It has been about a month since the last earnings report for PulteGroup (PHM). Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PulteGroup due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

PulteGroup (PHM) Q3 Earnings, Revenues Miss on Supply Chain Woes

PulteGroup Inc. reported third-quarter 2021 results, wherein earnings and revenues missed the Zacks Consensus Estimate, as major disruptions in the manufacture and supply of building products have been extending overall build cycles.

Nonetheless, both earnings and revenues grew year over year buoyed by solid demand trends and higher pricing. Ryan Marshall, president and chief executive officer of PulteGroup, highlighted, “Our strong operating results and resulting cash flow also allowed the Company to invest $1.1 billion in land acquisition and development in the quarter, while returning $261 million to our shareholders through share repurchases."

Inside the Headlines

Adjusted earnings per share came in at $1.82, missing the consensus mark of $1.83. Earnings grew 36% from $1.34 per share a year ago.

Total revenues of $3.48 billion missed the consensus mark of $3.52 billion, marking the third consecutive quarter of revenue miss. Revenues increased 17.7% from the year-ago figure of $2.95 billion.

Segment Discussion

PulteGroup primarily operates through two business segments — Homebuilding and Financial Services.

Revenues from the Homebuilding segment were up 18.9% year over year to $3.39 billion. Home sale revenues of $3.32 billion also improved 17.7% year over year, mainly due to higher deliveries and average price of homes closed. Land sale revenues improved 161.1% from a year ago to $63.1 million.

The number of homes closed increased 9% year over year to 7,007. Home closings grew across all operating regions served, barring West. The average selling price of homes delivered was $474,000, up 8% year over year.

Importantly, its backlog — which represents orders yet to be closed — was 19,845 units, up 32.6% year over year. In addition, potential housing revenues from backlog increased 56% from the prior-year quarter to $10.3 billion.

Yet, new home orders dropped 17% year over year to 6,796 units for the quarter due to lower community count. Home orders were down across all operating regions served. That said, value of new orders improved 4% from a year ago to $3.8 billion.

Margins

Home sales gross margin was up 200 basis points (bps) year over year to 26.5% for the quarter. Furthermore, operating margin expanded 200 bps to 16.9%, as adjusted homebuilding SG&A expenses (as a percentage of home sales revenues) remained unchanged year over year at 9.6%.

Revenues from the Financial Services segment declined 14.4% year over year to $91.5 million. Pretax income for the segment was down to $49 million from $64 million a year ago. Higher loan volumes were offset by a competitive pricing environment.

Financials

As of Sep 30, 2021, cash and cash equivalents were $1.57 billion, down from $1.66 billion at second quarter-end. Debt to total capital of 22.4% at third quarter-end was down from 22.7% at second quarter-end. In the quarter, the company repurchased 2% of outstanding shares for $261 million.

Q4 Guidance

PulteGroup expects closings of 8,500 homes, indicating 24% year-over-year growth at midpoint. It expects ASP for the quarter in the range of $485,000-$490,000, suggesting 10% growth from the year-ago period at midpoint. It expects gross margin for the third and fourth quarters to be 26.6% and 26.7%, respectively. This implies an increase of 160-170 bps year over year and 10-20 bps from third-quarter 2021. SG&A expenses — as a percentage of home sale revenues — are expected in the range of 8.9-9.2%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -6.32% due to these changes.

VGM Scores

Currently, PulteGroup has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PulteGroup has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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