Factors Setting the Tone for PulteGroup (PHM) Q3 Earnings

PulteGroup Inc. PHM is scheduled to report third-quarter 2022 results on Oct 25, before the opening bell.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 5.8%, but revenues missed the same by 2.5%. Earnings and revenues increased 58.7% and 16.9% on a year-over-year basis, respectively.

It is to be noted that PHM surpassed earnings estimates in 21 of the trailing 23 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has decreased 1.1% to $2.76 from $2.79 per share over the past 60 days. Nonetheless, the estimated figure indicates a 51.7% increase from the year-ago earnings of $1.82 per share. Also, the consensus mark for revenues is $4.05 billion, suggesting 16.4% 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 Note

The U.S. housing market has been navigating through a challenging time comprising rising mortgage rates, continued supply-chain issues, material cost inflation and higher wages. Higher mortgage rates and higher home prices have been prompting for moderation in housing demand.

Nonetheless, PulteGroup has been reaping benefits from the successful execution of initiatives to boost profitability, with a focus on entry-level homes. The company’s earnings and revenues are expected to have increased in the third quarter, given a prudent land investment strategy, higher pricing and affordable product offerings.

However, unprecedented supply-chain challenges and labor shortages are likely to have created hurdles for builders to fulfill orders and deliveries, thereby impacting revenues and orders.

PulteGroup expects the closing of 7,000 - 7,400 homes for the third quarter, indicating an increase (considering the mid-point of the guided range) from 7,007 homes delivered a year ago. It expects a higher average selling price or ASP for the quarter in the range of $540,000-$550,000, suggesting an increase from $474,000 in the year-ago period.

Overall, the Zacks Consensus Estimate for Homebuilding revenues of $4.03 billion suggests an increase of 18.8% from $3.39 billion a year ago, courtesy of higher ASP.

From the margin perspective, input cost inflation and high costs associated with labor and transportation are expected to have weighed on margins to some extent. That said, higher pricing and prudent cost-saving efforts are likely to have mitigated the risks.

Given these cost price dynamics, the company expects homebuilding gross margins to expand to 30% for third-quarter 2022 from 26.5% reported in the year-ago period.

SG&A expenses (as a percentage of home sales revenues) for the quarter are expected to be in the 9.1-9.3% range. The figure was 9.6% a year ago.

Overall, higher prices and improved operating leverage, are expected to have benefited PulteGroup’s earnings and revenues in the third quarter amid continuous supply-chain woes.

What the Zacks Model Unveils

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: PHM has an Earnings ESP of 0.00%. 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.

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 on their respective quarters to be reported.

Eagle Materials Inc. EXP has an Earnings ESP of +1.40% and carries a Zacks Rank #3.

EXP’s earnings topped the consensus mark in three of the last four quarters but missed on the one occasion, with the average surprise being 3.9%.

Boise Cascade Company BCC has an Earnings ESP of +3.29% and a Zacks Rank #1.

BCC’s earnings topped the consensus mark in all the last four quarters, with the average being 27.1%. Earnings for the to-be-reported quarter are expected to increase 92.6% year over year.

KBR, Inc. KBR has an Earnings ESP of +1.60% and a Zacks Rank #3.

KBR’s earnings topped the consensus mark in all the last four quarters, with the average being 11.5%. Earnings for the to-be-reported quarter are expected to decline 1.6% year over year.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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