Pultegroup (PHM 26.32, -0.71, -2.63%) is leading
homebuilders lower after the company reported tepid fourth quarter results.
Fourth quarter adjusted earnings grew 31%, just above estimates. Revenue rose 6% as the average selling price (ASP) of homes grew 5% and deliveries grew 1%. While deliveries and the ASP came in toward the high end of guidance, adjusted gross margins were flat at 23.8%, toward the low end of guidance.
Just like peers have recently acknowledged, PulteGroup is willing to sacrifice gross margin to maintain a sales pace and drive net margins since affordability became a headwind in the back half of 2018.
Still, forward-looking net new orders fell 11% yr/yr in the fourth quarter. That represents a notable deterioration from 1% growth in the third quarter.
On the call, management noted that orders improved throughout the quarter but were still down 4% yr/yr in December. Traffic also improved throughout the quarter and into January.
However, limited visibility ahead of the Spring selling season means the company did not provide guidance for the year, which has become the industry norm in recent months. First quarter gross margin guidance was below estimates.
Management remains constructive on the housing market given positive overall fundamentals.
However, it seems that a slightly more cautious tone combined with the drop off in orders has spooked investors this morning. PHM stock has broken below its 50-day moving average, a level that had provided support since November.
Homebuilders have held up well on apparent optimism regarding improving traffic despite soft orders and limited visibility. The group has become somewhat more vulnerable until we see evidence that new home demand has improved into the Spring selling season, which is about to kick off.
PulteGroup trades ~1.5x book value and ~7x EPS estimates. The average for the group is ~1.3x and 8.0x, respectively.
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