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Pricing to Aid PulteGroup's (PHM) Homebuilding in Q4 Earnings

PulteGroup, Inc.’s PHM Homebuilding segment, accounting for more than 97% of total revenues, is expected to have registered growth, mainly attributable to higher housing prices. Consequently, the segment is likely to contribute to overall revenues when it reports fourth-quarter 2022 results on Jan 31.

PulteGroup has exhibited a solid performance over the past year, with the stock rising almost at par with the Zacks Building Products - Home Builders industry. It has been benefiting from its focus on entry-level buyers and liquidity protection, prudent management of cash flows and land investment strategy. However, accelerating mortgage rates and continuous supply-chain issues pose a concern.

Click here to know how the company’s overall Q4 performance is expected to be.

A Look at Q4 Segmental Performance

PulteGroup’s Homebuilding segment is expected to have registered growth, courtesy of a higher average selling price or ASP.

The Zacks Consensus Estimate for Homebuilding revenues of $4.52 billion suggests an increase of 6.1% on a year-over-year basis.

PulteGroup expects home deliveries to be 8,000, indicating a decline from 8,611 homes delivered a year ago. The decrease reflects the challenging sales environment, higher cancelation rates and the ongoing impact of Hurricane Ian on Florida operations. It expects a higher ASP for the quarter in the range of $560,000-$570,000, suggesting an increase from $490,000 in the year-ago period.

The consensus mark for ASP is $565,000, which points to a 15.3% year-over-year improvement. For the quarter to be reported, the consensus mark for the number of homes closed is 7,903, which points to an 8.2% year-over-year decrease.

A prudent land investment strategy and focus on entry-level buyers are expected to have benefited PulteGroup in the fourth quarter. However, rising mortgage rates might have impacted the demand for homes in the quarter, which is expected to have reflected in the quarterly sales as well as orders for homes.

Also, the company has been witnessing supply-chain challenges that are resulting in construction-related delays. The labor market tightened with the limited availability of labor, arresting the rapid growth in housing production. These headwinds might have impacted the upcoming results to some extent.

Nonetheless, higher pricing is expected to have mitigated the risks. As such, given these cost price dynamics, PHM expects homebuilding gross margins to expand 120 basis points to 28% for fourth-quarter 2022 from the year-ago period.

The company remains on track for full-year SG&A (as a percentage of home sales revenues) to be in the range of 9.2% to 9.5%.

Overall Q4 Earnings & Revenue Expectations

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is currently pegged at $2.88 per share, indicating 14.7% growth from the year-ago figure of $2.51. Also, the consensus mark for revenues is $4.60 billion, suggesting 5.6% year-over-year growth.

PulteGroup, a Zacks Rank #4 (Sell) company, surpassed earnings estimates in 21 of the trailing 24 quarters.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A Few Recent Construction Releases

D.R. Horton, Inc. DHI reported first-quarter fiscal 2023 (ended Dec 31, 2022) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.

Yet, on a year-over-year basis, DHI’s quarterly metrics declined due to prevailing softness in the market.

Fastenal Company FAST reported fourth-quarter 2022 results, wherein earnings and revenues topped the Zacks Consensus Estimate.

FAST’s quarterly revenues and earnings also improved on a year-over-year basis, given the strong demand in markets associated with industrial capital goods and commodities amid inflation for products, particularly fasteners and transportation services.

KB Home KBH reported lackluster results in fourth-quarter fiscal 2022 (ended Nov 30, 2022). Both the earnings and revenues lagged the Zacks Consensus Estimate.

On a year-over-year basis, both metrics increased on the back of measures undertaken to stimulate additional sales during the seasonally slower time frame.

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