PulteGroup reported first quarter earnings of $166.8 million or $0.59 per share, even with a year ago, but still well ahead of the consensus estimate. Revenues were just short of $2.0 billion, up 1.4% from the prior year. Unit closings were essentially flat – 4,635 vs. 4,626 – but the average selling price increased 1.9% to $421,000. Home sales revenues increased 2.0% to $1.95 billion, but land sales and other revenues and financial services revenues both declined.
Pulte’s gross margin (on home sales) slipped 20 bp to 23.4% and its SG&A expense ratio rose 40 bp to 13.0%. As a result, its operating margin fell 50 bp to 10.5%. Although its income before taxes – both for the homebuilding business and for the consolidated company – were down from last year, the share count was also down and so its EPS was flat.
Still, that was better than investors were expecting, so its share price gapped up slightly at the open and closed up 3.75% on the day at $31.35. This was generally a solid day for homebuilding stocks, with the SPDR S&P Homebuilders ETF closing up 1.14% on the day (4/23).
Pulte’s earnings release coincided with a solid report on new home sales. The Commerce Dept. reported that March new home sales were at a seasonally-adjusted annualized pace of 692,000 in March, the strongest pace since November 2017. New home sales have increased steadily in 2019, since bottoming out in December, helped by the decline in mortgage rates.
Pulte’s unit orders declined 6.0% in the 19Q1 quarter, but CEO Ryan Marshall reported that buyers have been steadily returning to the market, which is consistent with the national data and reports from other builders. Although the stock is up by more than 50% since its October bottom, it remains relatively cheap at less than 10 times projected 2019 earnings and with an enterprise value-to-EBITDA multiple of only 7.7 times. Assuming no negative surprises on interest rates or the economy, shares of Pulte and the rest of the homebuilders still have upside potential.
April 29, 2019
Stephen P. Percoco
Lark Research
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