Underperformance.” In a press release yesterday, Pulte revealed his intension to vote against all directors at annual meeting if Postl and Dugas do not tender their resignations immediately.

Pulte carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks include KB Home KBH, McDonald's Corp. MCD and Meritage Homes Corp. MTH. All three companies have a Zacks Rank #2 (Buy).

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PULTE GROUP ONC (PHM): Free Stock Analysis Report
KB HOME (KBH): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
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